Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170919

Crudes the january brent prices. Will we see another cut . Days, in the next two donald trump will speak to the assembl ons General Assembly. And we have janet yellen, fed chair speaking. Jonathan we are focusing on the annual u. N. Assembly where President Trump will make his first and biggest address to leaders around the world. President trump has already condemned the u. N. For its bureaucracy and management. President trump in recent years, the United Nations has not reached its full potential because of bureaucracy and mismanagement. While the United Nations on a regular budget has increased by 140 , and its staff has more than doubled since 2000, we are not seeing results in line with this investment. Jonathan im pleased to welcome a special guest, tony blair, former Prime Minister serving as leader of the labour party until 2007. Great to have you with us on the program. Tony thank you. Specific you have a knowledge of the workings of the u. N. Security council. How best to navigate the u. N. At the moment, what is your prescription . Tony find as much Common Ground as you can. There are differences between russia and china and the u. S. What the u. S. Is trying to do is probably the right thing, trying to keep all its options on the table and doing the right thing by diplomacy, but it will be working very hard behind the scenes with china. Jonathan how do you encourage the lights of china likes of china to come to the table in the way you want them to . Tony with china you have to reassure them you have no designs on the strategic nature of the Korean Peninsula. You have to persuade them that they also have an interest in ensuring north korea does not have nuclear capability. The chinese, from my discussions, also understand this is a highly unpredictable regime. I dont think the relations, they are not really relations attracted between those countries, but the chinese have enormous power and influence to move the conversation in the right direction. You have to work with the u. N. , keep all of the military options on the table, and you have got to try to work as hard as you can with the chinese for some common strategy. David what is a realistic and game . There is a lot of talk about the new glamorizing korea, den uclearizing north korea. Tony i think you have to go for that. This is a regime that is more unpredictable than any i can call. If you allow them to have that nuclear capability. You have injected into the region enormous uncertainty and danger. David the history of the north korean regime, have they ever changed their behavior in response to outside pressure . Tony they have occasionally. From time to time, they have reacted to pressure. It is not clear with this new leadership that still applies. People have found it hard to get a measure of this leadership, what do they want, where do they want to go. You have to remember, the north koreans, they are trying to create a situation where their regime is invincible and to reunite the peninsula on their terms. This is obviously unacceptable and contrary to the wishes of the people of south korea. This is why i said before your election last year, all the problems that will be most of over the new president , north korea is very hard because it is hard to see the solution to this problem. Jonathan lets take it further. Can we establish we are doing with a rational actor in north korea . Tony i think it is hard to establish that. I think people can assume there are things they will respond to in the right way, but this is part of the problem. A lot of things will be happening underneath the surface as well, which is right, but you are having to navigate every part of this with extraordinary sensitivity because you make an error, you make a wrong step, and consequences could be devastating. Has aoblem is north korea huge amount of conventional weaponry assembled on the border with south korea, which if triggered could cause devastation. About managing the situation the best you can and searching for the avenue that gives you the potential longterm solution. Alix you mentioned sensitivity, and that is not a word many associate with President Trump and how he has dealt with north korea. What is the value in the way he has been dealing with it, which seems to be more aggressive rhetoric, is that positive . Tony i think it just has to be measured all the time. There will be messages of diplomacy. There will be messages of almost reassurance, there has to be some message of strength because they have to understand the consequences. Jonathan the president of the United States today is not set to just outlined his plan on north korea, is also reportedly going to single out iran as well. Is it a mistake to engage with iran the way the president of the next states is . Tony i am not in favor of scrapping the nuclear deal. Whatever difficulties there are, it is in place. I spent a lot of time in the middle east. You have to realize there is constant destabilization going on from the Iranian Regime through their proxies like hezbollah. They are always trying to create instability across the region. What i think is important, and curiously, a lot of the areas i profoundly disagree with your present on Climate Change for example, in the middle east there is a real opportunity if there is a strong push back against iran and the region could be united against extremism whether of the variety promoted by iran or the variety promoted by the Muslim Brotherhood and other groups. David you have been involved in multinational organizations, some very successful, some less so like in the middle east. What did you learn from that that can inform us whether it is iran or north korea . What works and doesnt work . Tony what works is having a clear idea of your strategic objective. In north korea, you put your finger on it absolutely. It is denuclearization or containment. In the middle east it is the struggle against the politicization of his land islam, which is the most destructive thing in the region. The only good news at the moment is there are people in the region, the new leadership in saudi arabia, that want to work with the west and their allies in taking the region on a journey of modernization towards religious tolerance in society. Longterm, i think the middle east can resolve its issues, but you have to have a clear strategic objective. Jonathan as Prime Minister of the u. K. , you oversaw a relationship with the u. S. That is certainly different from the way things are now. Approached u. K. Has the European Union has changed radically. You know what it is like to deal with an unruly cabinet member. In your memoirs you said the best way to deal with gordon brown was to keep him inside the tent, and he was the best person for the job. If your foreign secretary was Boris Johnson, we do draw those same conclusions for Boris Johnson, best person for the job, and better inside the tent than outside . Tony he isnt. Thant is a different issue others is. It divides parties and families. Im opposed to brexit. I still hope we can ever from that course. Theresa may has to decide what she wants to do on her own internal affairs. What would you do . Tony if i was her right now, i would put before the british people what are the options in relation to brexit. What does it mean to be in the political structures and economic structures . What does it mean to be out of the political structures and still in the economic structures . What does it mean to have a hard brexit . Jonathan if you had an unruly cabinet member doing his own interviews and commenting on his own line of thoughts of how he would take exit, what would you do . Tony i would not be happy. I would probably be jonathan you would set him, wouldnt you . Look, i have a difficult enough time managing my own tenant when i was there, so i will not get on her back on managing him. There are plenty of other people in the cabinet who think the same as Boris Johnson. The difficulty i have is with his view, which is this idea that britain is going to crash out of your and become some low tax, deregulated, offshore hub of the continent. That is not going to happen. The risk we face is if we do this hard brexit, actually the economy will suffer. Public services will be under threat. You actually might end up in the government labor further to the left than any labor government has ever been. I would still like to see a more rational debate happen on brexit and if possible ever from the course we are on. Jonathan i never thought the threat of brexit was a labor government. Tony i am afraid i have been very right about this. You combine hard right populist with brexit and hard left labor government with a far left program, we will do some damage. David lets take some principles on brexit you would like to lay out. What are the most important, immigration, Free Movement of people, how important is that to the british people . And what happens with Financial Services . If we are to do brexit, i like to see us stay in the Single Market. We do two thirds of our trade with countries covered by trade Agreements Inside the Single Market or customs union. I think the Financial Services sector will find it hard otherwise to be active in europe in the way london is as a Financial Center at the moment. What we need to explain are the consequences of these different options. Last year people voted for brexit, but they did not know what the new relationship would be. My point is simple. I always use the analogy of the house swap. Last year we voted to swap our house. We have not seen the other place yet. I think before we take a final decision, we should at least go and look at it, look at the neighborhood and what will be left. Worth tow much is it the u. K. To remain in the end of market, and would you write a check . Tony we do write a check to europe as do the other major european countries. It is important to realize that these are primarily to help those countries that we brought into the European Union to progress. Polandmple, in 2004 when joined the European Union, britain had a trade with poland of 3 billion pounds a year. Today it is urging billion. We pay money it is 13 billion. We pay money, but it is bringing us trade. The u. K. Have made a decision that they want to have control over their immigration. That is not compatible with membership in the Single Market. You cannot argue against that. Tony it is important to understand the facts. Most immigration comes from outside of europe during we control that already. Immigration from within the european area, the majority of it we need. We need the high school people. We need the low skilled people. We need the students. If you add up these groups, we are getting out of the union to control our borders, but we already control most of our immigration. From within the European Union, when you break it down into categories, these people bring in a fit to our country. I think you can reform freedom of movement with the consent of europe to deal with the anxieties people have about this without getting out of the whole European Union. Alix what is the chance that we do not see brexit . Tony i should say to you that it is likely it happens. On the other hand, i have difficulty seeing how after the general election, which produced a hung parliament, this government is going to get its form of brexit through. I think there are a lot of labor mps and conservative mps that will oppose it. I think there is around 830 chance it will change. A 30 chance it will change. That will depend on the debate jonathan this year. Jonathan you have been very vocal about brexit, but you are also largely seen as one of the faces of the global, liberal elite. Do you think being vocal about brexit when many people voted against the likes of yourself and the views you hold, is that helpful . Tony it depends on how