Trump waving cargo restrictions to help speed aid to the hurricane ravaged puerto rico. He has ordered the jones act waived for shipments to the island. The waiver will be in effect for 10 days and cover all products being shipped to puerto rico. It is a maritime law of acquiring shipments of good between two you a sports to be made with American Flag vessels manned by american cruise. Tokey is warning citizens leave the autonomous kurdish reason region in iraq before it cancels flights in the area. Flights would suspend it follows a similar one by baghdad after they held an independence referendum this week. The European Union will look beyond its impending breakup with britain and how to build a Common Future during the twoday summit that began today. The french president , emmanuel macron, have set out their unions of closer eu integration. Global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Live from bloomberg World Headquarters in new york, i am julia chesley. Scarlet i am scarlet fu. Joe i am joe weisenthal. Stocks are at record highs. Joe the question is what did you miss . Scarlet tax plan architect gary cohn came out to take questions at yesterdays press briefing. Where should investors draw the line question why puerto ricos crisis is causing bondholders to rethink yield. Theseying it on all issues and more, do not miss our exclusive onehour sit down. We missed joe. But also the 2017 marks its 20th year of the bank of england passes independence. Learned during this time and will the world passes major banks retain independence in the future . Foring us now is robert u. K. House of lords and professor and political fellow of the british academy. Joe welcome. Great to have you on set. Very nice to be here. Joe i thought it were celebrating 28 of independence and my first thought was we think of independence as a core aspect of modern central banking but 20 years is not a very long time. It is pretty recent. What have we learned during that time in terms of what independence means for the functioning of the central bank . The independent Central Banks were set up for two reasons. Take as much Economic Policy as possible out of the hands of those votes seeking politicians and the other is a way of controlling inflation. That was a big problem. They came together in the idea that Central Banks should have control over Interest Rates and governments except inflation targets and leave it to Central Banks to hit the target by manipulating Interest Rate policy and for a time, it all seemed to be going very well and a lot of people said it was indisputable that the low inflation of the 1980s the years leading up to the Great Recession was due to a Central Bank Monetary policy. We now have a few more doubts about that pair first of all, it might have been due to other things as well. Since the crash, they have been completely unsuccessful at hitting inflation targets. We have in hr that illustrates that nicely. Most of the major Central Banks falling short of the 2 target. Of course, a different category given what the pound has done. Or willpendence independence of the central bank continued independence help them or give them the tools needed to raise inflation . They were given some of the tools are first of all, it is a good question. Why didnt they spot affect the Banking System was going in there watch . That has been remedied to some extent and they were given remedy for financial stability. That may not be consistent with their inflation target. Really, when you consider why they failed to hit their inflation targets, for example in the that may not be consistet with their inflation target. States, you have got 4. 5 unemployment and inflation under inflation target. Compared with the 1960s 4 unemployment and inflation was 6, 7, 8, 9 . Why . It shows Monetary Policy alone is not enough. The government has to be involved in managing the economy. Are you saying the central bank and monitor policy is not necessarily to blame for missing inflation targets . I guess my first question is why would we assume 2 is an approach it an appropriate inflation level but also given the struggles most central bankers are now facing in terms of inflation a little bit higher tour their targets, what is the problem and why can they not understand the problem at this stage . You are always fighting the last war. The last war was inflation being too high. Now the war is being inflation too low. It is asymmetrical. I think our Central Banks have shown they are quite good at controlling inflation but very bad at raising the inflation target. That depends on what is happening to the economy. Joe it does seem like a lease thinking about this question may be changing a little bit in the sense that in recent years, people were advocating things like helicopter money, direct monetization of government spending, relinking the central bank and the fiscal authority. Could 20 years from now we say ok, we have this experiment in central bank, independence, and we may not think it is that big of a deal anymore . I do not think the central bank will last. I think governments are going to increase in the department of treasury because they are not doing the job they were sent to do. They havent been doing the job of stabilizing the economy. In quantitative easing, if you think of the money that pumped in, good, they averted the great which happened first . That is what they want them to do. There has got to be an integrated Economic Policy in which monetary and fiscal aspects and departments collaborate and much like a seesaw went when it pushes there is a big question. Why have they not been able to hit inflation targets . Interest rates have been zero and near zero for a long time. We have a labor market, it actually produces falling real wages. Where is that working for you have got best balance of central fiscal policy for the government . An interesting question. 