Transcripts For BLOOMBERG Bloomberg Surveillance 20170928

Fear. Good morning. This is bloomberg surveillance funds. Ill talk hedge we will also talk markets. Check, the dollar is extending its rally. Of optimism over the health of the u. S. Economy. Also optimism on the tax cut plan President Trump put in place. Stocks are a little bit mixed. There is not much change. Pretty much flat. Investors are trying to assess the implications of the tax proposals. Your at a in europe disadvantage. We will get deeper into that. Ere is nejra cehic they are looking to capitalize on a boost in his approval ratings. Therenk of englands should be good news for the u. K. Haldane said he is among the majority of dealmakers. A reduction may be warranted. Uks Civil Aviation authorities have launched action for specifically misleading passengers about information about their rights following a wave of cancellations. It is part of a consultation that will last seven days and could take legal action if necessary. Mark zuckerberg has defended his company after donald trump tweeted that facebook is antitrump. Facebook, twitter, and google are expected to face scrutiny at a hoe panel on in russiass role involvement in the 2016 election. The indonesian government says 100,000 people have been evacuated. Of a chance of a volcanic eruption on the island. Hugh hefner, the founder of Playboy Magazine has died at age 91. He died from Natural Causes surrounded by friends and family in los angeles. In a crypt heied bought to marilyn monroe. The First Edition of playboy was in 1953. Global news powered by 2700 journalists and analysts across 120 countries. Francine thank you, nejra cehic. Has called the largest tax cut in history. Would be a major win for trump and republicans. They are trying to show unity after the first nine months of his presidency. He called it revolutionary change. Are going to cut taxes for the middle class, make the tax code simpler and more fair for everyday americans. We are going to bring back to jobs and wealth that have left our country. Most people thought left our country for good. Thisine lets get more of. Im joined by howard shore. Thank you for coming on. Stephanie, it seems the mood is to try to digest the tax breaks. What did we find out . We know he has relinquished his goal of a Corporate Tax rate of 15 , saying 20 is that agreed figure. He is not negotiating on that figure. If he will be able to keep to that remains to be seen. Speaking, this package is short on details. What details we know, make it look like a massive tax cut for the wealthy. A big cut in Corporate Tax rate. To eliminate inheritance taxes. How that will play out is unclear. Many people think a reduction in the Corporate Tax rate will lead to Companies Buying back shares, which will benefit the wealthy, cause a stock market rally. On the individual side we do not know how much this will be a tax cut for the middle class. Whether or not they will end up paying more taxes. Reducing seven tax brackets to three, but we are short on details. To not purposely done get the lobbyists on board to challenge it. Francine what do we know about the negotiations . More going to be challenging than it was five months ago . It is significant they spent the past few months negotiating with republicans on the hill. Youve got the conservative Freedom Caucus on board. They are not going to detail specific income brackets, or what tax breaks they will illuminate until after congress houses a spending bill. The spending bill they have calls for 1. 5 trillion in the savings. The estimates for the tax proposals released yesterday put the cost between 2 trillion and 5 trillion. How are they going to pay for it . That is the tough part of this process. Somethingif you take you have to give back somewhere else. Howard, you put earnings out. You talk about Challenging Market conditions. You say you continue to make progress. Does this help in any way . I think my starting point, can we be slightly optimistic . There is a lot of noise but we are short on details. The one thing that is interesting on the corporate side, we have fewer tax benefits. We have more accelerated tax benefits doing investment. You would think this would make corporates invest more money, rather than paying shareholders. Rates, is aerest tax benefit on background you can be cynical. The other problem is all these things are temporary. They will roll off eventually. The Balance Sheets are adjusted temporarily. The highest Tax Companies are catching up to the market. , you can see the white line is a higher tax company. You can see it has already gone up. Is this an expectation of the tax break . What would it take for companies to spend more . Companies will have more money, which they can distribute to people. If they are paying less tax, their bottom line goes up, so they will have more money to distribute in dividends. Linking it to the economy, it does not matter how much money is distributed in dividends. Our cup is going to go out and spend more . Our Companies Going to go out and spend more . People are concerned the u. S. Economy has had a good run. There is a bigger risk that things slow down and improve. Wont be dramatic enough to make a major stimulus to the economy. The natural cycle will kick in. Concerned there is more risk on the downside, then getting excited about the other side. When do we have more details . He said he is going to delay releasing more details until after they get a budget and spending bill through. We are talking several weeks, the end of october. It depends on how quickly they move. They need to pass a spending bill in midoctober. Ambitious thinking he will get it passed by the end of the year. Once the details come out and the lobbying begins, he will realize it is going to be much harder. This is harder than health care. They should have started with this. People are lot of saying he is obsessed with undoing the legacy of the former president. The priorities are mixed from the start. Exactly. It wouldve been easier to come out of the gate after inauguration and start with tax reform. He wouldve had support from businesses and the public. He blew his chance. Thank you, Stephanie Baker and howard shore. Surveillance. This is bloomberg. Francine this is bloomberg surveillance. His selection was approved unanimously. The move cements the telecom carrier. Ideal for radiopharmaceuticals, aa. Drugmaker has approached slew ofas unveiled a gadgets. It is the companies latest move to compete with apple to equip homes with smart devices. Francine thank you. England says Interest Rate hike should be good news. Policymakers believe the economy is near reduction. Negotiations continue today. Secretary davis heads to brussels. Howard, are you impacted by brexit . Howard i think the bigger impact in the short term is fear. A corbyn government. That is undermining confidence. Francine is leaving the eu being priced in at the margins . Negotiations will be pushed back. We will still have a cliff edge. We would be better off to get on with it. Our best card was offering money. We got nothing back. It was a terrible negotiation. Stay for an extra two years and continue to pay our share. Still 10 billion year for two years. Francine is it better to cut clean . Say, it doesnt matter if we have an agreement. Howard i never believed that was plausible. A resolution is favorable to everybody. In these negotiations you have to be able to hold your nerve. About the comments saying a rate hike is good news, the fact that the boe is comfortable hiking rates, that is good news. I dont know if the rate hike is good news. , brexit creates uncertainty. They are veering, it is a vote of confidence. Do you think its good news if you hike rates because of inflation . Maybe it was a mistake to assume the economy get worse after the referendum. They are responding to what is going on today. The inflation backdrop has picked up. We dont think there will be an inflection point. Of how do youssue balance between imported inflation. Maybe not so optimistic about the mix. What happens to inflation in the meantime . Opportunity is enormous for the economy to be contracted. Im not sure they should cut interestim not sure they shoult Interest Rates. Im not sure its clever to raise rates too much. The economy is susceptible to fear. Francine we will continue this conversation. Stay with bloomberg. The Civil Aviation authority accuses ryanair of misleading passengers. This is bloomberg. Civil aviation ryanair ofccuses of misleading passengers about their rights. Ryanair . E know about how have they responded . Action thatrcement was sent to ryanair, they say they will meet with the caa and comply fully. This can be the first step in the caa taking legal action. Said cancellations will extend to next year. About 400,000 passengers were bringing the total to 715,000. The share price have been steadily falling. Said it was withdrawing from the bid on alitalia. Questions over whether it has the same product the japanese Prime Minister gambles on election. This is bloomberg. What did we do before phones . They save us from getting lost, getting hungry, and getting tired of places like this. Phones changed everything shouldnt the way pay for them change too . Introducing xfinity mobile. Where you can pay for data by the gig, and share it across all of your lines. No one else lets you do that. See how much you can save when you pay by the gig. Xfinity mobile. Its a new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Bloomberg surveillance. Here is nejra cehic. Calleddonald trump has the u. S. Highest tax cut in history. Pres. Trump were going to cut taxes for the middle