Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20171011

And the spanish bond market, 1. 67 is how you print on the 10 year and a good rally in the ibex up 1. 5 . Highlighted dollaryen because japanese stocks are at the highest level since 1996. Crude i wanted to highlight as well, up 4 10 of 1 . They boosted Oil Demand Estimates as the Global Economy we hear that from all of the Major Players in the oil space. They do see less call on their crude. Actually, sequentially higher their crude, 32 Million Barrels this year, 33 Million Barrels next year. David it is time for the morning brief. We will hear from imf managing director Christine Lagarde speaking at the annual Membership Meeting of the institute of International Finance at 10 00 a. M. Then we will get minutes from the federal open Market Committee meeting at 2 00. At 2 40 we will hear from San Francisco fed president john williams, speaking in salt lake city. President trump will go to harrisburg, pennsylvania today to address tax reform at 5 45 eastern time. There is news in europe. Jonathan the spanish Prime Minister starts the process that could lead to the suspension of the catalan government, calling for the Regional Government to explain whether it actually declared independence after catalogs president caps on dialogueis a call for on the subject right across europe because europe is afraid of the outcome if there is not dialogue, so those calls should be heated. We need to open up a time to have a dialogue with the state of spain. Jonathan maria tadeo joins us in barcelona with the latest. Some confusion as to whether the catalog abalone and president actually declared declared independence or not. Can you clear this up . You areonathan, if confused, who can blame you . Yesterday night reviewers were waking up and what we got was a symbolic declaration of independence. They say they have a mandate and will create a republic however they will suspend its of they can hold talks. Catalonia was a republic for about 10 seconds. Rajoy is saying i do not get what is going on so you need to send me a document that actually explains what it is you did last night, because we are confused. The question is, what is roy trying to do . Obviously discredit what we saw last night, saying this is so irrational no one understands and two, he is trying to get the catalan regional president to send a document essentially admitting he is violating the constitution. It opens a window for roy to trigger article 155. Jonathan is this the Prime Minister playing hardball with the region and the separatist leaders or the Prime Minister that is trying to trigger article 155 . Maria it could be both. He is trying to do is essentially put pressure on them. He is already under so much pressure. Yesterday i was at parliament when he said the word suspended and faces dropped. The radical side said this is not what you promised. Tople went from celebrating crying and being in tears within the space of 10 seconds. Is oy is trying to do rajoy is trying to do is get the document and if he needs to trigger article 155 it is because they made him do it. David the one thing we did not hear from the Prime Minister was lets sit down for negotiations. That is the one thing we heard from the catalog leader catalan leader. Going to hear not it anytime soon because the message from the dread is crystalclear, there is nothing to negotiate. There will be no deal to get a referendum anytime soon. He has made it very clear you need to drop it and drop it now, there will be no talks. Jonathan what are we looking at for the next 24 hours . Maria essentially, we are expecting roy to appear before rajoy to appear before congress. He has met with the liberals and socialists and this is a breakthrough. The three parties are moving in the same direction, saying it is time to talk at you have to do it within the constitutional order. That would clear the way for roy if he wanted to info 155. Invokey if he wanted to 155. Jonathan for the euro, it has been a story of dollar weakness for the past four days, euro strength up to 1. 1 820. 1. 67. To spanish debt, in the equity market, they have been following the political noise in spain as much as anyone else. The ibex 35 has been down, up for 6 12 straight sessions. We are now up. Joining us around the table, Alessio Deland this alessio de longis and Gabriela Santos. The situation in spain, has it change the way you have managed your exposure around the periphery of europe . Allesio not at all. Maybe i am looking at this in a way that is too simplistic but i do not get what regional independence means in the context of the European Union. In other words, the stakes here are so much higher than what we are talking about in spain, and it is already not clear how this process wants to evolve. Be really careful what you wish for, he goes what does independence mean in the context of the . In the context of that you . The International Community has hinted at the fact that they will not recognize catalonia as an independent region, so we can solve this issue with spain a big if but within the european context. Theyou part of the e. U. , euro . We are living this nightmare with brexit so be careful where you want to push this referendum. At this stage, we believe that is why the market price action is so muted. It is difficult to extrapolate this into actually any meaningful market or economic casket affect cascade affect. That is how we are looking at it. Alesio lets take a look lix lets take a look at the sentiments on europe. How much more bullish will it be and how much is in the market . Alessio the euro is mostly driven by, as you alluded to, the sentiment on the dollar side. Will beswing factors the evolution of the tax reform, tax cut headlines as well ecb at the end of october. If you continue to see basically we are nothat talking about tax reform anymore, just talking about tax cuts at best that could push the euro higher. 