17 of the Banking System is now national nationalized. Before what we call normalization, if we look lifted up and immediately they have to go back and the calls started coming for quantitative easing, we know how toxic that could potentially be. Could the next downturn be the catalyst for a fundamental rethinking of the role of Central Banks . I am sure you will need another one and i think it is quite likely. The new normal is worse than the old normal. The oldest worth than the previous normal. Hell of a lot of money in the hands of a small group of people. It is feeding asset doubles. Ne day, these look crash i dont know when. Probably sooner rather than later. Then i think policy will start to move. In many cases, we blame things Like Technology for having this debt, for having disinflationary pressure on these economies. It is taking some element of the independence of the bank away. It is the wrong way of tackling this. It is a good point about technology. That is a slower moving thing. Really, i think it is the way the economy has been working. The economy in one sense is at full employment. It is full employment with a very degraded structure of jobs and because you have big and a degraded structure of jobs, you do not even get a push. The government just has to do more they have as much as they can. About theu say it is government, it is about economics. Because all of this was based on up to date leading edge. Economics going back to Milton Friedman and going forward. All right. Thank you so much. We are talking about the bank of england. Robert says perhaps you may not see the this in 20 years from now. We will discuss the future of europe next. This is bloomberg. Quite heading down different paths. Emmanuel macron seeks deeper european integration but his partner Germanys Angela Merkel has seen her as we can after the elections. A member of u. K. s an american professor of clinical economy at the university of warwick. Thank you for joining us in staying with us. Do we see a move toward a more fractured europe with the lead the recent election just after the european economy seems to be hitting at every cylinder . There will be more fractured. The idea the of greater integran is a bit of a pipe dream. It has always been, but now there are so many groups opposed to it that it will be hard to bring about. Without bringing in about, the whole project is in danger. Treasury, itntral needs a central bank that can act as last resort, and all of that is opposed by the nationalists in the alternative just scored spectacularly well coming from nowhere to 93. The euro skeptic movement is growing. The only answer the officials to have moreis integration. That does not deal with the problem of democratic deficit. It does not deal with the problem of innovation. It does not deal with the problem of integration or the control of borders. A stalwart of the eurozone now but if you go back a year ago, it was seen as a basket case. Tie the things together for me, the challenges you mentioned. You have got a president in france talking about a eurozone budget, a eurozone finance minister. Angela merkel says we need to stop using slogans like that. Jeremy is not the only company against more euros. How does this play out . One thing is clear. Germany runs europe. Merkel says given her domestic position, even more so, france is not a code we hope partner in this. What happens if there is no further agenda . You talk about the common treasury and the greater budget and all of that. Movement toward that, what is the future of the eurozone . I think members drop off it by date. This is the german finance wanted, has always which actually can have these institutions. Britain has already dropped out. Maybe others will. The thing is the greater integration necessary to make it work also challenges the democratic upsurge in the nationalists upsurge. You have got two contradictory imperatives. Is another thing we will see in the next downturn . Bits from the post word order are drifting away. Know, a new stable world, what it will be, and how much strife we will have to go through to get there. Is not a comfortable situation. Elites are losing control. People are fighting on many fronts. Parties are being cannibalized. Conditions for the next five years . Boy, always, events, dear will decide. I do not think economies are particularly stable or healthy. If there are more shocks to economic stability recovery, i think the populist movements will be strengthened. I spent a lot of time reporting crisis countries. Underlying is always dont underestimate the desire to keep this together and the importance of the eurozone and the currency as well. Do you believe that even in the current situation, the fact that she will hold the same together germany is together in one thing, told the European Union together. That is a thing they dont want any memories. Not prepared to discuss leadership and responsibilities. Responsibility for looking after they do not want to pay except for in an emergency. They do not want a European Clearing Union to settle the imbalances. So what they are compared to do withut in an emergency good collateral. That means gradually, they take over more and more of the property. That is not viable. Joe you have literally written the book or books on the history of economics. All the questions out there, the failure of Central Banks, questions on how budget deficits were, what do you think of the economics profession right now . Is it in need of soulsearching . It does need a lot of refashioning and refreshing. It is stuck in a paradigm and it is slowmoving, behind the curve. Textbooks only get rewritten once every 15 years or something. Met inin trench fortification of orthodoxy. For people who attacks it attack it from the outside, either they are being incompetent or they are idealists format. Been as Much Movement within the profession as one would like because politicians are consumers of ideas and if they get that ideas from then they do bad things. Some fresh thinking. Thank you so much. Professor professor of political economy and fellow this is bloomberg. The stock as of the head of the report by 3 , is here. Tell us what analysts and investors are looking for. One of the largest homebuilders in the u. S. , they are expecting good results for the Third Quarter and the sales are likely to rise 22 year on year driven by an 11 increase on average selling prices. There are peak headwinds facing them largely due to Hurricane Season. Take a look at what i pulled up here on my terminal you can see the central u. S. As the second biggest Revenue Source and that basically means mostly texas. 