important you think the decision is. Lands on theit death of your country, you have a duty to stand up. When people talk about elites, there are elites in favor of brexit. The handful of people who control the rightwing media in the u k, they are not exactly regular joes. Lets leave aside the elites. There are 16 Million People voted to remain. They are not all elites. I may end up on the losing side of it, but i think it is so i am not going through the rest of my time without trying to say to people there is a different and better way. Jonathan thank you very much for your time. Coming up on the Program Later and tomorrow, 2 00 p. M. Eastern, the countdown to the fed continues. The latest analysis and reaction from former fed chair Michael Ingram and jeff from blackrock. That is at 7 30 in the city of london. This is bloomberg. Alix day one of eight today fed meeting. The n line is day fedof a two meeting. Will we see an adjustment lower for the end of 2017 . Guber. Us now is peter what is your expectation . Why do we care about 2018 . We have no idea who will be in these meetings. Good question. I think the fed will see some reduction in the dots. I dont think the meeting is going to change. It is too solid at the current expectation of three rate hikes next year. I think given the questions about inflation, the numbers have certainly helped, the threemonth average is where we want to become the six more than 12 month way below where they want to see it. Janet can be a little cautious in her commentary at the press conference, but she is not going to give any indication that there will be significant black isding backsliding, which distinctly more rate hikes next year. Alix how do you wind up factoring that into the markets . The question youre a sking is the right one. The question is will they be winding down the Balance Sheet in this press conference, and we are not talking about that. Alix they dig that. The markets are moving beyond that. I think that is the right question to ask. We are on the side of peter here. Within the indication the fed will give us will remain above or the market currently sees it. The implication is not that straightforward. We have been in this situation for a while. If they come down relative to where the fed is currently projecting them, the market might take this as a confirmation of where the market is currently price. The ultimate cap is important, but the relative gap. David is anything the fed says tomorrow likely to tighten or loosen financial conditions . Of course anything the fed says impacts markets. Decisions last few have not had much impact. One of the things i stress is if you look at where the curve is currently priced, it has a lot to do with inflation expectation. We have heard the latest trends where some are encouraging. We have to see where that part of the global yield curve and the u. S. Yield curve is moving along. We think there is a good chance the breakevens can widen. Whether this comes out of this meeting are not is the question. Alix you cannot rule out wages. That brings us to the unemployment rate. The white line is u3. The orange line is expectations. Impliesically productivity really picks up. If it doesnt, what does nehru have to get to . Is a combination of labor continuingcipation to rise and unemployment. There is a sign Labor Force Participation is beginning to trend down. The secular downturn is pretty strong. If we get to a downtrend of labor force anticipation, and we dont see a substantial bounce in productivity, we will be well into the 3s in unemployment next year. The fed does level it off that 4. 2 as their low. That is an optimistic assumption. I think the chances of us getting well below that are quite good. If Wage Inflation has been slow to pick up, but it will eventually get there. History has shown it every time in the past. When you go well below nehru, you see inflation. David this is not set by the fed. It is an estimation. What happens if this is lower than we think it is . In all fairness it has been declining. Chances are we might see it slide to 4. 5. We are at 4. 4. We are not going to go into 3s on nairu. This is as low as we have seen it historically. There is a possibility that internet pricing and more information has made the job market more efficient, and maybe you can reduce nairu a bit below historical locals, but to get into the threes would be tough. Jonathan why do i care about what janet yellen things about anything beyond five months . There are several vacancies that will be on the board as well. We have no idea what direction the president of the United States wants to take the Federal Reserve in. We have conversations that have implications for four or five years out, but the next five months are critical for the composition of the fed. That is true, but one of the things we should recognize is that one of the things that goes into the decision at the end of the day that the Committee Makes , a lot of the thinking behind the scenes is not going to change wholesale overnight even if a new chair were to come in. Important if you believe that the institution of the fed believes in the contract of the phillips curve, and if unemployment is low enough it triggers Wage Inflation. That is not going to necessarily change. If i may say that as a market person a little tongueincheek, all the names that have been handed around as alternatives tend to be people who are on the hawkish side anyway. If anything, that thinking prevails, and it will probably be exacerbated. Both of you will stay with us. Coming up, an exclusive interview with bob steel. Live from new york, 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 this is bloomberg daybreak. Marginally positive and a record high for a close on the second day with the s p 500. In europe, if you break down the stoxx 600, the bestperforming sector was retail in the face of a retail bank change. Well get to that story a little later. In the bond market, this is what it looks like. Two weeks ago we had 2016 lows. We have had a 20 basis point move it since then. Market, the euro was positive by a 10th of 1 . That is the fx story. Lets get headlines outside of the markets. The caribbean islands are bracing to be hit by a hurricane. Maria has become a category five storm. It has caused widespread damage already. The National Hurricane center says it is headed for the u. S. Virgin islands the british islands and printer rico. Puerto rico. Some communications prompted concern that Paul Manafort russian involvement in the election. The New York Times special counsel has told manafort they played to indict him. Manafort is not commenting. President trump will call on the north korea. Out he will end the size the danger caused by north korea and iran is too great for any country to stay on the sidelines. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. David the Bloomberg Global Business Forum kicks off tomorrow bringing together colleagues in business and finance. Joining us is a cali will be a part of that. He is bob steele. Bob it is great to be with you. Eric global leaders, including yourself will be a part of this. The form intends to address most pressing challenges confronting the economy and prosperity around the world. I would like to know as a ceo and global leader, what concerns you most . Bob what mayor bloomberg is doing is bringing together the different perspectives to try to address the key important issues. Thatve important issues are best solved by all three groups coming together, government leaders, Business Leaders, and ngos. It is inclusive growth across our country and the world or it is focusing on issues like climate. It is right to have all perspectives in the room and the right person to be clinking the glass is mike bloomberg. Those ared you say the two most important issues whether it be in america or elsewhere with climate chains Climate Change . Where theve an issue average is not the right description. On average, things might look good, but there are a large number of citizens who are not doing as well as we would like. We need to get the right Public Policies combined with knowledge and business and ngos to think about the right way to solve the issues. They have to have inclusive growth. Concessions enough erik do think that there is business consensus among leaders . Bob i think they except the idea that inclusive growth is required and morally correct. I believe Business Leaders are interested in working with government to whether it is Public Policy issues on training or issues and things like that, and also figuring out a safety net as we work through the transition. Transition period. Changes we have had changes to a knowledge economy. Do we have the right skills so that workers can be successful . Erik lets talk about that knowledge and information. Flagged of ceos have technology and its power to change jobs. We have been told that technology such as artificial could knocked out 30 of jobs especially in banking. Bob that seems to be a bit dramatic. I am not an expert. There is no question that the rate of change is accelerated hearing we learned in kelsey it calculus that and that businesses have to change their Business Models been whether is it amazon and whole foods and all of these types of things going on. Business models are changing and finance is no different. We will have to see. I am a bit more optimistic we will creep new opportunities that are a bit unknown today, and that is how i think about it. Erik how will your did and business be different five years from now . Bob we are a professional Services Company and we are providing advice and two companies. The goal is to help companies be successful. What you said is what companies are interested in. When i started in business, technology was seen as a vertical. People apply technology and issue. The vertical has been knocked over and technology is a horizontal going across all the businesses. People want to talk about that, and that is what we are trying to do. We had a former colleague from Goldman Sachs join us who has been a Software Analyst and knows the industry better than anyone. What he is helping us do is work with all clients to talk about how this is changing their business model. Erik we have a big football in the Energy Business do you anticipate doing more deals and increase its footprint . Bob lets take a recount. We combined last year. This was a firm that started about the same time as our firm did and focused on energy and all types of energy in both advisory and asset management. Putting professional Services Together is complicated. The good news is that bobby pickeringwe knew dan and we knew culture worked perfectly. On the business side, energy was an opportunity for us to improve. Going forward, we will consider things like this but we did not wake up saying this was the way we wanted to grow. It requires a fit and someone who is comfortable. In business management, that gave you 13 billion in assets. That is tiny in an industry that nowadays values skill above anything else. How do you compete . Bob we have been in business for 12 years be we have 13 billion. And expandingwing our business. We are doing things that are more skillbased. We like to think whether it is growth, private equity or endowments to outsource business. Likef the things we feel our 13 billion is a good start and we would like to grow more energy now. We have the skills now. Matter of stepbystep continuing to grow. The key focus is the success of our clients and investing results. Erik people want to know how long it is going to be before perella goes public . The firm 12arted years ago and have put it on a great arc. Our capital structure is not important to our business model. Our goal is, how do we serve our clients . Our goal is to focus on our clients. We are certainly at the scale and size where we are similar to Many Companies who