1. 20 isge of 1. 16 to what we see in the foreseeable future. Jonathan as the political theater unfolded in the United States many would come to this desk and say buy europe. The valuations were decent. The third was that politics would get better. We have had the worst and it is all behind us. All the politics get better from here . Gabriela what i think is clear, if you look at the euro area, there are 19 countries within it. Politics at one point or another will always flareup. We have removed the tail risk we ofe been talking about, actual companies voting at a National Level to leave the European Union, to leave the euro. That is the Biggest Tail Risk that has been removed but of course local politics will continue. We see that with germany, with spain, but it is being treated as a local issue rather than a referendum on the entire monetary or fiscal union. That is very important. We would agree with alessio and say we have not changed our approach to europe. We think the economics is trumping some of these political headlines. Gabriela santos sticking with us alongside alessio de longis. Coming up later, we will bring coverage of this right here. This is the leader of the Opposition Labor Party Jeremy Corbyn taking on the Prime Minister, theresa may, who has refused to say whether she would vote leave if there was another referendum on the membership of the European Union anytime soon. A complex situation. She is in a tough place. David i wonder if confusion as a strategy because when i am hearing out of london is confusion. The country she say needed calm leadership and then she does not give details . Jonathan the following the action, you can do that on live go. Alix manus cranny will be sitting down with Charles Evans in an exclusive interview. I think he is a dove. This is bloomberg. David this is bloombergdavid . President trump said he is in the process of adjusting his tax reform package as he tries to make sure he has the republican votes. Joining us from washington is kevin cirilli, chief washington correspondent. Take us through some vote counting. It looks as if he has lost bob corker. He can only afford to lose two. Who else does he have to keep on side . Kevin i think a key figure is going to be senator rand paul who has tweeted out concerns about tax increases for the middle class. I spoke with senior aides yesterday to republican members who tell me the president s comments yesterday saying significant changes or tweaks will be made to the tax plan, could center around the state and local tax deduction. That is one of the primary concerns of people like rand paul. He would also like there to be tax not quite brackets that the administration has called for. Then you take a look at someone like senator john mccain who is a bit more middleoftheroad but has a different set of concerns. He previously has voted against 2003 butin 2001 and has strong deficit concerns. That is something a lot of republicans, including senator paul and bob corker have begun to raise. How exactly will they pay for it , especially they get rid of the state and local Tax Deductions . Has been a mccain big fan of what they call regular order, going through the Committee Process and having the hearings and including democrats. That would take forever, wouldnt it . Kevin it would definitely take a much longer time they would risk losing the far right in a 2018 midterm election. If they get rid of the state and local Tax Deductions, that will curve about 1. 3 trillion of revenue for how they would pay for it. It is still a 6 trillion plan so i think they have got to somehow figure out how they will pay for it. David finally, there is this outlier now of the new senator, perhaps, he still has an election to go, mr. Moore of alabama and he is a different approach of income tax. He does not want it. Isin roy moores plan important to note because he would essentially get rid of or have no income tax. He is the representative of where the far right is, the ultraconservatives. Withyou had two midterms steve bannon out of the white house campaigning for folks is interesting, because if more people like roy moore are in office it could be an interesting site. David thank you so much. Alix no income tax . President trump feels good about tax reform but Richard Saylor does not. Here is what he had to say. Richard if it is all based on the expectation of some big tax cut, surely investors should have lost confidence that that was going to happen, given what has happened so far out of congress. Alix with us are alessio de longis and Gabriela Santos. This chart to me and compasses about, was just talking the rally in small caps versus declining earnings estimates. Who is going to wind up