9 and another big area for them is florida. I was talking to colleagues who it be dealhould not on the Third Quarter because of the timing of the quarter and the hurricanes and it could be something that goes more until the fourth order. Joe is this the type of thing investors will recognize as temporary or can pull forward or putback demand because they will have to rebuild . Exactly. It will be a little bit of a delayed reaction and then there can be compensation one building starts to happen. Another thing i want to talk about was the number of people shorting the stock. It has actually been quite a big target. 4951, youk at g btv can see the Short Interest over 11 . It is actually down from peaks there. A lot of them have now been covered. It seems the homebuilders keep going up. You look at the index having the best year since 2012. Just kicked everyone out, i remember. Absolutely. We have another confer that to show all of it. I will put it up. It might be too not enough time to pull up. We were trying to get it up there for you. It looks like they should do well. They should do well. I will post those results in about five minutes. Thanks for the preview. The market closes next. Than four minutes to go before the close. The dow upndexes and by 36 points. The s p 500 above that level. The nasdaq at the moment looks like it will close down. This is bloomberg. Who knew that phones would start doing everything . Entertaining us, getting us back on track, and finding us dates. Phones really have changed. So why hasnt the way we pay for them . Introducing xfinity mobile. You only pay for data and can easily switch between pay per gig and unlimited. No one else lets you do that. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit or go to xfinitymobile. Com. Smp fluctuating in record by putting in p record territory. Fluctuating in record territory. I am julia chatterley. Scarlet i am scarlet fu. Joe i am joe weisenthal. Scarlet our market minute, little changed for the major indexes. Gains,looking at small nasdaq finishing unchanged literally at the moment. Joe another day of no headlines changes. Scarlet plenty of news under ,he surface, especially roku making its trading debut, ipl at 14 per share, gaining ipo at 14 per share. Write a down 11 right eight down 11 . Blackberry with Record Software revenue and says to investors it will hit growth targets this year. By almost 4 on a report it will be sold to Sports Direct of the u. K. According to the new york post. Joe a quick look at the Government Bond market, starting with the u. S. Twoyear and 10 year, a little bit of a decline on the short end. 0 year yield ending flat it had been rising early in the day and ended unchanged. , it hasnese 10 year been creeping up a bit lately with the global rise in yields. Heading towards the end of the month and and of the quarter which will dominate some of the flows. Softness in the dollar, denting a weaker gain of more than one present, the strongest week since december. Fromdollar, overnight 11721 and trading 11781. Softness in dollar yen. What is going on in dollar a threemonth chart, the bank of Canada Governor suggesting the bank should proceed cautiously with Global Factors created uncertainty after rising raising rates by 50 basis points in the last 1. 5 months and it regained footing on oil jumping to a fivemonth high. Joe real quickly, on the commodity, not a lot of action. Oil falling by 1 , but 51 and west texas intermediate. Copper has done pretty nicely and continues to pick up, 1. 6 . Below 12. 90 1290 per ounce. Those are the market minutes. Scarlet the moment investors have been waiting, President Trump unveiling the framework for tax reform legislation. Republican of tennessee senator bob corker told us that this will make Health Care Look like a simple thing to do. What investors perspective, shortseller of pimco associates will be with us. If you look at the tax plan president has proposed, 20 percent Corporate Tax rate and a writeup of Capital Spending for five years and three tax brackets for individuals, this is the starting point and things will get water down. Do you think that congress will buy it and do you buy it . It will be a hard sell. Senator corker may be right, i pland the Gop Health Care gop stalingrad because it was symbolic and just a morass. I do not know if it will be better, i do not know what they are trying to accomplish, Still Campaign promises. Corporate tax rates while 35 nominally, effectively are much lower for the s p 500 in the high 20s. Overall corporate profits, public and private, high teens. You are not on a test basis point to get a lot of help on a cash basis going to get a lot of help. Gary cohn said that maybe they get 1000 for a family with 100,000 in combined income. Maybe. Doubling the standard deduction but eliminating the personal exemption, for a family of three or four, offsets the increase standard of action. In new york, or even my home state of was thousand, a high tax home state of wisconsin, a hightech state, you will get clobbered. I do not know what this is doing. They talk about jobs emphasizing capital equipment, expressing immediately of capital equipment. Capital equipment is replacing human labor. That, ifsuggestion they wanted this to be about jobs, why dont they keep the tax rates higher and give a double reduction for employment wages and for employment wages. Emphasizingy are capital formations. Which may or may not lead to more jobs. Joe it is hard to find an argument that it is a boost to the middle class. It doesnt seem like it is oriented towards jobs. Who is winning . Lets go one step further and look at the elephant in the room from the wall street perspective. They are talking about limiting the interested actions or corporations, basically new debt going forward. Existing debt with interest would be grandfathered. That would devastate the private equity and commercial real estate businesses. We think that will happen . Do you think that will be lobbied to death . Theyillion over 10 years are hoping to collect that probably goes out the window. Does anybody care with 3 growth . We are not worried about that. We do not care about the deficit. You know you