have gone public. If that is the right thing to do, we will get in line. If it is not, we have choices to organize. Erik it is not a priority . Odd that. Erik i will see you more. That is bob steele playing an Important Role at the gathering tomorrow at the Global Business forum. As you commute in today, youll want to tune in. Youll listen to bloomberg surveillance. You can listen on sirius xm radio. This is bloomberg. Taylor the green room. Coming up in the next hour, Michael Ingram. His is Bloomberg Taylor out to the Bloomberg Business fashion. Flash. At the facts learned five months eqifaxr than at what learned five months before they announced. River capital is closing a hedge fund because of client withdraws according to people familiar with the matter. That will take it below 3 million. The Pine River Fund has suffered from years of lackluster performance. Toyota is trying to jazz up its image. It is introducing a highperformance line. Toyota has lamented that the cars areent wellmade but boring to dry. That is the is this bloomberg flash. Alix if you have that color, does it make you cool . Jonathan President Trump will call out north korea. He makes his first address to United Nations this morning. Former Prime Minister tony blair said he is worried about north korea and has been for quite some time. Tony i said that all of the problems that of all of the problems, north korea is very hot. Is peter still with us schaffrik. For markets, what is this . For thet is a nonevent markets. In the face of high uncertainty, korea is near the top of many peoples risk list. It is a very low level of risk. The level that happens is low probability. At this point, the assumption is rational thinking will prevail and diplomacy will be able to handle the issue. It is certainly an uncertainty. Jonathan this is something the now andakes notice of then. Is that what helped get down 2 . Peter i would slightly disagree. In the short run, it has had an impact. Obviously the market spikes. In the mediumterm, what it is looking at is it is an issue that does not go away and takes up a huge amount of resources from various administrations around the world. That might take away the resources from other things the market would like to see. Therefore, you are absolutely right, it is one of the reasons that helped us get treasury yields down to those levels. Alix on the foot side, you have ukraine back since 2014. Billion. Ed to raise 3 that conflicts with that. You have to manage the risk that you cant quantify. Again, there are two elements to this. In an environment where the risk free ask us risk free assets are yielding low, and he spread you are getting has more demand. You see that across the globe and in europe. The point i was trying to make is that if you have a huge event or problem that grabs the attention of investors and administrations, it means that some of the other things markets would like to see gets push further back. Peter huber, peter chef rick says there are the things that we want to see. Schaffrikooper, peter says there are things that we want to see. There are tax cuts being pumped into an economy here we have growth going on. Is that going to be good for the markets, or could there be a danger that the fed would overreact . Peter the going assumption is that if we get anything on the tax run, it will be relatively small and not have much of an impact. If we were to get a train dollar or bigger package, yes, it would deftly be the wrong time. Unemployment is at maximum use of resources right now. So far, Wage Inflation and Price Inflation are quiet. Significantly further with other factors likely tightening the labor market, the risk of a real push upward certainly is exacerbated. Yes, the fed would be more aggressive. Peter made a good point earlier , if it had new leadership, it is a committee. It is a Large Committee and the new chairman coming and will not be able to change things quickly. There will be a lot of a momentum behind the notion that you need to deal with and inflation problem next year if it crops up. David is that just one person . You could have five new people. Peter one of them will be vice chair in charge of regulation. Ne be a somewhat noted hawk a third will be a community banker. Departing opens another seat. You have 12 president s and five for voting. You have a least a couple members who will be staying on. Alix from a market perspective, what has more ambiguity . Peter that is a difficult one. I guess it is probably the tax reform thing. Alix more ambiguity . Iser the market assumption when the fed chair comes in at the end of the day, we will get higher Interest Rates anyway. It depends on how speedy that will be. Alix what is the base for tax reform russian mark reform . Peter we dont have a base assumption here. We factor the changes to regulatory change and tax change and factor them in as they come. Doner, we think we have the right thing. Alix thank you very much. Would you be interested in the spot, peter huber hooper . Peter it would be an interesting job. My politics may not be quite conservative enough for that. I will bow out. Jonathan there is a story in that in and of itself. Alix i dont think right now. Much. You so both of you are staying with us. If you have bloomberg terminal, tech out check out tv are you can interact with us. You can scroll down and rewatch a segment you have missed. This is bloomberg. Mortar wasrick and down yesterday. A chain has been pressured by online competition and crushed by billions in debt. It ultimately resulted in chapter 11 filing. This occurred at toys r us. Joining us is Bloomberg Intelligence, no hubert no hubert. Open up that chart. I have a question, why did no one see this coming . The reason no one saw it coming is that it did not necessarily need to happen. It was a hiring of an association to restructuring and that caused fear within the vendor community. As you may know, the Retail Sector is really about being able to work with vendors and about Holiday Season for toys r us and making sure yard able to do that with payables sure you are able to do that with payables. A companyt tough for to diversify. Made a comee brand back even though they went through bankruptcy. They may not disappear. Do we think that amazon killed toys r us or that the bio back in 2005 killed toys r us cousin they drowned in their eight eight buyout in 2005 killed toys r us . It is interesting to note that toys r us wasnt early partner of amazon back in 2006 and 2007. Toys r us has a great opportunity to be a best buyer of their sect. Sector. The problem is they never developed the infrastructure. Part of the reason why they dont have infrastructure is all the debt servicing cost prohibited them. They needed to build the business for the future. Look what theke a debt looks like. If you come into the bloomberg, it shows the purple is total capital. This huge blue bar is unsecured bonds and it outpaces total capital. You have debt at seven times. How does this shake out over the next 12 to 18 months . They are hoping it will be quicker than 12 to 18. It is going to get complicated because you have debt scattered across different pieces. You have Holding Companies and an empty tea and a prep and a property company. They will all be fighting for residual value. It will get convoluted here. At the end of the day, what you end up with is a slightly smaller retailer. I do not see them closing a ton of stores out of this. Internationally, those are not part of the filing internationally, those are not part of the filing. Restructure, could they have a lot of debt holders. If they could restructure, they have a lot of debt holders. If they clean up, what do have in toys r us . Is it a good company . The canadian operation is healthy. The International Operations are healthy. You have strong intellectual property with the toys r us brand. Domestically, you have babies r us which is a problem. Jonathan it is still a viable business. Very much. From new york, the coverage continues. You are watching bloomberg. Bloomberg television is brought to you by invesco, who asks why invest in average . Jonathan the president of the United States is going to call on countries to address north korea and iran. The era of amazon seems to claim in other retail victim. Toys r us files for bankruptcy. From new york city, good morning. A warm welcome to bloomberg daybreak paradigm Jonathan Ferro with david westin and alix steel. Opening bell 90 minutes away. Friday was an alltime high. This tuesday, will be added to the gains . The euro dollar positive. We inch high by 1. 6 . Treasury has had a turnaround over the last few weeks. It is a low for 2017. 2. 22 on a 10 year in a space of just two weeks. Alix despite the fact that Investor Confidence popped, it is down 1 10 of 1 . You have the gold and fix relatively flat. I am looking vix relatively flat. Time now for the morning news. Two big events. A. M. , sometime after 9 00 President Donald Trump will speak to the uns General Assembly. It is day one of a twoday fed meeting. We will get the announcement tomorrow and that will be withwed by a conference janet yellen at 2 30. That is your morning brief. The main event is President Trump talking to the u. N. Hell talk about north korea and iran about nuclear weapons. He will talk about the danger caused by north korea and iran which is too great. Joining us now from what to expect is bloomberg Senior Executive editor, marty shanker. I want to start by reading the leads out of the ftn. Trumptreet journal says, to push nationalist policy and first u. N. Address. I have never seen before verbatim headlines from the two. Marty maybe they were sitting next to each other at the briefing. What is the big deal with the nationalist . U. S. Is wrong with the presence thing to the United Nations that we want what is good for our country . Marty one of the things President Trump is going to try to do is America First is actually good for the world and not a bad thing. Calling for a united front against iran and north korea is a global message. David will he talked to people who will listen, china, russia . Marty it is a really good point. The General Assembly is light on leadership. Merkel is not there. Putin is not there. Is still a starstudded audience, but the superstars are not there. They will listen respectfully. The question is, will he call out any of the nations . Pecifically fo david he has been provocative in the past. Is there an upside for him . He has gone so far in being provocative, but when he is less provocative do they fall in love with him . Marty he is reaching out to democrats in his latest move. I think a strident tone would not keep with that. I would suspect he would be more , dare i say mainstream, in his speech today. Jonathan marty shanker, appreciate your time. The s p 500 had yet another alltime high. Bond yields continue to grind higher. Six andhad five of the they are looking for clues on geopolitics following the president of the United States speech to the United Nations. An stanley had a what do we see today . It seems as though john kerry is having an impact on how general kelly is having an impact on how President Trump response to the rest of the world. Hem wont i wont say isnt going to go off piece, but he is getting favorable reactions to the new demeanor. If anything, President Trump is acceptable to flattery. He is probably getting cozy. To see be interesting how he balances this nationalist agenda and what happens at the end of the day. He said on the campaign trail nato was obsolete. Now he says it is no longer obsolete. If the push on the United Nations reform will be a part of his address later on today, are we going to see that . Forhe one thing we know sure is that donald trump gives good television. Will it affect the real world in terms of markets, investors, and businesses . Becomehe market has desensitized to