being right . Gabriela based on the discussions we were just having we are a little ways away from knowing what kind of Corporate Tax cut or reform we will have. Alix does that mean we will see a pullback in equities . Gabriela i do not think so because i do not think the rally is based on hopes and dreams, it is based on the economy having a nice six celebration independent of policy options. With the weakening dollar, with better global growth, there is a lot underpinning the market beyond the tax reform. Alix is it going to be certain sectors that are more trump influenced . You are going to want to buy facebook and googles . Alessio i think the tax reform cut story is really one of sector rotation, one that is relevant potentially for the treasury market. Because of the reaction of the fed to potential fiscal expansion, it impacts the dollar but it is not really about the Global Equity rally. The u. S. Equity rally is driven primarily by the synchronized global upswing we have ahead, the upswing in emerging markets growth. Thethe past seven years, last three to four quarters is the first time in seven years that all the three Major Economic blocs of the world are growing at the same time. 2010 through 2013, european recession. Recession. 5, e. M. This is where the boost u. S. Growth is coming from. It is not just about the Corporate Tax reform. Jonathan it would be great if this was the big talking point in d. C. In the last 24 hours. The prospect of an iq test with the president of the United States and the secretary of state, and i understand men set willing to conduct those tests. Is willing to conduct those tests. David alessio the longer and Gabriela Santos are staying with us. Alessio de longis and Gabriela Santos are staying with us. This is bloomberg. Emma this is bloomberg daybreak. Frances bnp paribas says it wants to do more to combat climate change. They will no longer finance Companies Whose Main Business stems from oil and gas stemming from shale. They say they will not fund such objects in the arctic. The wealthy are staying on the sidelines when it comes to cryptocurrencies like that coin according to ubs bitcoin. They tell bloomberg they do not think there is any meaningful desire of high risk investors to make bets on crypto currency. Uber faces at least five criminal investigations from the justice department, two more than previously reported. Bloomberg learned authorities are asking whether the ride hailing startup violated Price Transparency laws and looking into whether cooper had a role in the legend theft of documents alleged theft of documents regarding alphabets self driving technology. David a big story from Eric Newcomer from bloomberg tonight, today overnight. It extended the possible criminal wrongdoing by uber. Stealing software from people, spying on people, misleading on people, kickbacks. Alix the idea is you do not just want to operate within the law but the mandate is to press up against the law, run your business and see where it goes. David they went to the general counsel and said, we want you to be innovative. And you tell a lawyer to be innovative, that is dangerous. Alix can they be innovative . Jonathan the new ceo, do you think he knew before he came in . Alix he did say it would be a rocky six months. David he was right about that. ,uge startups such as uber there is no difficulty in getting money to put into these. Capitalist sat down with David Rubenstein about raising the 100 billion for his vision fund, the purpose, and how he raised 45 billion of it from the crown prince of saudi arabia. David you are clearly one of the worlds most Successful Technology investors and businessmen. Let me start by asking you about a fund you are now raising, the vision fund of 100 billion. That would be the biggest fund ever raised. When you told people you were going to raise 100 billion did they tell you you were crazy . Some people said. David you had a meeting with a man that was the deputy crown prince of saudi arabia who is now the crown prince. As i understand, you went in and in one hour you convinced him to invest 45 billion. That is not true. 45 minutes, 45 billion. David sorry, i apologize. 1 billion per minute. David what could you have said that was that persuasive . , you gain toi said tokyo the first time. I want to give you a gift. Gift, to give you a tokyo a 1 trillion gift. He opened up his eyes and said, ok. Now it is interesting. Said, herep ham and is how him and said, here is how i can give you a trillion dollar gift. You invest 100 billion to my fund. I give you 1 trillion. David what is it that you told people and what is the vision you gave them . One vision which is singularity. Thatlarity is the concept the computing power, Computers Artificial intelligence surpass. David the singularity is the concept and it means that is the point at which a computer becomes smarter than a human brain. Yes. Today already the computer is smarter than mankind for chess or weather forecasts. To some expert systems, the computer is already smarter. In 30 years, most of the subjects that we are thinking they will be smarter than us. That is my belief. Jonathan that was the Softbank Group chairman, ceo, and founder. You can watch more with that interview on the David Rubenstein show. Of a salesman. Another big salesman, mike mayo joins us as we count you down to the earnings season and with big banks reporting over the next 48 hours. Two hours away from the opening bell. We closed just short of alltime highs yesterday. Futures just a touch negative. This is bloomberg. Jonathan two hours away from the opening bell. Lets get you up to speed. The equity market, a touch of softness. A slight move lower by 1 10 of 1 on s p 500 futures, 14 points on the dow. The dollar index on a fourday slide. It will be the longest losing streak for the dollar since july of this year. It has been that long since we put that much weakness together for days in a row. Market,y on the bond yields are a lower at 2. 