have wall street people in the white house when you start out with best case and hope you do not disappoint. What happened to under promise and over deliver . ,tar from 3 and go from there call me cynical but it may be disappointment ahead of us. The net effect, i know it is tough to ascertain that, but what do you think the net effect will be of this framework . It is a tough sell, politically, it is not a windfall and even the demonstration is saying for a typical middleclass family it is 1000 and i do not think it is that. Thelook at eliminating estate tax which kicks in after roughly 11 million, not small mother and father farms. This will be a great tax bill for Hedge Fund Managers in florida and the descendents of very wealthy people. Great for them there for everybody else, not so sure. Probability something will get done in 2017 . Not this bill. Scarlet the white house has thehad many wins aside Supreme Court justice and the stock market is going good and economy is holding up. You seem more short opportunities in the u. S. Than elsewhere in the world and of political wins are not for buoyant market, does it follow the political losses will not trigger a downturn . It is hard to link the politics. To returns. Because everybody said it was the donald trump affect and other stock markets have gone up more than hours. Markets buoyed by central bank liquidity. It is maybe winding down into 2018. That to ascertain a political motive or reasoning or the stock price going up in the u. S. Is maybe a little bit of a stretch. Possible, really unlikely that they will get this tax bill done you say. At they will do under george bush and say, lets lower all the rates for 10 years, it will not be permanent, not reform, but a tax cut and everyone likes more money. Bubble the dynamic of the deficit hawks come enough to squash that in the gop . The democrats will not go along. You still need 51 votes in the senate under reconciliation. Will they get them all . Who knows. They did not in health care. It will be interesting to see. That is the most likely outcome, they simply go for a basic taxcut package and other reform package. I remember the 1982 package, got enacted in 1986. They had a bipartisan agreement and it took four years. A yearandahalf in the planning. Takingeasy when you are things away from certain vested interests like the interested action. Something else to go off like a rocket, infrastructure. What do you think is the possibility of a broader infrastructure bill . Week, there was a story in one of the majors that donald trump told lawmakers he does not think the privatepublic partnerships will work. That was the linchpin when this idea was floated postelection that we would have a private sector putting in effect the capital with tax incentives being the equity from the government. I kept saying that yes, if that is the case, you need specific cash flow generating assets, like parking lots. Like all roads. To make that work, for private investors. A lot of the Infrastructure Projects we need are not immediate cash flow generating assets. I think that they are realizing that. The real stuff we need is good oldfashioned government spending. Again, that may be more of a problem. You have heard a lot about the infrastructure plan in the last few months. It is in limbo. You are sticking with us. Coming up, puerto rico on the break of a humanitarian crisis, did bondholders crossed the line, offering cash for games . We will have more after the break. Time for first word news. The human Supreme Court will try for a second time to decide whether 5 million government workers can refuse to pay union fees after a deadlock in a similar case last year when there were only eight members on the court. Critics argue mandatory fees from workers not members violate the first amendment, a ruling on the case could deal a blow to democratic leaning labor unions. President Trumps Inaugural Committee donating 3. 5 million to Hurricane Relief efforts. It raised an unprecedented 107 theion eight months ago and committee had not started contributing to charity as promised. Acting Homeland Security secretary elaine duke says 90 of puerto rico is accessible. She gave an update on aid efforts today with Homeland Security adviser tom bossert. We have generators, everything has been prioritized, we went hospital first and are on gas stations now. It is a conscious effort to make sure we do not have loss of life. She says the most difficult challenge is the distribution of aid across the commonwealth. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. This is bloomberg. The u. S. Territory of puerto rico in ruins and investors are looking to cash in with a group of Investment Funds yesterday offering a deal to include a 1 billion loan in influx of capital when it desperately needed. Those are saying the deal was not all charity. Back with jim chanos of kynikos associate. This is so complicated with the creditors looking at their bonds losing value, trading . 52 on the dollar. Your sense of perspective what is going on in puerto rico and compare it to katrina. We are not involved, not distressed investors and the last thing Puerto Rico Needs is another loan, they need aid. They have enough debt. The issue is to get emergency aid in there and worry about finances later. The magnitude is staggering. Katrina affected 1. 4, 1. 5 Million People of the new orleans metropolitan area. Even then, within the broader area. This is 3. 