Donald Trumps. Witter antics we have seen the occasional panic attack in markets, but it died down and if you look at virtually all indicators of market risk, in terms of volatility across asset, it looks good. Alix talk about the 10 year. How much of the yield we see is due to any safe haven . Michael when we got to 2 , we had 15 percent to 20 15 to 20 basis points. The majority of that has come out. Ijust returned from asia and have to say investors were more worried about the north korea situation than i have seen in my life. I lived there for 10 years. Jonathan talk about that. Asiaally people outside of , think theyve seen it before. What has changed . Matt we have a response from the administration. The back and forth is new. It is a new element to this dynamic. When any country has missiles flying overhead, it has to put a different perspective to the way you think about things. Ultimately, we wish for the best. Investors are definitely nervous more nervous than i have seen in my career. Alix is the 10 year and appropriate safe haven or is there a better indicator . Matt it is one of the most liquid in the marketplace. Alix in theory, you would say why go by the end because it is the same issue . Matt it comes down to liquidity and where investors feel safe. The treasury market is where of the best places to go. Do you agree that the continued role of the u. S. Treasury is a safe haven . After Donald Trumps election, some said it was less stable and it was unexpected. Doesnt undermine the role of the u. S. Tenure . I think it has more competition than it had a few years ago. It is a broader narrative. There is a rehabilitation of the eurozone. What a difference 15 months makes. We were talking about an existential crisis in the European Union, and now it is everybodys favorite place to invest. We have seen structural underweight short positioning. It is slightly overdone. You are getting a different conversation around the eurozone. That has to play a part in asermining the u. S. Currency a bond market as a safe haven. Jonathan the idea we have lost the u. S. Treasury market, it comes down to one thing. It comes down to liquidity. That is about it, right . It is not going anywhere soon. It ultimately comes down to where can investors find securities to put their money. The u. S. Treasury market obviously has more outstanding securities available in the private marketplace. In that context, you will still go to the treasury market when you are looking for an asset that provides a safe haven. The treasury market remains king. Alix Michael Ingram and matt hornbeck, both of you are sticking with us. Coming up, i have an exclusive interview. We have some very interesting reasons this is bloomberg. This is bloomberg. Cakes day one of the twoday meeting with the Central Banks latest decision. The fed it kicks off day one of the twoday meeting with the Central Banks latest decision. Janet yellen will give a news conference. We will find out what is going on. We have the green line here where the fed is and you have the line where the market is which is the white line. Hornbeckngham and matt are here. Revisionwhat kind of do you expect we will see tomorrow . Michael we might see a small shift. If you look at how the leadin is put together, the bar is high to take the third hike off the table for december. I think economists are somewhat more construct give on a rate hike. We may well see a shift going into 2018. It could well be that we see the first hike implied for march of next year and a shifting back maybe to june. We could see a further trimming of the longterm Interest Rate from 3 . Alix matt, i want to pick up on the longterm. You had a chart and we recreated on the bloomberg. Do you see and why is the cap so significant . Matt i would not characterize the gap as significant. The market is a generally more volatile than the fed is when you think about the long run. What you see is that there is risk premium on the back end of the curve relative to large in 2013 weat we saw also saw a big Market Reaction in the wake of the president ial election. Every time we had big moves higher in yield, it got to 70 or 75 basis point. Now we are sitting 20 basis points above it. If the fed it lowers the longer run, it will make the long end of the yield curve look more attractive to investors. From my perspective, the risk to the backing is that end of the curve comes down and it does not come that many. It only takes two. In the long run to come down to shift the longer run rate from 3 down to 2. 75 . 140 basis points. How much will he get . How muchdepends on they want to raise rates. If the Federal Reserve continues to hike Interest Rates with integration inflation trading below the target, the yield curve will flatten. Jonathan it is a counterintuitive approach. One of the stories in the bloomberg is about how treasuries will react. From a demand to standpoint, it should mean high yields. Counterintuitive suggests something else. Inflationerated expectations so bonds pushed yields higher and when qe stopped, the yield rolled over. Forget the demand supply, am i going to see an adjustment in Inflation Expectations that mean curvedemand and a yield off the back . Matt as the Balance Sheet reduces, investors will take a look at what is happening with inflation. The fed is focused on this and so are investors. Investors are saying if you hike Interest Rates, with inflation 50 points below emma we will buy treasury. Alix fair point. The risk is do they cause a recession . Most would say that is a long time off. It was set on Bloomberg Radio that it maybe closer than we think. Here is what he had to say. Wo to two and a half years out from the next recession. By the time we get to late 2019, will have shortterm rates high enough that it will start meaningfully impacting cash flows in Corporate America and that is the event that will lead to the recession. Alix michael, do you agree . Michael . What of it self, i wouldnt disagree. What worries me is the fact that you are still not seeing much andth in terms of incomes ultimately that will keep the investment consumption cycle going. Issues is notader how monetary, but fiscal policy in Donald Trumps economy and what they may have to play. A play that there is a shift in taxes and everyone goes on as ending spree. David there are reports of that among republicans there is serious talk about their 2 trillion in tax cuts coming through. They want to get growth going. If that happened, what would that do to the fed and their optionality . On a net basis, up to this point, i will try to work out how the switch to gop would wear down. It would raise issues about debt sustainability. Revenue neutral unless you believe it will pump up growth. If you look at the data, not just in the u. S. But a broad range of economies, there has not been a relationship between Corporate Tax and investment, especially at the low end. When you factor in deductions, the tax burden in corporate u. S. Is not particularly high. It is in the middle of the range. Do . Do consumers. Hey think it is unsustainable it could be very good. Asuspect we might have reprieve of what we have already companiesh is increased distribution. Financial assets rally, but the productive capacity of the u. S. Economy does not grow. Productivity will remain low and to get back to the original question, what you have is an inflationary event and not something that produces Sustainable Growth rate. David met about an Michael Ingram Matthew Hornbach and Michael Ingram will both be staying with us. We will be joined in new york. This is bloomberg. Taylor this is bloomberg daybreak. Right eight. Ying. Hey have been right aid walgreen will pay 4. 4 billion for more than 1900 right aid stores in three distribution centers. At th equifax new of the breach five months before they announced it. It affected 143 million americans. A person familiar with the matter said the breaches involving same hackers. It was once a go to store for nowions of americans, and toys r us has filed for bankruptcy. It is the latest chain to fall to online competition. It is borrowing from lenders so it can keep restructuring. David for more on the toys r bankruptcy,see we are joined from washington and Michael Ingram is here with us. Caused the temporary demise of toys r us . Sarah some are just structural things we are seeing across the entire retail industry. Retailers are struggling to survive. There are things that were specific to toys r us. They took on a lot of debt once they had private Equity Ownership and that has made things tough. There is also fierce price competition from toys and babies from amazon and also walmart and target. David talk about the private equity role. It is not just toys r us. Is it a positive or a negative thing . We hear they are going to restructure. It did not work out that way. Company isindividual different. Similar situations in j. Crew and their finances are in tough shape. Ay retailer considering private equity buyout should consider that carefully. Have to investors also consider that the debt it toys r us was trading at . 19 on the dollar. Will investors look elsewhere in . Etail sara what we have been seeing is that retailers, if they sneeze, there stock is affected. Said they would lower prices and it has been telegraphing that for weeks and months and its stock was still hit from that, simply because people thought, is it because they are in distress. Investors will be looking for lots of different signs that other retailers may be in a similar boat. Taylor lets take a look at this. In atn see we talk coming 5. 74 . What kind of leverage is in the corporate system . When does it become a material risk . Here isld say the issue possibly recession coming in the two to two and a half years. I look for where there has been the biggest build of debt. In the United States, it has been on corporate Balance Sheet. The question is, when do these corporations have to refinance . At what levels will they have to refinance and will it eat into their Corporate Finance . How do they decide to move forward with payroll growth . At some point, if financing costs rise, and adam richman in the investment category is very this point. T at we are up in quality by a spirit we think corporate debt is priced much to tight relative to the amount of leverage. Jonathan we will continue covering this. Sticking with us, coming up tomorrow, it is a special fed coverage right here on bloomberg tv. And also on Bloomberg Radio. This is bloomberg. Jonathan from new york city, i am Jonathan Ferro. Up to speed on the stories. Monday, the s p 500 looking at futures. On the doubt, a series of all dow, a series of all time highs. The story in the bond market, yields lower above 2 . Now at 222. In the fx, dollar showing a little bit of weakness. 117 just as the data comes through in the United States. At 0. 8 . Ng act 0 the previous month revised higher. The estimates today was positive. That is slightly disappointed. The previous month revised upwards. Building permits, that comes in really strong. The estimate was 0. 8 . The previous number revised higher from negative 4. 1 . That is the building housing permits. When you look at permit prices, that is positive or 0. 06 for export prices month on month, the equitation 0. 2 . Mixed maybe the word for alix what can you take seriously after hit by hurricanes . And matt horbach. What is real . How long before we wait for real numbers . Probably months. I think the broadbrush has been the u. S. Economy is growing in a 2. 