35 and several basis points north of the average for 2017 so far. The average does not tell the story. It is a volatile year for stocks and treasuries, just north of 2 only a month ago. The snapback has been quite severe. Lets get you up to speed on the headlines outside the Business World. The wildfires in Northern California are likely to have a longterm impact on the wine industry. At least for nasa Valley Vineyards have been destroyed or inaged and things maybe work sonoma county. At least 17 people have died in the fires, 2000 homes, businesses, and other buildings destroyed. The u. S. Navy fired the top two officers on the uss john mccain which collided with an oil tanker this year, killing 10 sailors. The navy called the incident preventable and said the captain and chief officer are being reassigned. Theresa may and top cabinet makers are running the risk of making their conservative Party Colleagues questioned their commitment to brexit. She refused to say it she would vote to leave the e. U. And another referendum. Both insist there is no chance of a new vote. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. Alix earlier this morning you had Charlie Evans speaking in zurich. Headlines are pretty much what you expect. Wage story improving, strong global european economy improving. Also in the u. S. He did not talk about the next fed chair but one person dead, paul krugman. One person did, paul krugman. While, the Prediction Markets were thinking that the most likely pick was kevin warsh, former fed governor. He does have a track record over the past decade and is quite consistent. He has been wrong about everything. Alix still with us, alessio de longis and Gabriela Santos. What does he really think . So he thinks he has been wrong about everything. What is your base case for the chair of the fed . First ofm opting all, i do not think it should matter that much. I will explain in a second. I have to believe it should not matter that much. If we are talking about a normalizing economy and the solid, established institution, it should not be from the purpose of markets and all of byt, it should not be driven an episode of this nature. Fed,ing a few names of the no matter how important, i want to believe the institutional framework of the fed, of Monetary Policy has to dominate in the mediumterm. Will the markets react . Yes. That equate to 10 or 20 basis points on 10 year treasuries in either direction on the day of the announcement . Yes. What do you make of it from there . It is not clear to me. It is not clear a change in the chair argues for a change in the trending in the way markets react. Alix it is not just the fed, and there is a story that trump once to change the fundamental view and composition of the economy, that he will want a total board that agrees with the fact that trend gdp growth is low because of regulatory policy and wants to seek to boost 23 . Boost to 3 . I do not think that is dramatically different. There has been this gradual acceptance that the natural real Interest Rate is probably zero. So to me we have been drifting through the analysis of the data and the output gap in the relationship with inflation, we have been drifting into that puzzle. What you were talking about is that puzzle is no longer considered a puzzle but the state of the world. In my opinion we have been heading in that direction. I think that over time, regardless of the fed composition, is the Economic Data that will dictate that Monetary Policy framework. You can have a belief that we need to fight inflation, but as long as inflation does not really spinyou can that different Monetary Policy for a long period of time. David when we talk about the handicapping we team to we focus on perceived policy differences. Whatever you think about janet yellen, she has been remarkable in bringing about her fellow fed members so the fed has spoken basically as one voice. What happens if because of this transition and perhaps because of the individual put in we have a more fractured said . What does that do to the market . Gabriela everything we can say about janet yellen and her ability to reach consensus, we have been listening to a lot of different voices. To say they have been speaking with one voice is not 100 true. We have listened to a lot of different opinions that is been a little bit tricky for the market to figure out where the fed is heading. Ultimately, we would agree with alessio that it is difficult to change and reorient the shift, regardless the ship, regardless of who is at the head. Even if we get a continuation of the status quo, meaning the reappointment of janet yellen or we are still heading toward more