3 Million People, the entire island pretty much. This is devastation. Joe do you see, outside of the acute crisis, do you see the political will to restructure the Economic Situation in order rico, provide debt relief, provide investment it would take to get the country on a sounder economic footing . We have a longerterm risk, if you want to look at it through that prism and add the political side, that is, at what point do Puerto Ricans on the decide thiso cost of living is too high and my life is not great so i will move to florida . People are already talking about that political calculus. Does that change florida . Does it change the politics of florida . Does it make the economic my motherland greece has seen that with a debt problem for young people have left and are leaving. It exacerbates the longterm viability of the debt situation when your youngest and most able people decide to go look for work elsewhere. Julia you do not have the people to restructure and rebuild. A tough one. Scarlet let me jump in because we have breaking news, tom price, the Human Health Services secretary will reimburse his private jet cost. After President Trump had criticized him, price will reimburse his private jet costs after President Trump had critiqued him. He chartered private jet to fly him around the country on government business. We will continue to monitor that headline. Still ahead, jim chanos most famous short bet on tesla, what investors should be looking for when we get numbers next week, how will he change his view or not . This is bloomberg. Scarlet tesla intent cash burn come everyones favorite stock and with all of the height and ype but the profit h none of the profit. June the youin would give up a short once tesla begins making money and the predictions are not until later this year at the earliest . Not even later in the decade. Scarlet you do not see a turnaround in the works . Jim three years ago they were supposed to be making money now and now, supposed to be making money by 2020. By 2019 we will hear 2025. They are structurally not profitable, capital structure is way too leveraged. It took on it took on solarcity four 8 billion and assumed that in stock issuance. Dalarcity had negative ebit. The drain on the shareholders is 1 billion a year on solarcity alone, a big grain. During. Drain. Joe investors are so into the musk vision and think it will change the world. Is there anything that could change your mind preprofitability, if it looked like the model three was really ramping up and they were selling . Jim they need to ramp it up, nobody is buying tesla stock based on the current business, it is based on the future and the hopedfor acceptance of a half a million to a million model threes per year and whatever is coming on before that. Let me make an important point, one of the reasons this company was successful and elon musk had really vision ahead of everybody else, was he made electric vehicles sexy. Model s was a sexy car. They are great. It was aspirational. It was not a compromise. Most evs have been a compromise. A small bug like car, not aspirational or cool. He made it cool. The problem he now has is, as we saw in the last two weeks with the mission e ruled out by porsche and 2019, the competition is coming out with sexy sports cars and high in vehicles. They are putting their a list the existing line, electrical and them or designing from the ground up an electric vehicle that is a sports car. This will be the reality by 2019. That is a different animal. You have lots of competition now and wellfinanced and Profitable Companies competing against you. One more point, tesla is now behind on autonomous driving, a lot of people have put the stories like autonomy and mobility onto the stock. They are level two with gm. Many people believe gms cadillac autonomous features are better than teslas. Audi is at three. Not the leader in areas they were leaders two years ago. Julia focus on the model three and whether they can take the concept more mainstream. They declined an invitation to have a considered for the north american car of the year, setting off one or two alarm bells. What do you make of that and how closely watch the numbers next week . Jim the model three is in beta test even though it has been released. It is in the hands of employees and friends of the company. Most people who have them have so step isda, leaking out in the blogs about no radio, having to go through to screens on the touchscreen to get the window wipers to work. Who knows . They are basically still testing it. It will have growing pains, i am sure. They need to rush it out for investors and so they rushed it out. Scarlet you look at tesla and the fundamentals of turning a , how it is not comparable to other oens. How do you think investors taken by elon musk look at tesla, like a carmaker, a tech company, or its own thing . Jim they are taken by elon musk, the dream, he had a couple of tweets this week, talking about mars and interplanetary travel. I said it must be the end of the quarter. [laughter] you have to Start Talking about mars and not the balance sheet. This is the reality. This stock probably more than almost any other is a poster child for the hopes and dreams of this bull market. Julia we just ask you what made you change her mind, what about the price . What is your stop loss . Andou look at the price say, i am underwater on this trade, a cute rallying, here is my stop loss it keeps rallying, here is my stop loss . Jim we do not believe our fun little case has changed, we stick with it. Julia no matter how much you lose . Jim the money is already lost. Us beforeubled on dropped 90 . You are constantly pricing the stock at the last price. A stock does not know where it came from or where you shorted or own it. It is future profits. Prospects. Do i like tesla as a short at 340, yes i do. 65 billion equity cap, greater than gm and ford and close to bmw, who all have their own electric vehicles and autonomy. It seems a bit silly. Joe something we have talked about before, so Many Health Care companies are structurally designed to exploit flaws in our system. With the failure to repeal obamacare, do any of those stories change . Jim i talked about the problem in our Healthcare System that it encourages rent seeking behavior, lots of Amazing Things about the u. S. Healthcare care system and one of the bad things about it is that we have Companies Whose entire Business Plans are based on gaming the reimbursement system or loop holes. The obamacare the failure to repeal obamacare in many ways will heighten the pressure for some of these companies because now you will see the state julia we have to take a break. Plenty more to come. 