25 andridor to that is what is in the consistence forecast for the whole of this year and has not really budged in either year. Unless with the tangible evidence of a significant fiscal stimulus or indeed a radically different monetary or Interest Rate outlook, i do not see how it will change. Alix what do you make of the import export numbers . We have been waiting for the weaker dollar and that has not happened. The reflation in story and china has not tripled. Will it or a new template . I think people are looking at the wrong inflation numbers. A lot people look at the headline numbers but we look deeper underneath the surface and what we see is not as supportive of higher inflation in the u. S. As you might think. You need to look at consumer numbers, ppi in china. Although it is picked up, it is well below the headline figures. With respect to these import export numbers, you want to look at chinese import prices and not just headlines. I go to the tables on the bloomberg terminal and that is what i would be looking at. I cannot see them now but that is what i would be focused on. Alix michael, when you say the economic growth, you say months and months to get a clean read, write . How do you right . How will be said interpret data point like this fed interpret data point like this . Quite carefully and i would night be surprised if there was a repeat of the inflation coming in and slightly more supportive cpi numbers a few days ago. Er than that, the court core is way off the market and they have kind of double down in terms of Wage Inflation will pick up in terms of pretty much committing to Balance Sheet reductions from the next month and in terms of sticking with that dot plot. It is going to be couched, i am sure. I am looking forward to the minutes of over three weeks time where i will probably see more evidence from the fomc. Alix we see Interest Rates from china down year on year. There you go. Jonathan you almost predicted what was on the table. The fed, we do not know who is run it. The data is not predictable, what do you do . A great question. Investors had completely abandon the treasury market. When you look at the longterm. M dots, it is a difficult market to be underway to duration. It has had a great run this year. The 30 year treasury bond is up almost 9 . What is not to love about that . Matthew and Matt Hornbach staying with us. We will turn to when the hottest areas and that is media and telecommunications. megadeals like at t to buy time warner and discoverys purchase of scripps. To tell us why media m a is so hot is a man involved in both, fred turpins global head and jpmorgan. Welcome to the program. Thank you for having me. David i want to start, a track of m a in media and telecommunications and tells an interesting story. The green line is the number of deals, starting back in 2007 to the present. The numbers have gone down. The blue is the magnitude which has gone up. It is a lumpy market and includes 2016, at t time warner deal. It has been one of the most dynamic teedos periods because of the industry winners and they have realized they are in the same business which is consumer broadband and the level of convergence has been unprecedented. The Smallest Company is close to 50 billion. This is not small ball. And the number of rumors about deals that might happen has been unprecedented in my career. It is constructive to look at some of the deals that have happened and what do they say about where the industry is going . David let us do that. Let us know at discovery. Two content Companies Getting together and a larger content company but relatively modest compared to others youre talking about. Fred turpin perhaps a more traditional deal, two content deals but different than once in the past. The focus is nonfictional and lifestyle programming. When you think about a world where content is distributed with a much more Consumer Choice over internet or cable, the ability to control or have a particular consumer demographic will be more important than ever before. It allows discovery to enhance his position from scale and nonfiction lifestyle. David they are depend on other people to distribute . Fred turpin it is but it is getting broader and broader and there are more choices than ever. Alix moving on to technology and the big m a, greg, the cohead at Goldman Sachs and he has interesting things to say about the big guys. There are two places i would be most focus on Telecommunications Sector and technology. You have the Biggest Companies of by market cap and was a massive face of values, google, apple, have not been purchased is in big m a. Amazon didnt interesting transaction on smart foods whole foods and they can go in Different Directions to get active a you can see big transactions. A media telecom, probably eight Telecom Cable Wireless Companies in the u. S. All eyeing each other looking to consolidate and you can see that turned it down to 5, 4, or three. Alix i like how he handled the media part. We are used to seeing small ad on it deals. Will we see the big guys making big acquisitions . I think the Communications Companies you referred to. In the at t transaction, you see an example. Five years ago, we wouldve billion onnding 1 content would be unusual and today, it does not seem like that. Maintainmportant is to consumer engagement. To the extent at t can leverage across wireless distribution, it gets its more opportunity to engage with customers and be more relevant in at the same way google and facebook and other companies that gregg mentioned. Alix where is your pipeline strongest . Fred turpin it is as busy as it has ever been. We are seeing Strategic Dialogue and thats probably unprecedented in my career. The challenge is sometimes it is more smoke and fire and the media always has a new rumor. The challenge that we have and mentioned, if theyre 15 companies to determine the future of broadband in america, the smallest is 50 billion. More than half controlled by a founder ceo. These are folks who have been massive winners in this game of 20 years. Or if you can become a cool will wake up and say i am willing to do a deal with you and a step back and let you run the combined company, if you tell me one of the ceos them in the choice, it would be easy to figure out what is going on. That is hard. David where will we end up . Will we end up with five companies controlling all of media . Fred turpin it is hard to predict and that is part of the excitement. Any time a Company Makes a move, it changes the shape for everybody else. Everybody has to respond competitively. Most of the companies not just focused on scale on content until at t made the deal with time warner. Everybody in the distribution Business Needs to think about how they will respond. Jonathan fred turpin, thank you for your time. An update on what is making headlines. Reports that u. S. Investigators wiretapped holloman afford. Wiretapped paul mana fort. Afort. Manafort is not responding. John mccain says he is not a backing a bill. Republicans have until the end of the month to pass a bill or it could be subject to a filibuster. Boris johnson is not backing down with the dispute over brexit with Prime Minister theresa may. Johnson is leaving open the possibility he may quit in protest the way mays handling the departure. 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. David . David thank you. As you commute today, you can listen to our colleagues tom keene and david gura on Bloomberg Radio. States on the united a serious xm radio. Coming up this weekend, we will bring you live coverage of the Germany Election results with bloombergs max miller in berlin. That is sunday, 11 30 a. M. Eastern time. This is bloomberg. Alix this is taylor this is bloomberg daybreak. Coming up, roger randall, president and ceo. To your Bloomberg Business flash. Jefferies group is adding to the trading woes on wall street. They said it sank in the three months since august and the lowest in a three quarters for you in three quarters. May make age major change to its auto industry. The Chinese Government is considering a plan to let for that foreigns carmakers set of business according to Company Officials briefed on the matter. Currently, for carmakers must venture with chinese carmakers. A german conglomerate has asked lawmakers to extend the deadline for the review. Theyve got approval from more than 1 3 of the 30 regulators. That is your Bloomberg Business flash for you jonathan thank you. Earlier, was sat down with the former u. K. Prime minister and he warned about a hard brexit. The risk that we face, if we do the hard brexit, the economy will suffer. Public services will be under threat. And you might end up in the u. K. With a labor government frankly further to the left the any Labour Government has been. Jonathan i never thought i would see tony blair warning the Labour Government. Labourit is not his new but the old labour. Jonathan extreme left. Michael ingrams and Matt Hornbach. Boris johnson will resign if theresa may ignore his demands. A one oft demands of them is essentially he does not want her to pay for access to the eu Single Market for Single Market. If Boris Johnson resigns, is it positive sterling in a nuanced way . Less pressure on Prime Minister may to go through a hard brexit and a little bit more wilderness to find a longer transaction, is that what the story means . Michael ingram i think it is easy to put a positive been on sterling and it has a tail wind right now. It is not entirely clear how much support Boris Johnson has within the conservative party for a hard brexit alternative. Quite interesting to point out clearly did not feel the need a backup Boris Johnson. I am not sure what boris is thinking because theres no way he could release this 4200 word essay and inspect any other and expect and other reaction except for massive pushback from theresa may. Not only will she be given this address but facing the conference next week. Yeah, interesting times. Somebody mentioned game of thrones, the were seeing that played out for you jonathan i do not want to reduce the whole brexit discussion to lawrence johnson, Boris Johnson, is it an individual you would want to keep because if it goes to the back bench, it will cause a lot of trouble. If you are theresa may, do you need to keep your cabinet together . Michael ingram i think that was the original plan and dividing the portfolio was part of if you like keeping him but marginalizing his role on the front bench. I think, he has overreached himself now. Unlikelyay, it is despite provocations to the contrary she will be fighting in the next general election, whenever it might be. I do not think anybodys chomping to take that job right now and boris would leave it had the opportunity. Jonathan we asked tony blair if he what a sack Boris Johnson. Take a listen. Tony blair i wouldnt not to be happy. You with a sack him, wouldnt you . You would sack him, what if you . You would sack him, wouldnt you . I dont know. Yes, you would. Even if she does, there are plenty of other people. The difficulty i have is with his views. Jonathan you can probably imagine what he would want to say, Michael Ingram, from watching that exchange. You do want difficult Prime Minister mays life is right now. You mentioned the conservative conference coming up. What is the probability we get a new election you for they see the negotiations with the eu . Michael ingram once bitten, twice shy. The conservatives have an absolute open goal of coming with an increased majority. Theyically completed fumbled the ball. I think they will be reticent and having another go. What they are probably doing is waiting to see the labour party implode. We have another round of selections going on. Persist that a lot of moderates will get squeezed out of that. And maybe at that point, we start to see the momentum the party gathered over the election start to fade. I do not think it is a situation where it can naturally seize initiative. Alix thank you. And ingram and, 42 and Matt Hornbach, great to see both of you. Go to bloomberg go and click on ask the guess the question and we will do it. That is this is bloomberg. Alix another painful day for brickandmortar stores after toys r us filed for bankruptcy protection yesterday. The chinese version by online competition in terms of debt and the Amazon Effect. Joining us is matt townsend. Pointed outat john is how 2018 debt is trading. . 