policy normalization regardless. When it comes to handicapping, it is thinking about what is the baseline that we artie have, and that is we already have, and that is an economy above trend, a little Unemployment Rate, and we think we are halfway through the normalization process. Jonathan we are talking about Monetary Policy. We know from the job search it is not just Monetary Policy, it is about regulation. If they cannot move the dial on Monetary Policy committee move the dial within the fed on regulation . Alessio that is probably the other angle. I think that is where there is probably more room for some improvement, but you have to be very careful. Idea that we typically you have seen this time and time again in history. After the financial crisis we have swung too much in one direction, and dialing back a little bit on the regulation of Financial Stability is probably advisable. Big improvements from their bank , i do not think we should count on from there, i do not think we should count on that. I am leaning more towards a status quo combination on both sides with minor tweaks. Alix 2. 35 on the fed year, what does that suggest . Gabriela toomey it suggests we are still with the pendulum to me it suggests we are still way too far with the pendulum and it needs to swing the other way. Have seen inflation move higher in august and are likely can likely to continue seeing that on friday. Jonathan alessio de longis and Gabriela Santos sticking with us. You can follow on live go on the bloomberg terminal, Prime Minister mays question time. She is taking a lot of questions in parliament. She faced an interview where she refused to say whether she would vote leave if there was a referendum on e. U. Membership today. Alix you really cannot make that up. Point you raise the big why is she giving those interviews . Why is that helping . Alix transparency . Jonathan i think they need to talk less. That would be my message. David if you have to leave your Television Set to commute in, you can tune in to tom keene and david gura over the radio in new york, washington, d. C. , the bay area, and all over the United States on sirius xm radio. Emma this is bloomberg daybreak, i am emma chandra. Mail, wells mike mayo. This is bloomberg. Jonathan at the risk of upsetting both sides of the brexit debate, theresa may declined to affirm her commitment to the u. K. Decision to leave the e. U. And refused to say she would leave the European Union, this morning clarifying that her comments were not ramping up a no deal brexit talk. She continues to insist there is no chance of a new vote. Joining us now on the phone from london is u. K. Government reporter rob hardin. Always great to get your insight. Desperate to speed, where does the Prime Minister stand get us up to speed, where does the Prime Minister stand . Rob i thought i knew that question and now she will not tell us, which raises the question of whether she thinks brexit is a good idea. She is going ahead with it anyway, and it may be that she was fluffing this radio interview question. It has upset some of the more ardent supporters of brexit, the believe the Prime Minister does not support her own key policy. Live and breathe westminster politics and have a long time. How is this being taken in westminster and how critical are people being of her communication strategy and the team around her in the last 24 hours specifically . Rob actually, we have been talking or trying to talk to mps about this and the interesting thing is how silent they all are. A former partyd chairman talking about a plan to get rid of theresa may. Today, it is been very hard to get anyone to criticize her, even quite ardent supporters of brexit in her own party. I think it is basically because people are moving in behind her. They realize there is no easy way to move her on and replace her with anyone. They feel slightly that they are stuck with her. Jonathan i am going to give you a sense of Market Perception and i want you to give me a sense of political reality. Some people in the market think the u. K. Government is about to make a bit of a pivot and is about to play hardball with the e. U. , turn around and say no deal, fine, you will not get your money. The you get that sense from the politics . Rob we had the chancellor talking about exactly that, what he called a no deal brexit, a bad tempered brexit and suggesting that was possible and suggesting he was ready to spend money not immediately to prepare for it, but would release money to pay for programs that would be needed to prepare britain for a no deal brexit. Brexit his no deal theres a question about whether planes should be able to fly if the existing agreements were not replaced. He said people are talking about that but no one really believes that, so even his no deal brexit contains some deals on the side. There is no deal brexit and no deal brexit. Are we going to get people stomping out of talks this month, next month . The idea has been floated. The trouble is, it has been floated so hard not everyone would believe it if it happened. Jonathan the more i get the more confused i get. Rob hutton, thank you, sir. A new government report is putting pressure on the bank of englands case for raising rates. For budgetfice responsibility lowering expectations for Economic Growth in the coming