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. It is time for first word news. National Economic Council head gary cohn dated appearance at todays White House Press briefing to discuss president proposed tax plan, laying out the timeline to get the plan through congress. They are working, they came in on sunday to start working on the tax plan and continue to work every day. Chairman brady has said they will get through the tax plan as quickly as they can. We would hope they get through the house in october and hope to be in the senate in november and hope to have a bill done by this year. Added that the administration is committed to lowering taxes for middle income americans. Three months after being shot and gravely wounded during the congressional baseball practice, majority whip Steve Scalise returned today to the house of representatives. You have noscalise idea how great this feels to be back at work in the house of the people. [applause] he also today received a congressional congratulatory phone call from President Trump, and pay tribute to Krystal Griner and david bailey, the two Capitol Hill Police officers who, despite being wounded, shot and killed the gunman. Thousands of Cargo Containers loaded with emergency meals and believe supplies have been piling up on the docks of san juan, puerto rico since saturday. The race to move them could mean the difference between life and death. The island of more than 3 Million People is without power,. Lean water, even phone Service Officials say the supplies may not reach storm survivors four days because damage warehouse is an empty gas tanks are slowing transportation. Three former u. S. President s showed up today at the Opening Ceremony of the president s cup, the first time three u. S. President s have attended the matches together since the golf event started in 1994 with president obama, bush, and president clinton. The pga tour was preparing for a visit from President Trump on sunday but it has not been confirmed. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. I am mark crumpton. This is bloomberg. Julia we are back with jim chanos of Kynikos Associates for his thoughts on a broken health care system. President trump suggested he has the votes on health care but joe said to you how will it change . Jim he does not have the votes. I am not the only one who said that. We were talking about the nature of the system. We are seeing, there was news today, the state of massachusetts has applied to health and Human Services for a waiver under medicaid so that it can start deciding what drugs it will pay for. Particularly, those drugs with no studies. You have one state saying we need to get control of this cost ourselves. Some of this can be done through the executive branch. Away from congress. Again, the costs are killing the state. In many cases, consumers. Joe a lot of companies in the Health Care Space have what you characterize as rent seeking business models, exporting regulatory situations. You are saying that, even in the absence of obamacare repeal, there is policy levers that could be pulled to hit their bottom line. What are the types of companies most at risk from the changes available to policymakers . Jim one company we have been public on that example price the problems is malaprop mahlon croft, most of its profits coming from one compound, which is 44,000 per dose. It was 40 per dose in 2001. The last that he done on this drug was in 1952. The last study done on this drug was activity do. Someone came out with a blistering report two weeks ago about the drug, saying it does not understand why people are reimbursing for this steroidal, and in many cases, like cortisone. Thisis a poster child in Health Care Economy is something that medicare, the taxpayers, i were paying hang on a 4000 a dose for with no studies on its efficacy for things. Example butxtreme there are other situations, the mylan situation. Generic competition is out there but it is squashed. , probablydicare speaking, cannot negotiate drug prices by law. There are all sorts of common sense answers. That washington could do without fullblown legislation. That it seemed to almost always want to kick the can down the road on. Scarlet vested interests are speaking loudly, maybe one part of it. Your thoughts on another debate between ceos and investors heating up, oil back to around 50 per barrel and executives like the ceo of Continental Resources optimistic. Here is what harold said when he spoke with alix steel earlier this month. I believe this price below 50 is shortlived and we are seeing at about 50, i think it is sustainable about 50. We see inventories crashing down , coming down faster than they have. Over the last two years. Scarlet you announced a short on continental with a handful of other shale producers. No surprise drillers are increasing debt to fund these projects, what makes this time different . Jim we have been negative on the space on and off for basically the last five years. The problem is that the structure of the e p space, the fractures in the u. S. They are dependent, they are creatures of the capital markets. Because the wells deplete so quickly, they constantly need to raise money to replace the assets. This is the crux of the story. This is a great deal for the hamm, greatike mr. Deal for the financers on wall street, a really crummy deal for the shareholders of these companies. I do not know where the oil does nott mr. Hamm know where the oil prices will go in the famously removed his hedges a covenant that when the 2014. Ices is 80, 90 in he is an oil patch guy and he does not know. The problem is that you have to look at these things based on where the oil prices are now. I want to stress one thing, a company like continental and Companies Like chesapeake and others, everybody watches wti, but continentals case, almost half, 40 of the company is natural gas. A lot of these companies are tied to natural gas and the natural gas price is near its lows. You have to look at the combined aspect of their energy output. The crux of the story is that the wells to please faster than they are telling investors they are depreciating them on the income statements and earnings are overstated. Joe you mentioned as a casual aside that financial conditions were tightening at Central Banks around the world are more of a tightening mode and not paying enough attention to that are people. Is this the kind of area, because they are creatures of the financial market, that could be Collateral Damage and a central bank . They are getting ready to tighten. I mean by that