17 on the dollar it seemed to come up overnight. If you speak into body, they say they knew it was coming. With a specific bonds, there was markets believe they are due next year and the company, it has been ok. The big surprise is we found out that today, they engaged their terminal lenders in getting some more liquidity and that turned into chapter 11. Early doubt earlier this year and the bonds started tanking and things accelerated. Shipment without cash and here we are today. Alix after a bankruptcy, what is a good company . They will probably close some stores. What we are hearing is there are not engaging in a massive store closure at this point. The babies r us part has been the weaker part by far. The toy store is doing somewhat well despite what a lot of people inking they are going away, they are not. They plan on keeping them open and run through christmas. Babies r us may be more reduce and maybe more money on infrastructure and building up Online Presence and making come stores more competition does more competitive. David a Company Losing Money hand over fist and amazon to storing. Yet, they got the burned what are other bondholders doing . Side, stocks were down yesterday. As far as retail debt, not a good sign at all. Somebody like to his arrest, which is half somebody like toys are us which has had catastrophic,t going to zero or something, not a good day for investors. This . An will put them in people would say different things. Some people was a private equity debt. A lot of people point to that. Amazon, obviously, a huge interest. Jonathan thank you for breaking that down. Tomorrow, do not forget it, full coverage of the the fed decision. 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 the president of the United States is poised to call on a world leaders. The Federal Reserve begins of a twoday meeting. A twoday meeting. The era of amazon looks to have claimed another victim. Toys r us is crushed by debt. Good morning. I am Jonathan Ferro alongside david westin and alix steel. 30 minutes from the opening bell. All, eyes at the close to kick off the with yesterday. S p 500 and futures up marginally. The fx market, the dollar showing a little bit of weakness. Asuries catch a bit of a through much of yesterday. 222 is your yield on the twoyear. So movers and set up for the cash open. Alix a look at nike down. Is a number two athletic store. Analysts say not because nike stumbled but the market shares have been slipping. More of a case of grabbing fashion buyers. There. Tion we know is nike suffering on the downside. Post holdings is making a bid for bob evans. A 4. 5 billion deal around the offer price in premarket. Basically combines the cereal maker and hot breakfast maker and make sense as consolidation in the Food Industry continues. Autozone out with a earnings. 2 in premarket. It Beat Estimates up by 1 . So car parts store expects to have hurricane benefits when you have the damage to vehicles, one million vehicles damaged in a hurricane hervey evidentially irma and will have a boost for the company. David thank you. We turn to the United Nations buried in a dispute, President Trump is expected to call on the world. He is going to do about the dangers posed by north korea and iran and are too dangerous for any country to remain on the sideline. For more what to expect, bloomberg reporter nick. Good to have you. Is he really going to change anybodys mind . I do not think so. View, President Trumps of view is pretty much staked out at this point. He believes russia and china are the key to unlocking the problem because they constrained on the north korean economy by cutting off the flow of oil and gas to russia. What you will see is a new attempt to sort of broad and International Support for the u. S. To put the greater pressure on russia and china. Already those countries said they have done all they can do. David explain the dynamics of the u. N. All of the sanctions come out a Security Council and a much Smaller Group of countries. Does the General Assembly have any way to influence russia or china to change their views . The answers basically no. The General Assembly, the biggest criticism, is essentially a talking shelf. It is where leaders gather once a year for to stake out their big foreign policy. It is more of a forum to put russian china on a notice but i would be surprised to see any change in behavior. David leaders will be there . Putin andnt chi and they normally will not be there. Jonathan u. S. Equities off to a start week. Another record. Utility shares declined. Smp have risen in five of the smp have rters s p have risen and five of the last six quarters. Joining us is drew matus and Michael Mckee. Ew, let us begin with you and ask the question whether we should consider this reach in that neck, powers as a risk event for Market Participants or entertainment sort of process . An audience with the president of the United States in the General Assembly that does not really matter for investors . Do not think it is a risk event. I think the risk event is tomorrow. Every body expects the fed it to say they will reduce the size of their Balance Sheet. If they move ahead with a rate hike or do something what the forecast or something with the press conference that was different with what people price in and that is the risk event. Today, pretty much everybody is expecting the same thing as nick was saying, Everybody Knows what the positions are. I slept on it and i decided i have the wrong and i am changing my view, we do not want these things. We are what the download with everybody. John the bank it would be wrong of me to say the market jonathan it would be wrong of me to say the market is ignore this. I wonder what does it mean Going Forward . Does it diminished significance . the longer anything persists, the more people be, custom and as the the come become a custom and that is the accustomed and that is the new normal. It takes a new event to get people worried and thats what was a few weeks ago, a new event and a move higher in ratcheting up the geopolitical tensions that got to the markets attention pretty the daytoday geopolitical, people have become to ignore. Alix it is of the first time President Trump will be addressing the u. N. At he spoke so poorly about during his campaign. Who do you think he is most talking to today . He wants tohink deliver a message to the rest of the world he has been delivering to his base and that is we are putting America First and not in our interest will, head of the rest of the world. We want to Work Together but maybe he will say the u. S. , if you put a first, it benefits everyone. You go back, the General Assembly does not matter a lot but dont trump turned out to be different in practice the rhetoric. We have not pulled out of nafta nafta. He has not shot in the and north korea. People are beginning to separate the rhetoric from the reality. David is striking to say that u. S. President represented the u. S. Interest should not be a shop. A shock. Will he offer some way to work with them . Michael we do not know how detailed he will be but he will suggest the other countries follow the u. S. Leave in reforming of the u. N. And sharing more of the cost of board cost burden. The risk may be in what he says about iran because people have price at the idea of a north korea attacked being so horrific. If he pulls out of the iran agreement, that could have a major impact on the markets if they feel there could be some interruption to oil supply. Alix it would have a strain of the relationship between u. S. And europe because europe is starting to do business in some capacity with iran and if are against more aggressive sanctions. Michael that could be a risk event for companies in europe doing business with iran and companies in the u. S. The hope to do business with iran. Thats maybe a bigger risk event than what he says about korea. Right, therew is biggest is the fed. And aeresting week or so speech while it gets publicist it may not be the biggest issue. David let us talk about iran for moment because you do not talk about that. Is that a bigger potential issue given where it is located in the issue with the europe . we have to think about the actors involved and korea is with north the act involved is a little less predictable. So, and so, the biggest risk remains on the Korean Peninsula rather than in the middle east. David the markets have basically moved on . i think they have. They are focused on who is making the biggest noise and it is coming from the peninsula. Alix and from the fed which will talk about next. Thank you Michael Mckee and drew matus, you are sticking with us. I willup on thursday, sit down with an exclusive interview with harold hamm. He may have things to say about politics and we will get into his new bullish call about oil. This is bloomberg. David this is bloomberg daybreak. Tomorrow, well get the Central Banks latest position and investors expect that will unwind the Balance Sheet. Still with us is drew matus of metlife investment. One of our colleagues early this morning on radio said it is a rare fed meeting, it will matter what they say and do. Start with what they will likely do on the Balance Sheet. Drew matus we are expecting they will reduce the size of the Balance Sheet. We will announce the program today and will begin october 1. That means that they will reach their maximum amount of drawdown at the end of next year because of the step process. Probably good for everyone and we need to see the Balance Sheet come down and see the normalization. It is not without risk. David we have never really seen it happen before because of not seen this level Balance Sheet before. What are the risks potentially . Drew matus we can look at the taper tantrum, people forget when the taper tantrum began and bernanke knows that would have much, it it was pretty should of been a nonevent. The fed was or that the stop buying treasuries. Wasthe fed chair to say it not really a giant surprise and he was not announcing it was beginning that day. What we saw was 150 basis point moves in yields. We are not expecting that but i think the markets are a bit too sanguine to expect no moves in yields or abrupt changes. Jonathan in 2013, and open ended we did not know when it would end and with the ecb, theres a time limit. We will talk about where we go next. With the fed, we have been in qe forever mode. Is that the big difference . Drew matus that is an important difference. What people are missing when the fed does not roll over the securities, the treasury still have to fund. They will have in issuers to the market, the public market, will have to increase. Market participants will be faced with an increase in supply from this. It is effectively like the fed selling it although they are not coming out and selling it, the treasury will have to sell it. The treasury will have to decide which part of the yield curve and that is generally overlooked with the idea that the treasury is not going to do anything disruptive to the fed. Alix i wanted to bring up the boe in comparison. This is a chart that i find really interesting. This is what the markets expect how many hikes over the next year for the boe and he said. The blue line is the fed. The boe and the fed. Why are we seeing such a big distinction in the market . Drew matus i think there are two things. One is people get excited when it there is a change. The second thing is no one is expecting the bank of england to reduce the size of their Balance Sheet. They are pricing and the tightening on the right side of the equation where with the said, what are charter showing is with spec some rate hikes and Balance Sheets reduction what we are seeing is we are