class, make the tax code simpler in a more fair for everyday americans. We are going to bring back jobs and wealth that have left our country. Most people thought left our country for good. Chief the bank of england economist set up rate increase should be good news. Amongaldane said he is majority of policymakers uks Civil Aviation authority has enforcement action against ryanair. Following a wave of flight cancellations. They will be part of the consultation that will last seven days. Zuckerberg has defended his company after donald trump said facebook is antitrump. Crazyberg said it is information on facebook change the election. Investigators will focus on. Ocial medias roles hugh hefner, the founder of playboy, has died at age 91 of Natural Causes. Buried in ato be crypt next to marilyn monroe. He catapulted playboy to success with the First Edition in 1953. Global news powered by 2700 journalists and analysts across 120 countries. Im nejra cehic. Francine the defense prime japans prime ister shinzo abe what is the feeling among voters about how abe will do . Interest in the election has increased over the last couple days. Today wet and didnt have Seen Movement in the main democratic opposition party. All of this is adding to the electionty into the coming up. These are not things Prime Minister abe would have factored in. The questionlls, is how much support can she. Ather in the rural prefecture we are getting pictures from the conference at the bank of england. The conference is called independence 20 years on. He has been talking about , and taking tough decisions. Still with us, howard shore and stears. Guy our bonds and treasurys ready . In current yield levels, no. Marketsook at how the are going to react, we would expect to see yields going up in the u. S. , because yields are targeted in the 10 year area. In terms of the reduction in , it has beenroles all about Central Banks in the last 10 years. Away and sayk step we have done enough, we have seen the yields go up. The bond market is discounting what the Central Banks are telling them. Im not sure theyre discounting what the fed is saying. They have risen rates more slowly than was projected year ago. Nervousral banks are about the impact of reducing money for the stimulus. Rightly so. Act tontral banks there is a danger we can get into a recessionary climate. There are more aware of that than any of us. Francine do you worry about the way treasuries are performing because they are distorted by the way the markets are functioning . Bond markets have not followed equity markets. I think that correlation is unstable. Aretimes equity markets reacting. Equity markets react to higher growth. The one issue affecting the bond , theres ahe u. S. Disconnect between what the markets are assuming. That gap has to be narrowed. Weber is charge of the fed, it will change. Charge of thein fed, it will change. There was the drugs speech where he was talking about central bank credibility. Central bankers are accessed with credibility. They say, we have a Medium Term Plan and this is what it is all about. Francine its not a bad of session. You can move markets with the change of a word. You need to be will to trust what they say. Is it a healthy obsession . Yes. They have to be credible. You have to have confidence in the currency, seed have to have confidence in the way they are running the finances and the Monetary Policy of the relevant area. It has a global impact. We dont have a clue of who President Trump is thinking of. It is a political appointment. How do you cross that bridge . The markets confidence to protect what donald trump will question it a is sort of a you as parallel to brexit a u. S. Parallel to brexit. We are continuing a slow u. S. Rate hike cycle. Becketts cut off if the u. S. Economy turns down. It is more about personalities than where we are in the cycle. Francine we will be back with howard shore and guy stear. Is the december hike a done deal . This is bloomberg. Francine this is what we heard from st. Louis. Heres market check. Yesterday, trumps tax posals trumps tax package reincarnate this. The average tax raise 3 higher than s p 500. This is the move of the day. Chart taxing u. S. Tax uncertainty on policy. It is broken up by presidency. It peaked during the obama presidency. It has been in decline since trump took office. What is happening now within the trump presidency, it is in line with historical trends. A rate increase should be considered good news for the u. K. Haldane was speaking to skype about the probability of a november. Or thank you. Mark carney is talking about brexit. The cutting edge of our activities. Thingspass many great and we are destined for more. Just imagine what would have become of your career if you had stayed. [laughter] instead, you come here by a road less traveled. She held a number of positions and shadow cabinets and was chair of the conservative party. After the formation of the , inition government in 2010 a. Societies biggest challenges. Never afraid of the challenge, she stepped into the breach to become Prime Minister following the referendum. Committedminister is to working to build a stronger, fairer, more prosperous economy for all. Please join me in welcoming Prime Minister theresa may. [applause] that was mark carney. We will continue monitoring anything from theresa may. Back to the fed. We heard two diverging views. We are already below estimates of unemployment. Thethe expectation is it is goig to tighten up relative to where we are. If we continue to push past what is sustainable, the risks of higher asset prices or inflation do increase. Viewhighlights in my own there is a chance of a rate hike before the year is out. Lets bring in richard clarida. He joins us from frankfurt. Thank you for joining us. Our the markets clear about what the next step for the fed is . Richard it did. We had a run of five months softer than expected inflation data. Commentslens indicated where she comes down. There is uncertainty on both sides. Signal theyding the want to open the door to a hike at the december meeting this year. Francine how will the markets reprice it . Ithard we have seen combination of the stock out of the fed, and the release of President Trumps ideas for tax reform have push up Interest Rates. We had a move on the 10 year yield treasury the last several weeks. In summary pricing at the fed. These are at historically low levels. The 10 year treasury yield is low by historical standards. The fed is not get tightening. Francine when you look at the guests not in had agreement. We dont know what the details are. What does that mean for the markets . Richard markets can be disappointed. This tax package has been a roller coaster since the election. One of the things relevant is we had indication out of the senate they would be ok with the package that shows budget deficits over a 10 year window. If that could be achieved there would be a bigger package. You have to have budget resolutions, committee votes, and both houses of congress. This is going to take some time. We will not know about this for some time. Francine we heard rumors about what the tax plan would entail. Does it through gdp or inflation . You just had take same economy is at or above full employment right now. Depending on how the bill would be structured, and particularly the impact it would have on investments, theres going to be profit repatriation. That could provide some boost to the economy next year. They want to plan this boost to productivity growth in the economy. The details will be important. It could have an impact on inflation. Inflation is below the desired level. Francine there is more Research Suggesting the chinese affect policy more than we think. , andxample, bond yields the dollar and euro. Richard china is the second largest economy in the world. Their Exchange Rate policy is a work in progress. , lot of us came into the year in the last four weeks has begun to weaken. Chinese currency is a bit of a wildcard. Francine where do you see yields from here . Richard i think at the front end of the yield curve, markets are pricing out, perhaps more tightening from the fed than a couple months ago. A longerterm yield, we have set for some time, we think theres going to be arrange for 10 year treasuries, take 2. 