would use the balance sheet. We have a fed that is about to go into negative, in other words start selling. In the case of ecb and the bank of japan, the two big providers of liquidity, some observers say they will be moving 40 43 and 2018 towards zero at the end of 2018. No more stimulus in terms of bond and equity buying by Central Banks. That is a big change, that number was 120 billion a month or more. To go to zero. While the stock of the global stock and bond markets was about 180 trillion, these are still relatively small numbers based on the size of the markets. I think they had a disproportionate signaling effect, people felt they had to put, courtesy of the central bank, that is going away. Julia if these guys do not stop at the situation by the back end of this year, people will pay interest again. How is the situation based on what you have said, overstating the earnings, going to improve . Jim what i really said i that bidta, issocalled eve overstating things because of the depreciation and amortization israel. In the case of continental that israel. Ittinental hopes to have over 2 billion this year but the Capital Spending is supposed onee about 1,000,000,009 billion plus, that does not leave a lot of extra money to service their debt load. This is the problem. Not that they will miss a Coupon Payment but that it underscores the structure of the leverage frackers. That Capital Spending is a real expense. You cannot just look at the gross cash flow numbers. If you do not invest, your production will plummet. Julia more expensive financing risk. Scarlet very misleading. Jim chanos will stay with us, speaking of leverage, a look at why he continues to sound the alarm on leverage in china. From new york, this is bloomberg. Scarlet stability and the chinese economy and markets, back with jim chanos the shortsellers who is president and founder of kynikos associate, a longtime bear of china. This is an Election Year in china, the october Party Congress is our 2016 election basically and they will keep things calm and clean. What happens in november and december . Jim an election with one party and one guy running the staff running. [laughter] taken china off their front burner, they are thinking that all is calm. They have postponed the problems a lot of people see. We are not the only ones. There are a couple of warning signs starting to flash in china. Industrial metal prices have rolled over, peaking the summer. Iron ore and steel are down substantially. The country has again hit the brakes and residential real estate. They have put in home purchase restrictions and a number of cities. They keep expanding that. To try to cool off a Real Estate Market. To refresh your memory, this is a government that keeps hitting the brakes and the accelerator alternately on the credit expansion and Real Estate Markets. It looks like they are tapping again joe . The rollover and Industrial Metals prices, does it tell you the economy is slowing or tell you about something about the financial conditions in the country . There are all kinds of schemes. Jim and credit, Credit Availability to not only build apartment buildings and speculate on copper prices and iron ore prices. The commodity market is the. Everage tell in the economy because it is the tip of the whip. It will move much more in the actual policy does then the actual policy does. You still have an economy where debts are growing doubledigits faster than anybody else. Twice gdp. Where the Banking System is getting bigger and bigger and bigger and bigger. Can is being kicked down the road and it keeps getting larger. Are noteople say we worried about china make the point that this is a command economy with trillions of dollars of reserves and they actually have control over fiscal policy and Central Banks. They have the ability to calibrate this and get it wrong, and put money added to fix it. Way, theyes symbolic have a close zimbabwe, they have a closed economy. We should caution that the net reserve numbers are lower now than the 3 trillion as they have been borrowing a dollars in dollars are broad pretty aggressively and the net number relative to the size of the money supply is quite small. They have gotten into a lot more of a stretch financial position recently than 5, 6, 7 years ago. It is a closed system. Parallels are very like japan in the late 1980s, although the yen was freely traded, you have a government controlled and directed economy in the late 1980s that was a miracle economy. It was based on exports, real estate, aggressive increase of debt. You have the same things in china. As long as they can keep borrowing money internally and externally to complete the infrastructure buildout and all of the real estate, and they are still building 20 million apartments per year, the game will go on until it is not. Scarlet a love that is they are investing in their own domestic economy and want to empower the consumer. Doneba, a company, you are betting against them. You covered your position in january and still see a lot of problems. Up, every time you open it there is another layer you do not you see. Big news, the company said it would be consolidating or going to 51 ownership of the big logistics umbrella arm. I think that is important. It is something the fcc was looking at and something critics like me were pointing out. There were two problems alibaba from an analysis of video, one is you did not see all the tasks costs because they were unconsolidated subsidiaries, and that we will see some of the numbers on their financials. The other one, much harder to that a hugeuspicion number of their investees, companies that have invested in, turnaround and advertise on the platform. What a lot of people do not realize that all of all the come of their 70 alibaba, their 75 70 advertising. The website are really generating advertising revenue for alibaba. Joe a lot of the. Com stocks in the 1990s. Jim America Online got nailed for fraud. It is an interesting. How can one track that, here is the problem, the number one red tracking service in china web tracking service in china is owned by alibaba. Julia good luck with that. Jim chanos you are staying with us and talking bitcoin after the break. Is it one of the biggest bubbles of