expecting some rate hikes and Balance Sheet reduction. I know there been a love article suggesting that, oh, no, the market will look a yields will come down. Jonathan is the bloomberg is it that. What you expect is used to follow based on demand of supply. Reverseion increase the not about what is about to happen . Drew matus i do not believe so. My view is one of the Things Holding the economy that is the yields are too low and below a certain point yields work against year. Against the you. If you chart the 10 year first the saving rates, you find a relationship is nonlinear. People actually began to save more money because theyre looking ahead to retirement and say i am only getting 2 on treasury and i needed this amount. I need to put even more away now. As yields move higher, you will see a pickup in activity and that will lead a to more Inflationary Pressure will lead to more Inflationary Pressure. Tips. Old more than a widening of the spread between tips and nominal. David another way the fed may signal is what they will say about the economy, what they will say rather than do. How important is it if they come down on terminal rate . Drew matus i expect they will come up later. A lot of these rates than forecast that supposed to be longterm, slow moving type data they have anes lot of fluctuate the most academic economists say are reasonable. My guess is even if they come down, it is more of a signal then we will not have to go down as much rather than they truly believe the terminal rate have, down. 10, how one 1 to much you care about people coming on next year . Drew matus i say 8. I know theres an article where people say we will lose all of the knowledge we have gained during the crisis, you are not. I work at the fed. Thefed stuff is one of staff is one of the most professional groups he will ever staff is one of the most professional groups you will ever meet. It is the most positive and i mean this is a positive sense, bureaucracy that exists. A kids at the idea that we have to fight inflation and maintain this because that is what is best for the u. S. Economy. It did not slip under the radar and what you say when you, that jonathan it did it did not slip under the radar and what did you say when you come on the program. Low rates are the problem . Drew matus low rates are the problem and they create distortion and limit creative distortion. 10s innk that 220 on an environment where it is , you have2 Phenomenal Growth of 3. 5 close to 4 . That it does not make sense to me. Will stay withus us. Comment on tomorrow, join us for tomorrow,oming up join us on our fed special. Then, will have fed chairman Janet Yellens remarks at 2 30 p. M. In the afternoon. This is bloomberg. The tea leaves we love to read. Jeffries adding to the glow, the bond had the worst since the First Quarter of 2016. A sign of industrywide decline is not getting any better. What happened . What did they cite for the reason of the big decline . A ton ofid not get color. Equity, if you exclude some of the market the gains were basically flat and release saying that the drop in revenue because last year was so strong. Last year, you had brexit when it was decided and the markets resumed. They are saying it was a tough call this year. Alix did and they give any idea how this Current Quarter is shaping up for them . They did not. They do not have september and last week we heard from a lot of other bank that said if we want to turn the quarter, we have to rely on september. It will be interesting to see how things shape up for Goldman Sachs. David it does not look good so far. The reports from the banks have been gloomy. What is going on . Analysts have been trimming their thirdquarter estimates because of the week trading thatment and their spiting fixed income and they are expecting fixed income will be down yearoveryear with equities being flat to slightly up. We are seeing the dutch traditional end of cycle where we are moving from the driver to equities and m a. Alix what is interesting for jeffries is the outlook, some the big banks was much lower than 20 saying 50 drop over at citi. Do you feel like those estimates are optimistic . Keep in mind that the big banks will have september in the thirdquarter results and september 10 to be a stronger month. Jeffries reflecting a lot of weakness in july and august. Toid as you look forward the banks, how will they were structured to make up for the loss . What are their options . I think that is a the real problem. When you boil it down, what you see in the Third Quarters probably 2 Revenue Growth because you do not have strong trading. The 2 trying to turn Revenue Growth and to mid a single digit net Income Growth and data growth youre trying to turn into doubledigit for share buybacks. The key here is there is no revenue drivers. What you are doing is trying to change very low Revenue Growth into the Income Growth through lower provisions and shared by that. Uyback. Ed b all that reduces 10 rie. It is not as normalized. I think this is a dire sign for the future. Alix Goldman Sachs had in the recipe, more lending and thats what they will do. It seemed like you sighed. They will increase their lending the book and gain market share at a time when everybody else to try to gain market share. Atther it was the group yesterdays meeting were Goldman Sachs under tremendous pressure to show how they will improve. They are putting out pie in the sky threeyear forecasts that are honestly unrealistic in disciple. Jonathan charlie peabody. The opening bell coming up. Record high friday an alltime high monday and gains in the open, maybe. Grinding higher on the dow by about 10 points. The bond market, treasury stable and yields around 220, to 22 around the 10 year. This is bloomberg. Jonathan 28 seconds away from the cash open. Two things on the radar, the president will address the assemblytions general with north korea and iran in focus for the foreignpolicy goal. The other side of the story, a significant one, the Federal Reserve decision. Going into that as follows, highs onth all time the s p 500. Futures positive. Touch lower by a basis points on the u. S. 10 year. The dollar weaker out of the nine of 10 currencies. 91. 83 on the dollar index. 50 a barrel. Alix here is alix steel. Another record high on the s p 500. We are looking at another record high for the nasdaq. It feels like we are repeating the same story with 35 record closes for the s p. The dow jones is not even up by. 1, that it feels like it is continuing. Retail rind and center, not just toys r us but here is where the shakeout, Michael Cores up 4 . Michael kors up they say that jimmy choo should add nice additions for michael kors. Gap upgraded, saying it is about value of the real estate. We talk about how real estate is important for macys, but toys r us still in bankruptcy despite their real estate. Ahls says they are taking on bigger time at amazon. You can take amazon returns as up to 82 of kohl stores. Under armour down by 2 . Ofy say the consumer is full athletic wear. It is oversaturated. I went to check on how the market looks at the trump trade. You wind up having President Trump speaking and United Nations, what does that do to a message like thats reform two tax reform . Here is where we were after President Trump was elected. There was a jump because of the and thatof tax reform has been drained out of the market, slipping below where we were before the election. Now smallcap is at a decent rally. How much more upside is there if we get a bipartisan movement in d. C. . Jonathan have you ever been so desensitized over record highs . Caroline it is a boy david it is the boy who cried wolf. Jonathan we are joined by a u. S. Chief equity strategist. Record high, record high. Been this have you desensitized before to the headline alltime high in the equity market . No one is celebrating. That is what i think is most interesting. No one believes in it, not that we are desensitized. I think you would normally see that when we are making persistent new highs and new highs in the broad stock work it where made a few years ago and we are still talking about these new highs and struggling to get investor enthusiasm. Jonathan so what is the signal that we have not had it yet and it is still to come . Gina that is part of the Investor Sentiment and i think the yield curve is usually inverted, high yield spreads are usually widening, so there are consistent top signals we have not seen, which i think are supporting this melt up in u. S. Equity. David gina says investors do not believe in it, why not . We have various people say to look at the earnings and they are robust after a long fallow time, there is limited inflation, so is this justified, these new highs . Drew gina makes a great point that you do not see signs at the top. Theave been looking at cycle and trying to figure out how long it can go for. There are not obvious imbalances in the economy that suggest the cycle has to turn anytime soon. The fed is going on a slow pace, so usually if it is not something evident in the economy, it is a policy driven mistake, and we do not see sides of either one. If inflation stays restrained, the fed can take its time. Maybe the reason no one is excited is because they think there is more room to go. David this that mean we are happier as investors with washington not doing much of anything . If you look at that chart on how it came down to small caps, maybe it is a good chart in the sense people say they will not do anything profound in washington. There will notts be a surge. It comes back to the idea that there are not obvious stretches or imbalances. When you look across asset classes, we see everything is rich, say you have to make a decision on a relative value basis. What is the least rich and provides you with the best value given your objectives . Parte risk assets here, in as i cannot seem into the cycle. It does not mean that one could not be around the next quarter, but until i see a sign the economies overheating, it is hard to suggest we might not match the 10 year expansion we had in 1991 or go beyond that this time. Alix bank of america had a Client Survey out, hedge funds investors are selling, does this tell us anything . Gina i would have to look at the history of the survey to tell you if it is meaningful. I like the advisory survey, when we look at the advisors who are bullish and bearish. Take optimism in the late 1992 had all investors in stock, and fully in stocks, really crowding one end of the boat. You do not have to get to that point but usually happen investor class throwing a lot of money and equities. U. S. Stocksd with is he at the bottom of the barrel in the broad equity market area and so to the extent the investor in the retail space is excited about opportunities, theyre not excited about u. S. Opportunities. We have strong inflows into europe and emergingmarket funds, but u. S. Funds are struggling to gather assets. Are not the most popular asset class. I think u. S. Assets are struggling from the perception we overvalued, theres not a lot of growth, and investors are not excited. Alix we are like a stone throw away from earnings. Morgan stanley says they see their target at 75 and earnings because he will have a melt up into the numbers. Do you see something along those lines . Gina i think bond yields are signup and equity market and that helps financials. I do not know about earnings. Revisions have been negative the calendar quarter, so analysts are not on the bandwagon we will have a robust earnings season in the Third Quarter. There are risks to hurricanes disrupting numbers, so i think the Third Quarter is a tossup. Atthe short run, if you look september 7 and we had a strong rally since, it has been led by financials. That tells you a lot about the preempting what is happening at the fed this week and will they follow through with the Balance Sheet