5. We are in the middle of that range. If we get Stronger Economic data, you get a tax package that can push rates up. We have corrected back to the middle of the range we are in. We have corrected back to the middle of the range we are in. Francine what is your take on the dollar . Richard the dollar this year, until recently has been weakening because u. S. Growth was disappointing. Get inhe signals we may an adjustment in ecb. The perception of a hawkish fed in the september meeting, chairman yellens comments, the dollar is getting a boost from those factors. We dont see a big move in the dollar right now. Will depend on the fiscal package. Markets will bromance a stronger stronger romance a dollar. Janet yellens term is coming to an end. It is a political appointment. Is that what we understand President Trump wants . Richard that appointment is one of the most of porton appointments any president makes. Chairman yellen could be reappointed. Other names have been mentioned. I think the fed has put in place a plan for shrinking its Balance Sheet that will commence in october. I expect whoever is running the about movingk hard away from the plan. The yellen fed is indicating a hike in december, and three more hikes next year. If chairman yellen is , i think there is a likelihood of continuity and policy in regards to the Balance Sheet. Have you figured out who germanys next financement are finance minister will be . Richard no. No one whispered anything in my ear. Could it change the . Iew on what you buy richard longerterm, those are important factors to us and markets. Our review for the next several months, as Angela Merkel puts coalition, we dont see any radical transformative changes in european fiscal arrangements. Longerterm, that is something that can work fairly well in europe. Francine thank you, richard clarida. Bloomberg surveillance continues in the next hour. This is bloomberg. Francine trumps tax revolution. He proposes the largest tax cuts in american history. The central bank should raise rates in a gradual way, but James Bullard says to hold off. As the bank of england marks 20 years of independence, governor mark carney warns against achieving independence with him that the tents. With omnipotence. Im Francine Lacqua. Tom keene in new york. Im looking at the bond sliding on the tax side. Investors are still waiting for the tax plan details. Tom it is a good day to get some perspective. Mohamed elerian. David haro, as well. Francine first, lets get to taylor riggs. Taylor we are starting with the tax plan. President trump cast the tax plan as an economic jolt. It would reduce the Corporate Tax rate down to 20 from the current 35 area President Trump we will dramatically cut the business tax rate so that American Companies and American Workers can be our foreign competitors and start winning again. ,aylor under the framework businesses would be of to write off Capital Spending for at least five years. Theresa mays brexit concessions have started to ease the deadlock. People familiar with the said it would break the deadlock and make it easier for the u. K. To discuss the contentious divorce bill. Prime minister shinzo abe has called a snap election for next month. Playboy magazine founder hugh hefner has died. He was 91. From elaborate mansions and became the flamboyant symbol of the lifestyle he espoused. Lobal news 24 hours per day im taylor riggs. This is bloomberg. Tom data, equities, bonds, currencies, commodities. A lift in rates really beginning to break out. We are not there yet, but lets take a quick look. Is a nice steepening between the twoyear and the 10year yield. Vix shows extraordinary domestic and international markets. Gold ever lower. Three basis points, that should be green. That is a higher yield on the 10year yield. Francine you are right, tom. Mentioned u happy you mentioned gold. Investors trying to figure out how they should assess the implications of the muchanticipated tax proposal. Tom and esteemed guest in london, go out to the bloomberg and find any random mutual fund and you will find no track record remotely close to the consistency of david haros work. The Acclaimed International investor of largecap stocks has once again done it. There was pause, there was patients, there was performance. David, we need to turn to tax reform. You have been known to support republican politics. What is the middle class for donald trump . How do you define middleclass . David well, i would say middleclass is probably 35,000 annual income for a Single Person to 150,000. Differentving is far depending on where you live. Are making 50,000 in new york city, you are probably on food stamps. It really depends. The beauty of this tax proposal is it does what it probably should do, lowering rates and taking away deductions, making a less distorted of tax code, which is good for Economic Activity and economic decisionmaking. How can the president and a fractious Republican Party down in flames with health care build trust with the American People on a long, drawn out process . David this is a very good question because they do have to push this one through. The inability to pass a Good Health Care plan is frankly, in his words, and embarrassment. They were planning this for allegedly seven years and they were unable to come up with a solution that improves outcomes, lowers costs, dealing with such things as preexisting conditions. Granted, that is a very sticky group of issues you have to deal with. Hopefully, with this tax plan, they can push it through given the very broad benefits. It should be somewhat less controversial than the health care plan. They should be able to use the muscle of their majority to get this plan through. If not, it is going to be problematic. Francine is it problematic will he president david it seems in the whole health care debate, it is hard to distinguish what single factor through it off the rails. There is all of this fear about preexisting conditions, medicaid, it seemed like every faction wanted something else. In this case, it seems that most of the factions are somewhat more unified. I think they know. The light is on them, they need to do something. Francine when you look at the , does a taxthat , does it impact inflation or gdp or neither . David i think there is some tightness. I think tom and i discussed this last time i was on with him. Go with a focus on nonuniversity training. We need more technical training, skills. We need draftsmen and welders and steamfitters and power mechanics. University degree, but they are good paying jobs and they come with good benefits. This is something we should look at stimulating. Tom you touch on the heart of the matter which is factions. You have the case treat faction, you have 17 other ways. Do any of those factions represent the people . Yesterday was all about the upper middle class frankly, the very rich. Does anybody represent america among the factions . David i dont know if there is an answer to that. What we want as citizens is for the government to do what is and,for the whole unfortunately, we have been divided and cut and divided and eled, identity politics this is very harmful for governing. I think we need to look at what makes the pot bigger and not be so worried about the individual slices, but lets focus on policies that as objectively as possible grows the pie bigger. Growth is the biggest solution to poverty. Opening the doors of opportunity helps all. The middle and lower middle class frankly pay very little federal income tax. If you look at the data. The top 1 pay the lions share, but what we have to do is make a system that it is nondistorted as possible. So we dont have people doing back flips to avoid paying a tax where these back may cause distorted behavior. Tom you see that within the standard deduction going up. I have the dumb surveillance question of the day . Do they do tax reform in the United Kingdom . Francine this is probably the smartest question of the day. We understand there are factions and youhe government look at Ireland Corporation tax. Muchu reduce tax by too and investments become like singapore, it does not take care of this design, that is where brexit happened because people feel left out. David the fact is that Corporate Taxes kind of a passthrough. People here have Pension Plans that are invested in corporations. The people who pay the taxes are the owners of those businesses. It is a passthrough. It is an inefficient way of some ofng a tax area the Chicago School say there should not be a Corporate Tax. Anyway, having said that, it has become a titfortat, people lowering taxes. I got into this business in 1986 and a think the german Corporate Tax rate was 56 60 . You had very high Corporate Taxes. There was a whole different set of accounting in germany. What was it called . Where they would create huge line to above the protect income, but that does not do anyone any good. What you want is a Corporate Tax system that is easy to levy, that does not favor certain businesses over the other. I think this is an important point. There is going to be jockeying by every industry. Francine and every country. David to favor pet industries. As a market economist and someone who believes in the power of Economic Growth, this isnt good. Francine david, thank you so much. David herro stays with us. Coming up in the next hour, we speak with the Deutsche Bank chief economist. Us. Med elerian also joins that is at 6 00 a. M. In new york. This is bloomberg. This is bloomberg surveillance. Federal reserve bank of boston president says the central bank should raise rates despite lower inflation. If we continue to push past what is sustainable, the risks of higher asset prices or and that do increase highlights the fact that, in my own view, it is advisable that we gradually remove Monetary Policy accommodation over the worst of the next year and a half. Has become a steady advocate in favor of raising the bank of england chief Economist Says an Interest Rate increase should be considered good news for the u. K. Rather than a source of fear. Is among the majority policymakers who believe that the economy is near a point where a reduction and some in some stimulus is warranted. That is your Bloomberg Business flash. Francine thank you so much. As the european economy reached its peak . Economic data has shown solid growth. It is also a changing landscape. Merkel looksgela to form a coalition government. Lets get more on all of this. David herro is with us. Eric come you have been an optimist on European Growth, even when people were doubting you. It was based on a fundamental belief that this was a crisis and the nothing more economy has bounced back. Francine we will talk to david and a second about his investments in europe, but does the german election fundamentally change the landscape of europe. With the positioning of the , what does itty mean for the periphery of europe if something ugly happens . Erik i dont think anything fundamentally has changed. You have to dial back the enthusiasm from before because