months. Still with us, alessio de longis and Gabriela Santos. Rob hudson doing a great job of giving us the political reality but it is the political reality seemingly of chaos. What are your thoughts . Alessio i am as confused as you are and what i tend to do is simplify really dramatically. The bottom line here is that europe has all the bargaining power. When we get to december with no progress at all, things get ugly in a hurry for the u. K. Paradoxically, we are in a situation where the appeal is becoming the one of walking through this thing with no deal. More is that the base case . No. Is it becoming a more plausible reality . Yes. Europe has all the bargaining power, not only from a legal standpoint but also psychologically. They are getting into this event with the best Economic Growth they have ever had, where the Political Risk premium, the skepticism around the e. U. Is at the lowest level it has been in a long time. They also feel validated in this position of power saying, we are the club, we have the power. Onlyhan i take that but 30 minutes ago we were talking about 20 of spanish gdp breaking away from spain. It is not all that good, and they also need the money, dont they . Alessio on the spanish situation, we talked about it. I want to see how it evolves. I am not that pessimistic about it. If you look at the data, you are seeing deterioration in the payments of the u. K. It is becoming apparent so the risk is that the u. K. Goes into this with no deal and we will learn on the fly what to do. Even now there is reports about trying to understand how do we even handle customs from an operational standpoint . We are not even talking about tariffs, but how do we handle the traffic at ports . Can we handle the processing of all these goods . We do not have the capacity if we have customs here. The competitions are insurmountable. The ball is on the u. K. Court in my opinion. David what does this say to investors . Stagflation, we are looking at inflation largely because of the pounds appreciation. You do not have great prospects of growth. At one point when you enter stagflation what does an investor do . Gabriela we try to figure out how much attention we should pay to politics versus the fundamental Economic Data. We very much believe we can separate the two in places like the eurozone, like the u. S. , but the u. K. Is the exception because politics is having an impact when you look at inflation, when you look at the deceleration in Economic Growth. That says as we do not know how this will play out but we can tell it is having an impact. As a result, the u. K. Becomes our least favorite equity market and we prefer to put our options on the table where we have more visibility, where the data is strong irrespective of politics and that would be the eurozone, the u. S. , and certain countries and emerging markets. Someone is going to play her in the brexit movie, emily blunt . Alessio de longis and Gabriela Santos, thank you very much. If you have a bloomberg terminal, check out tv. Watch us online, click on the charts and graphics and interact with us. This is bloomberg. Emma this is bloomberg daybreak. Minister istrade accusing bowing of the illegal trade activity. Larry gardner spoke to bloomberg surveillance. Have aink we need to real investigation by the European Union as to the involvement of knowing in dumping boeing in dumping of aircraft through monarch airline. Emma he says boeing received illegal subsidies with the u. S. Government. Boeing says it complies with trade law. Steelan, the kobe seal scandal continues. Another of its products which is used in auto parts. They admitted that several factories have fortis falsified metal data. A shock to the u. S. Mens soccer team and an expensive one. The u. S. Will miss out on the world cup for the First Time Since 1986 after being beaten by trinidad and tobago. Million for the u. S. English language for the next two world cups. That is your Bloomberg Business flash. David lets go back to the kobe steel scandal. We turn to joe. It is not just the products video. Yesterday, there are other products. Who is looking into how broad this is and how bad might it get . Joe it is the Company Going in and looking at these different products. They are a ones who essentially called themselves out and said, we found out we have defective aluminum and Copper Products and now the iron or powder, and they are going from customer to customer telling each one by one. David we are looking at the stock price. Yesterday it was down as much as it could go down in a day and it is down again today. How much does this affect japan inc. . Joe that is the question on the table. Are we starting to see something that is cultural . It is one of the things we wrote yesterday, we had nissan come out a week ago and say they allowed for unofficial auditors on quality control. We know that takata airbags, tens of millions of defective airbags. David they actually pled guilty to criminal charges. Joe exactly, and that has hit them on the business side as well. Companiesking about that are now bringing in larger questions about japan itself. Kobe steel has been around for ages. Nissan, subaru, the list goes on and on. It is a big deal for International Supply chance, not just japanese ink bring up the function on kobe steel, and we can bring this