compression . Will that have the anticipated or create the anticipated increase in yields . That is leading the s p right now. David many thanks to gina martin adams. Drew matus of metlife will stay with us. Inathan three days of gains the s p 500, three records and another alltime high. We are up on the s p 500. The dow up by 10. A record on the s p, the dow and alltime record on the nasdaq. This is bloomberg. Alix this is bloomberg daybreak. Reiner. Coming up, rob this is bloomberg. Alix it was a bankruptcy that seemed to surprise wall street. Toys r us filed yesterday and the debt reacted in kind. This is the 2018 debt maturing and it is 18 cents on the dollar. What is surprising is the speed at which the value decreased, despite everybody knew was was in trouble. Joining us is Bloomberg Intelligence know herbert noel herbert and stay with us is drew matus. Scott, why was the market surprised this happened . Scott i cannot speak to that. It does not seem like it should he surprising. Toys r us has been in a difficult position for some time. It started with this store based general merchandiser extending toy selection and being aggressive on price and accelerated into internet distribution and it is difficult to run a storebased model in todays retail environment without a scale advantage to compete on price or have something unique to offer to the neitherither which toys r us has. It does not seem like a surprised youre struggling. I cannot speak to bankruptcy specifically, given i do not follow that is best, not surprising given the environment. Alix that raises the question, was this generated because of the deficit the offloaded or put on toys r us or was this can Amazon Effect . I think it is both. Certainly, debt is an issue because it may have prohibited their ability to invest in stores and infrastructure to be super competitive online. It seems to be more of a situation with vendors and vendors are the lifeblood of retail. If they start demanding more aggressive terms and go from 60 days to 30 days to zero days and they want cash up front, that is a problem for company like toys because you dont have liquidity around. Jonathan is there a revival business here, even if you get rid of the debt over toys r us . Everything kind of went into the filing, but you take away the big mass release obligations, and if you smash those back into entities, eliminate a big part of the cost burden and take away the interest cost burden. At the end of the day, shortterm, yes, and longerterm, they need to figure out how they will be that best buy of the toys for article, which means dominating that online omnicell, which they can do but they need investment in place before they get there. Jonathan how long would toys r us have lasted if we had an adequate price for risk and Interest Rates substantially higher than where they have been . You talk about companies existing because they can access financing. Heres a company that when you think about it, is struggling, drowning in debt, and reports come out there struggling with vendor financing and it is game over, essentially. How Many Companies are there like this around the world . Drew when the fed is thinking of what they will do, part of the reason they go slowly is the recognize the potential issue that are made the companies out there that will react negatively to rates been increased and people will be more cautious about when rates are increased, so i think if you look at how the fed is behaving, how they are moving forward, the great saving grace to the Federal Reserve has been that inflation is low, so they can move in a gradual way. They are trying to avoid some sort of significant disruption by seeing a lot of companies have problems at the same time. If they move at a gradual basis, they can stretch this out and manage the process. That has been their modus operandi for the whole cycle. David what does this tell us about retail generally . Private other chains that have a lot of real estate, debt, and see some losses . Scott i will speak to it from the internet, ecommerce side, which is like i said, if you are a store based business that either does not have the unique Value Proposition to the consumer in terms of unique inventory or experience, and you are in the commodity category doing with competition based on price, the longterm prospects are dim. Steers storylines around Sears Department stores, but any storebased retail business, which the historical Value Proposition was anything other than price, that does not have that strong value of opposition in place, is doomed. Had a parisr us real in the middle of their store. David we keep showing the ferris wheel. Alix scott, you also cover all of the main tech and internet companies. When Something Like this happens, does that make you more aggressive and positive on amazon or is the correlation not as direct . Necessarily toys are us but the overall trend is something that favors amazon. They sit in a position of scale, where they can competitively priced product in a way other competitors cannot. It makes their prospects with better from a pricing grid standpoint on top of their just its advantage they have in place. There is a number of online retailers that are doing well. Some under the shadow of amazon that may do a specific category better, but when you shine the light in this area, the brightness goes in the direction of amazon. Jonathan typically, when you look at the retailer, is a Credit Investor looking at high retail, and they look at the blueprint and they see if it was a big real estate footprint and to davids points, there is one would toys r us but apparently, that isnt good enough. Is that a lesson to learn that we can extrapolate . I washink there is, but one of the first people to ride the ferris wheel when they opened, so it was a great choice. I want to put that out there. Listen, the challenge nowadays, if you go back three years, it was positive for a lot of these guys. Today, it is more of a challenge in the environment because of the macys closures, sears with continued contraction, toys r us, so everyone is plunging property owned to the market. I do not know theres enough capacity for things to do in those assets to make it worthwhile. David give us a best case for toys r us, are there others who have really made a go of it . Noel there are not a lot of good examples to point to, but i think the best case is you slim down, 5 billion to 10 two one billion in chains, get rid of big Lease Properties and bring it under store, and you turn your domestic operation, which generates the million dollars, you boost that up, and i think you have something salvageable. Babies are us is a big problem, but i think there is a business to fix but it is a function of if they have the wherewithal and time. ,lix great stuff, scott devitt bert, andet noel he jim mattis. If you are in a store, it is hard to see. Jonathan that ferris wheel is in a store that no longer exists. Alix point being, you can watch us online, go to our charts and graphics, interact with us directly. You can watch a segment you might have missed. This is bloomberg. Alix some of the biggest ceos in the pharmaceutical in washington, d. C. , discussing options for a value driven infrastructure. David gura is moderating this panel with ceo at the cleveland clinic, executive vice chairman of walgreens, and the ceo of American Cancer Society and the pfizer. If you want to follow, go to live go on your terminal. David we are having a lot of nations, andnited right now, the president of brazil is talking and President Trump will talk shortly. We want to turn to our inhouse expert Marty Schenker and Michael Mckee to take a look in advance about what the president will likely be talking about and i daresay most of us did not think we would have donald trump speaking to the United Nations General Assembly. Maybe he thought he would do this, but what is his goal . I think it is to normalize his view of the world to people who he wants to engage on iran and north korea, even though he expels the America First mantra, he will try to convince them that is not a bad thing for them. In order to do that, he is enlisting their support to fight terrorism and Nuclear Proliferation in iran and north korea. David is it all about iran and north korea, do you them to address climate . He may. The briefing was rather skimpy. One fact we found out, the seating at the General Assembly, north korea is in the front row. [laughter] are you looking for from this today . We do think he will talk about the cost of the u. N. And the waiters structured and the u. S. Is circulating a plan to restructure the u. N. , put forth by a number of administrations. He may push that and the idea that the u. S. Pays much of the cost and the rest of the world should absorb some of the cost of burdens the u. S. Takes on. Hard to argue with that in probably with what he will say about north korea, as long as he does not advocate the military option. Iran may be controversial because a lot of countryside companies doing business with iran or getting ready to do business with iran and they would not be happy if you turn to for the u. S. Out of that the court. David he referred to the fact we have had several u. S. Of ministrations who have campaigned reform and have not made progress. We have a relatively new isretary general, gaming he 100 with the president. Is that the prospect of real reform or will they never get there because some countries will have to give up what they want to keep . You are probably right on the latter, it is difficult to change the bureaucratic structure with no leadership. In the u. S. , to the extent that it can lead the organization, equalssia and china have membership on the Security Council and it is hard to get anything done really do have emerging markets as a block. It is hard to see how they change much. Alix when have they said about President Trump in the United Nations today . Theyre happy he is in new york so they can work on the bill they put forward to replace obamacare. They are trying to pitching late votes. Mike pence is trying to close that deal. They are happy to not have the destruction of donald trump tweeting. David they did not realize you are back in health care. It has many of the same problems as the original bill in terms of Defunding Planned Parenthood and brings back the preexisting conditions problem. It transfers money from some states have a lot more to the get more now to other states that get less, which should be an issue to those who opposed it in the past. It will be interesting to see the can get that one more vote from the three who opposed it. Jonathan how is the hunt going . He is referring to the fact that i live post to the United Nations. [laughter] they missed one of the circles of hell, but traffic is awful. Jonathan Marty Schenker and Michael Mckee, thank you. We are awaiting Donald Trumps arrival at the United Nations, he will give his first speech to the General Assembly. The president of the United States will be speaking. That is it for bloomberg daybreak. Thank you. Coverage continues on bloomberg tv and Bloomberg Radio. Vonnie it is 10 00 a. M. In new york, 3 00 p. M. In london and 10 00 p. M. In hong kong. I am vonnie quinn. Mark i am mark barton. Welcome to bloomberg markets. Vonnie here are the top stories recovering from the bloomberg and the world, President Donald Trump is set to address the United Nations General Assembly. What will he say about north korea and other pressing topics . Walgreenste news, boost and secures regulatory teaidance for its ri clearance. We have been excessive interview with walgreens ceo. Meetings underway today, investors are looking for clues about the unwinding of the feds Balance Sheets. They could be in for a surprise once the unwind starts. Into, we are 30 minutes the tuesday trading session in the u. S. Julie hyman has look at the ma