the german law would prevent them from doing a big european budget. It is more proeuropean than probably the previous set up. It is the only party which claims to be proeuropean, but isnt, really. If the crisis happens in the periphery, you would have the same story again. Tom how much do you like francine how much do you like European Companies . Overall, does it feel good or does it feel like it could be overcrowded very quickly . Everyone has been saying this, but they have not necessarily put their money where their mouth is. Valuations and the spreads, it is still a pretty big spread. Considering that europe is a little behind in the growth curve and we should start to see an acceleration of earnings, those valuation levels look at little bit more compelling. From a topdown macro perspective, the valuation of looks good. Market people say they are not in European Companies without realizing that they have cash flows from all over the world. To me, that is a huge opportunity. You can buy Global Companies at great prices. Tom is Deutsche Bank a good quality Global Business . David herro . David weekend of prefer and tessa we kind of prefer antessa. Has got to own Deutsche Bank, right . David heres the problem. Germany is going to do better. Marketal german baking is a disaster banking market is a disaster. The corporate banking, sure, that makes money, but the basic banking market in germany is what spain and italy were in the past. At some point, this is going to have to be get out with so the banks can make money in their own backyard. See them clear markets . People are giving unicredit rave reviews for the restructuring. Actdoes germany get its together in terms of clearing its Financial System to benefit its people . Erik i think that is a very good question and i dont think it is anytime soon. In germany, it is a manufacturing story. The value, if you look at financials, i would go in the peripheral because they were hammered more. Is the old economy in the center and it is the financials in the periphery if you want to call it in a simple way. Tom bring this up as we go to break. There is nothing like this on the bloomberg. This is euros track record. Slacking off. Hike. It is like the Vince Lombardi of investment. We will continue with erik nielsen and david herro. Vince lombardi, i say bloomberg surveillance. London, new york. Erik nielsen. The excellence of the angloamerican model. Thank you mr. Dimon. Deutsche bank trying to get their act together. Francines important conversation yesterday. Erik, it could have been the same constructive idea. This is the difference here. , is europe becoming, on a philosophical basis, is it becoming more angloamerican or is that overplayed . Erik i think that is overplayed. [laughter] it depends a little bit about how you frame it. The growth path runs after the u. S. We are becoming americans in that sense, that growth is investments are coming. Francine we had a conversation with the finance minister. David politics always does have some interaction with business. What tends to happen is the markets overreact to the actual power that the politicians have. Sometimes, there are extreme cases. Markets react to election results, referendum results that often never do trickledown to Company Cash Flow streams. The predominant factor that makes a company valuable is that river of cash. It is only to the degree which those political changes and movements and legislative changes impact that river of cash, impacting valuations. The price moves quite aggressively and, often, the river of cash is very rarely impacted. Francine if you want to be smarter and pick up more bloomberg stories, pick up the latest edition of Bloomberg Businessweek. Look out today for the future of the white house. Tom bloomberg surveillance. Nielsenrro and erik with us. Right now, your morning briefing on the news. Here is taylor riggs. Taylor President Donald Trump and Congressional Republicans have unveiled the first major revamp of the nations tax code in a generation. The nearly 6 trillion tax cut would deeply reduce levies for corporations, simplify doublees brackets, and the standard deduction used by most americans. President trump tax reform will protect low income and middleclass. Protect the wellconnected and the wealthy. It is not good for me, believe me. The Corporate Tax rate would be down to 20 from the current 35 . Tom price spoke with chief of staff john kelly yesterday and did not offer his resignation over his taxpayerfunded trips on private jets. He tookported that dozens of private flights that cost hundreds of thousands of dollars. Puerto rico is still virtually without power. The plans to lend fresh cash to the storm ravaged island. There is a significant need for immediate restoration of the electric grid. What are Bondholder Group did was put forward a proposal to provide utility with 1 billion of capital. That billion dollars is alongside 1 billion of existing debt that gets rolled into that facility, but only receives it hundred 50 million of these dipped notes back debt 850 of 850p notes back million of these dip notes back. Taylor governor mark carney said the bank of england is not entity that can solve everything. Im taylor riggs, this is bloomberg. Francine taylor, thank you so much. Lets turn back to the banking sector. With at the european banking conference and he said the nations Banking Industry has moved beyond the impact of nonperforming loans. Whichly is a company in the strength of negative attitude toward italy. Outy, we are completely from the negative deriving from the perception of Systemic Risk. Francine lets get back to david herro. And erik nielsen. David, you are invested in italian banks. Intesa is one of your top holdings. Is there an opportunity to buy into order you kind of keep cool and see how it plays out . David for the most part, that is what we have been doing. We have owned intesa for quite some time and anytime there was a dip on something that we saw was something nonfundamental to the earnings stream, we would buy it. ,ntesa is a very well run bank very wellcapitalized. They have a very good plan that they stuck to it. There was the blip, but besides that, it is a company that has stuck to its plan to a t and has executed its plan quite well. It in thesee Financial Performance of the company and in the Capital Position of the company. ,e think it is a very wellrun still at an attractive price. Francine do you look at regulations . , the smaller brokerdealer means he could take advantage of some of the new regulations. Is that a space you look into . Determiney kind of how capital is defined. How is this going to affect your Balance Sheet . You have to be in the weeds on the capital rate in particular. This is one of the more important regulations because it gives you an idea on how much excess capital they had. K, where is the nominal gdp underneath all this . To drive the stocks that david herro buys, you have to ve the spirit. Will the nominal gdp be there in europe . Erik im pretty confident it will. Real gdp is doing nicely. On the inflation side, heres the fundamental point. You cant both say that europe has a low potential growth rate and they would have no inflation. Inflation is a function of the output gap at the end of the day. As growth is this good, my money would firmly be on a closing of the gap and, at the end of the day, that goes to inflation and nominal gdp growth. Inflation is a little slower coming than we thought about, but it is coming, im almost sure. Tom how important are dividends to your european stocks and particular european banking . They are a huge part of your total return. David it is important to have companies healthy enough to pay a sustainable dividend. What is even more important is that the management looks at that free cash they have in their hand and they decide, what is the best thing to do with it . Is it to pay a dividend . Is it to pay down debt . . S it to buy back our own stock there are a number of things they could do with it and that mentality of doing it in a way that leaves the medium and longterm valuation creation is the right thing. If they have a high internal rate of return, we want them to keep more of their cash. If they have a low internal rate of return, then somehow, pay it out. If you can make an acquisition that makes sense on a creative basis, that is a big if. All too often, management teams make valuations based on that. That makes economic sense. If not, give it back to the owners. Giving it back to the owners means looking at the valuation of your stock. If the valuation is extremely low, you should be buying back stock. If it is high, you should be giving it back in terms of the dividend. Francine in terms of the fundamentals of some of the other companies, Credit Suisse come have you expect the Investment Bank to perform the re . They probably will struggle a little bit because it has not been a Good Environment for Global Markets. That is all right. Required it what Credit Suisse has been busy doing over the last couple years is and takingng riskweighted assets down in the Global Markets business and deploy more capital to the stable, more stronger, growing more steady private Wealth Management business, specifically in asia. I would imagine that part of the business will be week, but that is ok. It is a volatile business. There will be ups and downs. Willcipants in the markets know that Investment Banks, it does not go like this, it goes like this. Up and up and down, down. Hopefully, there is a positive slope to it. Thankfully for Credit Suisse, they have a strong private bank. Tom this is far too much optimism. Erik, do something here. Is mr. Draghi going to be the bad guy here . Is he going to put on higher rates and start bringing in quantitative tightening to ruin 99th percentile performance . [laughter] on this point, they have been extremely clear. They will not hike great until they hike rates until they are done with the tapering. It is a most inconceivable they are done with the tapering until the end of next year. Personally, i would like them to bring rates back to zero because im religiously against negative rates, if you will. Tom david do you see a distorting the Financial Markets . Negative rates and all . That historic paper a jackson hole, the talk, talk, talk of europe. How do you deal with negative rates and 10year in switzerland is one example . David it is actually not good for david herros portfolio. I would prefer a little bit of interest. It enhances this feeling of deflation, these negative rates. When itld i buy today could be cheaper tomorrow . I think it has backfired on them a little bit. It was the quintessential liquidity trap. I think they overdid it. I think there should be a little bit of Interest Rate. There has been this massive transfer of wealth from the saver to the borrower. Littlelly believe that a bit of rate increase, a little less quantitative easing would be better for us who hold financials and i welcome it. Do you want rates to go from zero to 10 . No. 02 2. 