up. If you see down the right side the big customers. If you run it on the bloomberg it will come up quickly clearly. Mitsubishi, 5 , that is their account of kobe steel revenue. Ford motors around one half percent. We do not know whether some of the metals they falsified data on ended up at any of these companies and ended up on any of their products. I assume those companies do not know either. Joe we have spoken to a number of them. Nissan says they use some of the metal for hoods, toyota hoods and rear doors. Mitsubishi, rockets, regional jets and west Japan Railway said they use some of the material, possibly defective material in the bullet train. It goes on and they are still looking into it. Alix how much of the material . Yesterday, 22 tons of copper were affected. The whole train is made of that copper or little pieces . Joe how do you wrap your mind around 100 tons of aluminum, 200 tons of copper. This affected about 4 of production from september last year to august this year. If you are still wondering what that means, we are too. That goes back to your point. These companies themselves have to find out where this material went and find out if it is a problem or defective. Jonathan great to catch up with you. Coming up next, some more, this time on the fed. John allison will be joining us. There is a couple of spare seats on the Federal Reserve board. We will be talking about that. Hsbcs Global Equity strategist will be joining us around the table in new york as we count down to the cash open. In new york city, this is bloomberg. Jonathan President Trump faces a challenge uniting republicans behind his tax plan. He says he will adjust it in the next few weeks to make it stronger. Catalans blink. Catalan leader stop short of the claim independence. Prime minister may faces the wrath of brexiteers and says she would vote to leave the eu if there was another referendum. This is bloomberg daybreak. Im Jonathan Ferro alongside david westin and alix steel. Future softer just after closing short of an alltime high on tuesday. And the fx market, a fourday slide for the dollar takes the euro back up past 1. 18. We are positive by 2 10 of 1 on the session so far. Yields are up by just a basis point at 2. 35 on the u. S. Tenure. Alix markets are looking at spain and saying go buy it. Money flowing into the market and yields move by three basis points. The nikkei closed at its highest level since 1996, and unbelievable move in equities. Crude is softer on the day despite opec sounding optimistic about Global Demand. David lets take a look at what is making headlines outside the Business World. Emma chandra is here with first word news. Emma Prime Minister Mariano Rajoy has started a process that may lead to suspending the catalan government. He may ask the catalan president whether he is actually declared independence. He stopped short of declaring independence, but he says he wants to start talks with the spanish government. The wildfires in Northern California are likely to have longterm impacts on the states wine industry. At least for napa Valley Vineyards have been destroyed or significantly damaged and things may be worse and neighboring sonoma county. At least 17 people have died in the fires. 2000 homes, businesses, and of the buildings have been destroyed. The u. S. Navy has fired the top officers on the uss john s. Mccain. The destroyer collided with an oil tanker earlier this year, killing 10 sailors. The navy called the accident preventable and the officers and captain happie have been reassigned. Global news 24 hours a day powered by 2700 journalists and analysts in more than 120 countries, im emma chandra. This is bloomberg. David President Trump continues to make his case for his tax reform package. Meanwhile in washington, senator bob corker may not be the only Senate Republican who may stay in the way of the biggest tax cuts ever. Joining us now is kevin cirilli. They need all the votes they can get at this point. They lost corker and they only have 52 to start with. Who are the other republican senators they are worried about . Kevin theres quite a few, but most notably is senator rand paul, who in the last two weeks has been critical of President Trumps tax plan put forth at the big six because he has issues with the state and local deduction tax, which he argues would be leading to steeper tax cuts. He wants to have not the decrease in tax brackets. He wants to keep the same. Im told by its around senator paul that he has advocated this to President Trump himself. Said thereesident was going to be tweaks to this plan, he was alluding to potential new tweaks to the state and local text production text induction. We also have senator john mccain and he is someone who has voted against tax cuts in 2001 and 2003. He has deficit concerns. He is advocating more for a middleoftheroad approach to try to get bipartisan appeal. I will be honest im not hearing much receptiveness for that im capitol hill. On capitol hill. David you have one senator soing we dont want cuts eliminate the state and local taxes. Either way you go you might lose one or the other. We have this wildcard in the likes of senator more. He has a very different approach to income tax. Kevin he is calling for no income tax altogether. He is really a hardliner. This is where gets interesting. If you look at where the grassroots is and where steve bannon is advocating for someone like roy moore, it would be more in line with that type of policy. When senatorway, ted cruz was first elected into the senate, this is kind of an ticket of the new crop of republicans who could be ushered in the midterms. The president announces changes to the state and local text induction, that is only 1. 