our lifetime and doesnt matter if you want to invest . From new york, this is bloomberg. This will be the largest bubble of our lifetime and bubbles happen around things that fundamentally change the way we live. The railroad bubble, they fundamentally change the way we live and the internet bubble change the way we live. Whereill get way above they should be prices will get way ahead of where they should be and you can make a lot of money on the way out and we plan on it. That was the one he is making his comeback with cryptocurrencies. We are back with jim chanos. Bitcoin a bubble . Can you make money . Jim he forgot in railroads and. Com, most of the early investors got shorn and infrastructure state. On bitcoin. Pinion i barely understand it. I am not equipped to talk about it. Other people understand that are raising serious questions. Joe whether something is a bubble or a fraud, things can go up for an incredibly long time. If you only knew when the top was going to beat you could write the first half and avoid the second half. If youre in your experience with seeing bubbles come are there consistent signs to look for that say, this is the type of thing that is late bubble . The way people talk, closer to a top. Jim like paris hilton starting an exchange . Yes, there are signs and i do not know enough about Block Chain Technology to say bitcoin is crazy. The ancillary things you see around it seemed to be troubling. The idea that this is a bubble. We better ride it. Because, even most of the comlroad promoters and. Promoters said it was economics underlying the stock or promotion but here it seems to be, get involved and my cryptocurrency because it is the one. It strikes me as, i do not know where the there is there. I know technology is important and being used by more and more realtime financial transactions. The exchanges themselves seem to have a little bit of froth attested them. Scarlet 20 think about the use of bitcoin in places like china what do you think about the use of bitcoin in places like china where they use it to get money out of the country . Jim to use it and blackmarket transactions or Currency Capital flight. By almost definition it has the regulators and Law Enforcement against you because it of its very nature because of its very nature. That is one of the problems and problems earlier people and watching Technology Point out, there are a lot of promoters and futurists who are promoting things. Let the buyer beware. Joe a few more minutes so i want to get your big picture takes. Overall, Financial Markets these days, people say there is not much cheap stuff out there in the world come equities, bonds, it seems scarlet bitcoin. Joe what do you make of the overall state of Financial Markets . Jim there are not cheap financial assets, most people would agree. Everything on valuation metrics is on the right side of the bell curve. The question for most investors is how long can i stay involved and how long will that continue . Again, when we have Global Growth which is challenged, Central Banks going from basically an easy position to things, and a lot of the that fell into place in 2009 coming out of the crisis are now beginning to abate. I would point out one more thing. We are nine years into a recovery. The modern u. S. Economy has never gone more than 10 years without a recession. We are closer to the end of the cycle than the beginning of the cycle. We can confidently say that and it will be in criminally hard to get housing going, auto going, big picture things. One other point, it is not lost on me that the Hurricane Season of 2005 and 2006 marked the top of the housing cycle. I saw it in south florida in 2005. When wilma came through after katrina. You have just devastated huge part of the u. S. , 10 of the u. S. Economy between houston, south florida, puerto rico. There will be a lot of Collateral Damage. Not all of it is insured. We will see some real issues, not a parent yet. Some Companies Making warnings. We forget about these physical shocks at our own peril. The 1926 hurricane preceding the 1928, 1929 downturn. Reform, theytax all just even tax reform, when they passed tax reform in 1986, they took away the deduction of passive losses for investment partnerships. What they did not realize was that a lot of Office Building deals that the savings and loans at all lent money on where taxsheltered deals. When investors could not that, they went to rush to sell their buildings and we had a collapsed in the commercial Real Estate Market which brought forth the 1990. G crisis in 1989 and the savingsandloan crisis was directly because of tax reform. Scarlet tax reforms, hurricane could be catalysts, what else could check markets out of their stupor, north korea . Jim something nobody is thinking about, i doubt north korea will do it. Something that we are basically not considering as a possibility. Those are the things that shakeup markets. Unfortunately, every 5, 10, 15 years, they seem to happen. Julia the things you do not see. Amazing to have you, legendary shorts investor and founder of Kynikos Associates, thank you. Bloomberg technology is up next. Joe have a great evening, this is bloomberg. Alisa im alisa parenti, and you are watching bloomberg technology. Elaine duke says 90 of puerto rico is now accessible. We have generators. Everything has been prioritized. Hospitals first, now gas stations. It is a conscious effort to make sure we dont have loss of life. Alisa duke says the most difficult challenge is the distribution of aid. Health and human Services Secretary tom price says u. S. Taxpayers will not pay a dime for his use of private charter planes. That is after the president criticized him for the usage. Price said he will write a check to the Treasury Department to cover all of the expenses. House majority whip Steve Scalise reported to congress today, his first day at work since he was shot at a congressional baseball practice more than three months ago. The louisiana representative was welcomed back to the house with a standing ovation. Former u. S. Of president s showed up at the Opening Ceremony of the president s cup, the first time three u. S. President s have attended the matches together since the golf event teed off in 1994. The pga