5 . That would be fine. Tom this is a great discussion. We will continue this discussion in a moment. We hope you are briefed on bloomberg television. David gura and i will do bloomberg surveillance on radio in a bit. Before that, your briefing in your automobile, you cannot do better than wake up and say, what happened overnight . Bloomberg daybreak coasttocoast. This is bloomberg. How about a chart on mining . How about a chart on rebound . Glencore, what a train wreck. Down it goes in 2015. We do that to dazzle erik nielsen and david herro. We go down onto 80. We rebound right back up. Francine, why dont you begin on discussion with mr. Herro this dog of dog mining stocks. Francine come on, this dog of dog that came from the best of the best. There was rumor about glencore buying and angri business in the u. S. David that would make sense, but it all depends on price because they are very large on agriculture and ag trading another have this relationship with their canadian partner. The have a lot of people the want to get involved. I really do trust their dealmaking. For the most part, i think they have learned from their mistake in the past. The mistake in the past was that they had too much debt at the wrong time of the cycle. When you are an operationally geared company, you cannot have so much financial gearing. Maybe we were a little early in investing in them. In retrospect, it does not look so early, but it was early at the time. They took steps in that september 2015 to repair the Balance Sheet. The amazing thing to us is this is what provided the golden opportunity. They announced they had a share issuance. They announced cap custom Capital Spending. Downet the stock cap going with people saying they were going to go under. They have enough financial strength, they had enough backdrop. Comes fromtheirebit their trading business. How big does it become at the expense of dividends . David they need to do what i mentioned earlier. Debt downoing to have to a very small level. They need to think, if we can make an acquisition that enhances shareholder returns, do it. Pricegoing to depend on and the ability to manage and integrate. If they cant do that, they could return the debt to shareholders, but we want them to go through that exercise. The beauty is that the managers of glencore are some of the biggest shareholders of glencore. The ceo owns 8 of the company. With the management team, it probably pushes 15 20 . They are not irrational people. We have a strong degree of confidence that they will reallocate capital in a way that is reasonable. Tom is the commodity rebound we have had a number of guests that are saying no, no, no. Is the commodity bear market over . Erik i think it is. We are not super bullish on commodities. We have an underlying story of Global Growth that is better. We might be pushing 4 in global gdp growth. That is good for commodities. Holding. S you a nice tom thats where i wanted to set up david herro. Some of the nice south american commodities, the iron ore, can you get out front and buy south america . David iron or is a little tricky because of the nature of the supply curve and there are probably one or two producers who have low cost positions. This is why we like glencore and their exposure to copper, which has a very steep cost curve. Come you dontp have this instant influx of supply. This is what happens with a very flat cost curve. You have the few australians and the big brazilian and it is a tough business. Francine what is your take on electric vehicles . This was a big thing at the auto show. Does it impact miners or carmakers or do you buy technology to play into that . If electric vehicles are the thing of the future, how do you go into that market now . David you certainly want to be exposed to copper, cobalt, lithium copper in particular. If there are 40 or 50 pounds of copper in a vehicle today. Hybrid vehicle. There is more in an electric vehicle. Copper is very good for a company like glencore. Now, who knows . You need the Battery Technology to catch up. Today, when you look at density, cost, safety, todays batteries dont provide what is needed to go 300 miles safely. Maybe we are at phase one. Maybe phase three, maybe by 2025 you will have a battery like that, but that still needs to happen. You still have all of these internal combustion cars, hundreds of millions of them on the roads today. , there is antually argument to be made for battery vehicles, but we also need a power grid that can service the batteries, which means more copper. Francine there you go. More copper. David herro, thanks for joining us. Erik nielsen stays with us. In the meantime, if you have questions for erik, it will be our pleasure to ask them on your behalf. Go to tv. This is bloomberg. Taylor this is bloomberg surveillance. But get to the Bloomberg Business flash. Executives from facebook, twitter, and google have been asked to appear before senate and house panels. Investigators are focusing on russian efforts to interfere in the 2016 president ial election. Russians appear to have bought 100,000 in election related ads last year on facebook. Theair said it will meet Civil Aviation authority demands. Ryan has canceled more than 2000 flights because of a shortage of pilots due to new vacation regulations. That is your Bloomberg Business flash. Francine thank you so much, taylor. We heard two diverging views out of the fed overnight. The st. Louis fed president says he opposes further rate hikes. Ideas president has other , saying Central Banks should raise rates in a regular and gradual way. Lets bring in erik nielsen. When you look at the tax plans that President Trump is putting through, does that impact inflation targets . Or because janet yellen may be , doesd when her term ends that impact Inflation Expectations more . Erik if i were the fed, i would not let it do. The tax plan is a bit of a laugh. There is no detail. The only recent people in the paper say the right details is that the first one was one page. This is not real. We dont know what it would do exactly. At the end of the day, interest the economy is at full capacity, so you guess need to hike rates a bit and i dont think the tax plan should influence them on that. Francine is the market ripe for a fed hike or would you be more cautious on inflation . Erik no, i think they have signaled it. Whichever way you look at what the fed should do and what they have told us, it has been a complete mess for a few years now. , that is what we have to go with now, that the hike is coming. Tom we have the giddiness of tax reform. It will be a middleclass miracle, maybe it will be a Carry Forward miracle for private equity, whatever. When does this catch up with the deficit . Erik oh my god. This is not been written out yet. Stage, tonge, at this do a tax cut like this. Middleclass, as far as i can chart, it looks like it is for the higher end and for corporates. It may be good for equity prices shortterm. Thatnk we have learned there is not trickling down through the middle class. Im very skeptical, to be honest. It is going to boost the deficit, for sure. Tom im introducing this chart. Ive been making it off a good conversation. This is comparing gross tax receipts to personal income. It is very crude, it is very 60,000 feet. There is the Reagan Administration in here with greater tax receipts as compared to personal income. Here is the clinton boom, greater taxes to personal income. Down here is the republican, less tax mode, then we go up with president obama. It is really irrefutable. Tax reform is in every way political. Erik sure it is. At the end of the day, we can have a long and interesting discussion how Big Government should be. Europeans and americans tend to disagree, but beyond that, it is a redistribution issue. Who pays the bills and who gets the benefits . At the end of the day, that is all there is to it, really. It is political. Tom it is more complex than that, but that is a very gross chart. I think we will show that chart over the last 10 months. This has been a great hour. Thanks for getting mr. Herro on the same set with erik nielsen. This is bloomberg. What did we do before phones . They save us from getting lost, getting hungry, and getting nervous in places like this. Now phones can save us money too. Introducing xfinity mobile. With unlimited data for just 45. Thats the lowest price out there for one line. And you can get the same price on up to five. See how much you can save when you get unlimited on a new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Belief that inflation will increase. Kerney speaks on brexit adjustment. The just waiting and waiting for inflation. Elerianour, mohamed on economic disorder. There is a dearth of investment, a dearth of prosperity. In this hour, a revised tax system. The president looks for a startingass miracle with carried interest. Something near 25 , middle class need not apply. Good morning, everyone. This is bloomberg surveillance , im tom keene with Francine Lacqua. Reminiscing about 1986 and the months it took to do tax reform. Francine it is, but a lot of investors were saying it is a three page tax reform plan. A couple of months ago we had one. It is very difficult to imagine at this point if you are investor to figure out the tax reform plan in detail. Is we areood news expanding to 240 characters on twitter. After that will provide clarity. Taylor President Donald Trump campaign, casting the proposal that would boost hiring across the country. Reduce the Corporate Tax rate down to 20 from the current 35 . We willump dramatically cut the business tax rate so we can beat our foreign competitors and start winning again. Taylor under the framework, businesses would be able to write off Capital Spending for at least five years. They go england governor says the boe has been given the tools to deal with brexit, but does not make it an all institution that can solve everything. The bank will do everything it can consistent with statutory obligations. We will continue to express and assess our independent assessment of the risk associated with brexit. Taylor carney made the comments in london saying that they are atomically setting Interest Rates. Three people familiar with the situation figure european leaders are discussing bringing forward talks about the transition period that would follow brexit beard it would make it easier for the u. K. To discuss the contentious divorce bill. Dissolved the lower house of parliament and called a snap election for next month. The dissolution of japans to Chamber Parliament has come as required by law. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. An taylor riggs. This is bloomberg. You. Thank data, quickly, we want tt to our good guest this , kehourn elerian. D mohamed crude is still elevated, interesting to see that. Onto the next screen with the vix wellpositioned, 9. 75, stunning quiet in the market beard the yield up three basis points. Francine metals miners slumping, told hitting it slow. If you look at european stocks, they dont know what to do. Tax reform. E a bloomberg surveillance miracle, at 6 00 a. M. Every morning Kevin Cirilli shows up on set, our chief washington correspondent. It is a middleclass miracle, when do we know what the bill is going to be . How we know what it is going to cost . Is it in obscure committee or something tank some think tank in washington . Kevin they are waiting tweet tweet to figure out how much its going to cost. I put that question to several senior aides yesterday who said essentially a are left scratching their heads for how theyre going to pay for this ring. It is going to have to go through the Committee Process were all details will have to be worked out. That is a similar strategy to what we saw on the health care to bait. They say there is more of an appetite to get tax reform done than health care. Tom is syndrome mccain going to be happy with the process of doing the sausage making versus what we saw with grahamcassidy . That the argument is unlike health care reform, tax reform would in the Republican Party have a bit more broader consensus, but how they pay for it geographically speaking, it is interesting, because a lot of the states the president would like to pay for this are democraticleaning states, but they also have republican lawmakers, prominent republicans, too. Looking at california. A lot of moving parts on how theyre going to pay for it. That is the question. Francine away from funding issues, how will it play out cutting president does their taxes, squeezing the middle, what is left for the other ones . Night i was with democratic strategists who are attacking this plan, but a lot of centrist democrats this is interesting and looking at the layout of the proposal, we do not have the details, so we muchdnt read too into it at face value everybody is getting a tax cut. The base would love it, to be honest. Tom thank you so much, Kevin Cirilli. Day one of tax reform. It is always good to speak with mohamed elerian. We introduced him country ofrshipful fishmongers abode, down the it a important speech, today . It was an important speech, but it also noted the challenges that remain. It was a balanced speech and one that speaks to the content of the conference. Let me bring up an essay here, midseptember essay from project syndicate that cuts to the chase of the pressures that Governor Carney has. No other country or group of countries anywhere close to being in a position to carry the gton, the emergence a bit zero era becomes a lot more probable year after year top government officials at the World Bank Annual meetings failed to address it. What must be the theme to make things easier for chair yellen, mario draghi, and list. D it is a long theres a lot of things we dont understand. We dont understand the mystery lowflation, we dont understand wage determinations. We have a host of National Issues that we as a economists need to understand better. Then we have systemic issues. You just mentioned the adding up problem is getting more complicated and then put on top of that geopolitics in politics and politics in you get a list of uncertainties aired this is an important time to devote to thinking about basic issues, the functioning of the mystic and global economies. This point in the u. S. Economy, what do tax breaks actually do, do they work on inflation and does that help the fed with decisionmaking . Mohamed the big hope is that tax reform not just cuts, but reform, will help Economic Growth and do it in an inclusive fashion. That is why the administration ispursuing tax reform, that why there is support on both sides on tax reform. There is a lot to be detailed. As you pointed out, this is still a blue point. We dont know much about the balance, we dont know much about the distributional impact and we dont know much about the impact on the deficit. I think as yesterday being another step in the design process, but there is still a lot of design and then you have to adopt it and implement it. Francine at this point what s job ake the fed little bit easier when it comes to making sure the market a little bit easier when it comes to a hike . Isamed i think the market coming to grips with that. In the last two weeks the implied of ability of the december hike has doubled. It has become the majority view and that is thanks to statements by federal officials including chair yellenss speech on tuesday. The fed has gone on long way in getting markets to internalize this notion that a rate hike in december is very much on the table and a portly and has been part of beautiful normalization and it has not disrupted markets. The most interesting thing we have heard in days, migrating deficit to gdp from four to five to even 7 , deficit to gdp. There is a point where deficit to gdp clicks in with chair yellen and frankly with legislators, isnt it . Mohamed yes. And there are two issues, one is how big is the deficit, and two, and i think more importantly is why is the deficit so big. Are we investing in infrastructure . If yes, you can hope for growth payoff and then your ddp ratio less of aio is concern, because gdp will respond. Tom i love when he does partial differentials and furnish the fishmongers on the river thames. Mohamedbe back with elerian and david folkertslandau. This is bloomberg. Tom bloomberg surveillance, Francine Lacqua london, im tom keene in new york. David folkertslandau of Deutsche Bank, and joining us is mohamed elerian. What a joy to have the two of you together. The revisedain britain would system . Dr. We at a point, annexes, that we need a whole new international Financial System . We have david onset, he can speak to that better. Nhey were right, they had a important insight that the system wouldnt function as deep as before, and they had to think about this set up of the system and they have an proven right over and over again including the difficulty we have today in generating growth and getting to a configuration everybody can live with. So important, the basic idea of your work is the flow of money, what do you see of yen, what do you see of removing the dollar and of course euro, what is he distinctive point right now within International Currency architecture . David thank you, tom. Mohamed, good to see you. There are two levels, one is and who has the floating Exchange Rate. We had a de facto dollar bloc in asia. That is less true now as flexibility has been restored as we had predicted and rightly so. The chinese economy is not sufficiently large and sophisticated to deal with a more Flexible Exchange market, but it was all about the systemic part here it like ed said before, when you economicsm look at we still dont understand how the basic works, but we do know the broader systemic issues, there we still have some lows. But in terms of flows, what this exchange reacts to, i think we how muchmuch at sea we have to learn and rethink what we once knew. On that point, because some of the movements on the markets have been unexplained or at least correlations are not working anymore, what do we understand about chinese ethics policy plays into dollar, euro, but also bond yields . Greatd that is a question. And chinese fx management has involved a great deal. I think there is now greater attention being paid to the implication. The basic scene is called a hot potato system. The growth dynamics are not Strong Enough to compensate for the loss of competitiveness. Fx market is trying to figure out who for the time being is ready to live with a strong currency. That view shifts and everybody has been surprised at the move and a dollar, you shouldnt be, because there is a limit to how strong the euro can get. Think of it as a hot potato, no one wants a strong currency in this environment. Comes to the chinese one thing important to understand is for them stability is really everything. They made a mistake and letting the Exchange Rate float causing volatility, but once that was corrected, my sense is above everything they did not want to and willhe system intervene sufficiently. They do have the power to intervene in markets to keep her sections on capital flows and what companies and banks due to keep the Exchange Rates fairly stable. I do not think the r b is going to be a source of disturbance for the rest of us. Francine is it the way they handled it or if you look at dollar weakness it almost seems like the stars were how to stabilize this. When chatting with him about this, they really had to learn, they didnt know what to expect. But they have learned and i think they can do it now. With regard to dollareuro, i mohamed, it has been a fast, steep decline. Howit is difficult to see it it light of dollar performance, euro rate performance, my expectation is to see and judgment there. Tom what do you need to see from madame lagarde at the imf meetings . What needs to be her driving message on economic disorder . I think to continue to aress that Global Growth is responsibility. David said something very important which is certain countries learn from their mistakes and china has been a typical example of that. And adapt,quickly but the system as a whole has not learned from its mistakes as of yet. And i think the managing , cantor, Christine Lagarde evolve on the discussion is not their understanding of this. Tom thank you so much for joining us today, we will continue with david folkertslandau and on germany as well. Coming up later today, it has jim sporting for the chain us jim chain us on this great bull market. Francine we are keeping a close eye on brexit negotiations. We heard from the commissioner saying he sees a new dynamic for breakfast talks brexit talks. I do not know if that means there is movement on pound, he says more work needs to be done. This is also what we heard from david the question remains on the enforcement of citizens rights. Lets get to david folkertslandau. Our negotiations going better than expected . David german elections have obviously change the overall scenery. With that out of the way there is more room for the European Union to be somewhat more accommodative them before. The tone has improved and it feels better. It is still difficult negotiations and it has to be approved by the European Party in the end and they take a stringent view. Dollarpound it is very strong, i would say. Given before brexit it was now 10 11 nd 150 down. It should be lower more than 10 given the deterioration in Foreign Trade and access to markets. Think while on a daytoday basis the pound could move up and down, but over the long term we would expect a weaker pound over the next year or so. It is an a sense of taking a general view, this is a country major trade partners and that has a tremendous impact without having anybody take that place. Attend percent decline is not enough to accommodate for that. Francine thank you. David folkertslandau of Deutsche Bank stays with us. And coming up we have the chief brexit negotiator for the European Union, what he sees important in the talks. What did we do before phones . They save us from getting lost, getting hungry, and getting tired of places like this. Phones changed everything shouldnt the way pay for them change too . Introducing xfinity mobile. Where you can pay for data by the gig, and share it across all of your lines. No one else lets you do that. See how much you can save when you pay by the gig. Xfinity mobile. Its a new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Tom Indian Summer barely describes a heat wave is more like it, it has to be the warmest september since i began. A beautiful view looking down manhattan towards the freedom tower. Good morning, everyone. Bloomberg surveillance from new york. Right now, first word news, here is taylor riggs here at taylor Congressional Republicans have unveiled the revamp of the tax code in a generation. It would cut taxes for corporations and nearly double the standard deduction used by most americans. Will protect low income and middle income households, not the wealthy here to they can call me all they want, it is not going to help. Im doing the right thing and its not good for me, believe me. Taylor the tax rate on corporations would be set at 20 down from the current 35 . And President Trumps Health Secretary is still on the job. Tom price spoke with john kelly yesterday and did not offer his resignation. Price is facing congressional investigations on what politico reports as hundreds of pirate flights private flights. Dylan with the financial crisis and brexit, carney says it is not an all powerful institution that can solve everything. He made comments celebrating two decades of the boe thomas lee studying Interest Rates. And devastated by hurricane maria, owens of dollars of damage billions of dollars of damage and the entire island of puerto ricwithout wer. There is a signicant need for immediate restoration of the electric grid. That requires a lot of manpower and an incredible amount of capital. What we did is provide utility with a billion dollars of new capital with l plus for 50 or so plus 4. 5 Interest Rate where that billion dollars is alongside a billion dollars of existing debt the gets rolled into the facility but only receives 850 million of those notes back. A 150 million cancellation of debt. 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. Francine thank you so much. It is a changing landscape. Angela merkel looks to other Big Coalition governments. David folkertslandau, Deutsche Banks economist is still what this. David, when you look at the surprise we had first of all because the rightwing coalitionegotiations aeuble leaving, does it impact the periphery . David when you look at the outside, Market Reaction is almost a nonevent. That said, there will be implications for longerterm. Olicy in europe i would expect policy will by and large persist without many changes. As far as the periphery is concerned, if we had another debts like the greek crisis where america unilaterally came in and held it together, that would be more difficult. Want to see more accountability for german euro spent on the periphery. My sense is life will get tougher for the periphery, but not unbearably so. It is a strong momentum in wille for recovery that it overpower everything, but the periphery reforms will become ther and the fda ftp is vocal. Francine she helped along with Emmanuel Macron david macrons speech must not have had time to revise it, it was meant for a different kind esm for enlarge the european taxation and these are all talk all topics that are and my excitation is we will see the germans pulling back and it wont be translated into action. Francine you talked about italian banks before, this is probably the biggest hot potato as a look at elections in early next year and it is unclear first of all, they dont have an election law and it is unclear who could win. David the state of the european Banking System has always been a major detriment to European Growth recovering. It is close to the worst if not the worst. And here the decline, official measure of mpls looks very good. Around theen and recovery, Systemic Risk has been taken out. I think that here too, all of this has been overwhelmed by a positive sense of them positive sentiment. The issue is what is the next recession, if it is 18 months out, it will all come back. There i think our particular concern is that rates are too low. Unds is almost 200 basis points lower than it should be. We havethe chancellor merkel, what we have electionkel, does this really signal a generational change in germany . David not yet. I believe she will succeed in putting her coalition together with the ftp, but it will be difficult. You have two ideologically opposed parties and to come to a common in the shaded area of a venn diagram will be a hard thing to do, but she will make it work. Generational change will have to wait a few more years, whether she will serve her fullterm, remains to be seen. I would not speak of generational change at this point, no. Tom is there within the venn diagram room for the far right . Yeah, this is a question of whether you from the inside. Tom i want to know what it means for germans on the inside. Is an emotional shock, cultural shock, for the first time the Rightwing Party is in government, but when you look around the world it is not leftwing have a fringe and a rightwing french. This is not a big deal to have 12 or 13 right wing party in the government and their ability to govern and organize themselves should be they have not been very successful in the states and i think very likely they will if not disintegrate, but they will not affect a fighting force in the bundestag. Tom what is a polarity between stuttgart interest in and do they want the same euro . This takes us back to the 1990s, tom. It is a difficult question. Of course, in some ways, economically it would be better to have two currencies, one for east, one for west. Tom interesting. About if thes also koreans ever unify, what the currency should be. I wouldnt say germany and italy are the polar opposites. I think everybody wants growth, everybody wants a stable Financial System, it is just different ways of going about it. Francine do believe that growth sustainable . We used to jump it shadows, are we now underestimating risk . Have whenig worry we ratelk around the boone the bund rate is just too low. You will remember in 2013 our 130 10 year when up by basis points in six months. We could have a situation where up 160d rate would go points in six months. That would be francine that would be because of mismatch or fear . David no, to think the adjustments happen gradually and nicely, rationally, i think is wrong. Markets do not behave rationally, you know as well as anybody else. You can see a tremendous move your all of the italian banks and all of that will come back to haunt us here at to think that we know where all of the bodies are buried, i think is a mistake. Anticipates financial crisis we can anticipate, but we dont know what causes them here. Growth begins to materialize and confidence in it grows. Francine thank you very much, david folkertslandau. We are also getting breaking news. It may take weeks and months for suspicions brexit progress. He started by saying there is talks. In brexit they have not put an agreement on the ecj and rights of takes a bit says it more four brexit progress. A wonderfulbeen hour and we will continue. Driving across america your best update, bloomberg daybreak, coasttocoast on sirius. This is bloomberg. Taylor this is bloomberg surveillance, lets get the bloomberg is this lash. This is theain business flash. If we continue to push past what is sustainable, i think the risk of higher asset prices or inflation do increase and that highlights the fact that in in my own view Monetary Policy over the next year and a half. Taylor he has become a steady advocate in favor of raising rates. German consumers are growing less confident over increasing concern over International Problems even though they still see the countrys economy as being on the upswing. The Consumer Climate index dropped slightly after five consecutive games. As things heat up for westinghouse electric, private equity firms blackstone and areequity management in talks about the joint bid. That is your Bloomberg Business flash. Francine thank you. As automation gains traction, adopting models to possibilities brought by ai. It includes or concludes concerns that this relationship is under strain with structural changes disrupting employment levels and occasional patterns. We are joined by john fallon, great to have you here it john thank you. Francine i know your industry has gone through a transformation, we are looking at a huge transformation and technology. If you need to retrain people, does it fundamentally change how people should look at their path Going Forward . John i think so. One of the authors of this report today was the originator of this original headline, they 47 of all jobs in america could the automated within 20 years and this is us a different picture. And i think it does so for three reasons. First, it says you cannot look inthe impact of Technology Isolation of other trends such as globalization, Organization Demographics and the like. Second, we need to think about it is not machines replacing humans, it is humans and machine intelligence. Expertise withan machine learning. I think the third big point is walls it then is hard to say with confidence what is going to happen with to your jobs in particular sectors, it is using data survey and skills base out of the u. S. Department of labor, we are able to say what are the skills and links of skills that will be fundamental to the future. Francine and those are . John we often hear from teachers, University President s, we are being asked to train jobs that dont exist in sectors that have not been invented. That tells us some things you would expect, stem remains important, but increasingly in , them with other skills complex decisionmaking, communication, ability to persuade people, those will be increasingly important. Some areas you might not have expected, who would have thought that librarians would appear on the top 10 list . If you think about librarians as a combination of librarians, management consultants, data analysts, sift data, interpret, that will become increasingly important. The big message is i think we got to depressed, worked ourselves up into a state that robots are going to destroy jobs. The future is much more writer and optimistic here at it is ours to make that we have to think about how we reimagine the future of work. Francine very good, tom, you can be a librarian. Tom in my dreams. I want to talk about the great challenges that the company is having, but the reality is the challenges education is having, rigor how does it fit into technology into Going Forward. John i think what rigor is about often is an one master a complex subject and then be able and maken patterns links, connections, and then analyze, interpret, and persuade others. But iecomes part of it, think other things are important as well. For example, one of the new areas of employment we think there will be, will be in people who can really create immersive experiences across every sector of the economy. Combining augmented, blended, Virtual Reality and artificial intelligence. What sort of skills will be needed to do that job . It turns out fine art, design, combined with really good , abilitiesguage linked with sales, marketing, and more entrepreneurial skills. Rigor matters, but combined with how do you apply that rigor. Empathize. Lots of great stuff to talk about, the mysteries of the Digital Economy here in the autumn of 2017. Let me go over the Digital Reality of a bloomberg. You are on your trading desk, what do you do . You look at tv. Can you tell ive got the plague . You bring up the previous segment. Jpmorgana chart of the and Deutsche Bank and you can steal it. We continue on pearson this is bloomberg. Tom good morning, everyone. Francine lacqua in london, im tom keene in new york. Call about a single best chart . The is pearsons chart and Great Success through the last part of the rebound and then the rollover here on the digital challenges. John fallon is with us now on the digital of learning and the digital of video as well. Headaches your biggest. How are you going to battle the demon that is the transition to digital . John it is the shortterm challenge, but it is the longterm growth for the company. I cannot say much about Current Trading because we have a Trading Update in a couple of weeks time here at as we said before we are shifting in our biggest Business College publishing from the 300 textbook to the 90 Education Software that provides more functionality, more support, more engagement, more success for students and it is actually a better is this model for pearson because we go from selling one textbook every three years to selling access for 90 every term. It is difficult working our way through the transition and you can see the challenge we have from the stock price there, but i do believe the opportunity to. E the winner is a huge one some of the trends we were talking about in the Research Published today, no one can doubt that more skills, more training, better education is fundamental to the future of individuals, corporations, countries. And we have a big opportunity to be a big part of it. Francine we talk about it every day and doing it on the computer is tough, tougher than one on one interaction, right . John we talked about before what we were doing with glenn hubbard, completely reimagining his economics textbook. Really ise next step Education Software, have of it in text, i have a it in video, students whereet they are. They want to engage differently, but also provides more data and analytics to tackle d, professors, to help them to be more successful. Important, one to get through the pain of transition, the Business Model is a better and more sustainable one for pearson. Tom thank you so much. We greatly appreciate it. Rate challenges with digital and we will talk again as that process moves toward here it i give you a vanilla report today, 112. R stability with yen, us. Good morning, this is bloomberg. What did we do before phones . They save us from getting lost, getting hungry, and getting nervous in places like this. Now phones can save us money too. Introducing xfinity mobile. With unlimited data for just 45. Thats the lowest price out there for one line. And you can get the same price on up to five. See how much you can save when you get unlimited on a new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Jon growing optimism over the health of the u. S. Economy and the president s taxcut plan. The administrations prescription for growth involves a big rate reduction. Trump calls it a revolution paul ryan says this is a now or never moment. Good morning. Bloomberg daybreak this is bloomberg daybreak. Lets get you set up for the market day this thursday. Futures on little softer. The backup and global bond yields continues. Treasuries of facing a punch from fiscal slams a here in the United States and a reality check from janet yellen. The 10 year yield. Takes ae dollar spot breather after a monster rally over the last few days. Gold relatively