3 trillion of revenue that they would hope to get in. Most estimates put the tax plan at about 6 trillion. We will hear a lot about how they are going to pay for this and that is where this fight is headed. David its only 1. 3 chilean trillion. 1. 3 alix kevin cirilli, thanks. Joining us is megan greene and ben. Jpmorgan had a note out and they said just that it would add 10 to eps estimates. What do you think . Ben sounds about right. I would not focus on that though. Alix you dont care about tax reform . Up i think its nice come and dont think its essential to i care about earnings and the fed being that was on Interest Rates. Thats what is keeping equities where they are here. From an equity standpoint, thats what i care about. Theyll make u. S. Equities even more defensive than they already are. It will be low the Share Buyback story and will incremental, which is very depressed. Thats what im focusing on. I think repatriation is probably the easiest bid. Its what all sorts of people agree on. Alix you like materials and industrials and you are overweight there. How does that benefit from repatriation action . Ben Global Demand is pretty strong. I think things like energy and materials have real supply constraints. Little bitts a divorced from the whole sort of buyback repatriation story. From equity standpoint, thats away from the debate. Jonathan treasuries can remain bid as well the same time . Ben i think they are absolutely connected. This is a much the only time in history that you have seen equity valuations continue to expand while the fed is tightening. I think i told you an awful lot about how dovish that tightening cycle is. If you think that remains as we do, i think equity valuations remain very well supported. I think theyre quite well supported and that brings the focus back on earnings. If you get any earnings, it will be on the upside story. Alix paul krugman has some thoughts on tax cuts. Is very little to think that tax cuts matter one way or the other from for underlying growth. Alix do you agree that that with all thatat repatriation that we dont really need it . Megan the pencil what youre looking at. Paul and i look at the fundamental growth and theres little reason to expect that tax cuts would really change that. Hes right on that point. If you are looking up at markets, repatriation could result in more buybacks and dividends than Capital Expenditure. Paul is right. They wont really affect the economy that much. Really big is a issue because this is the only reason President Trump has said he wants it. He says he is a progrowth president and wants to create jobs. If thats not right and will not get there for tax reform, what would drive fund mental economy . Is there anything the government can do . Then there are things government can do, but most of them are politically unpopular. Every panel ends with we should all invest in education. That would fundamentally shift our gdp growth. We have always known that, but it just never happens. Things like Infrastructure Spending in education would fundamentally shift our gdp growth. Capital deepening would also benefit. If this remains in the text finallyt when its legislative, then that would actually encourage companies to go ahead and engage in Capital Expenditure rather than just stock buybacks and dividends. That could help a little bit. I doubt it will remain in the final copy. Jonathan you are not part of that small group of economists that thinks this could generate 2. 9 gdp growth . Megan im not. We might get a little bit of a sugar hit the shirt in the shortterm, it will not be sustained. I do not think the tax plan in front of us will fundamentally change gdp growth. Alix does the market need to prepare for that scenario or tax reform repatriation not happening at all . Ben i think small caps in these things that have on the bounceback the last few weeks absolutely. The u. S. Economy is going to grow 3 in the second half. Thats a very good number and the oil price will bounceback coul. Wage growth notwithstanding last fridays wage numbers are pretty benign. This is all good story for u. S. Corporate earnings and none of that is affected by tax reform. Alix your target for next year . Megan growth target just over 2 . I think fund mentally the u. S. Is a 2 economy and we will not be far off that. Alix we got a little conversation going. Both of your sticking with us. ,oming up next hour, mike mayo much calm her the last time we saw him. This is bloomberg. The spanish Prime Minister starts the process that could lead to the suspension of the catalan government. After the catalan president said he will seek talks with the government in madrid over the future of his region. So theres a call for dialogue. The commentsaid of if theres not dialogue. Those calls should be heated so de need to open up a time perio to have a dialogue with the state of spain. Jonathan maria is in barcelona with the latest. Those calls for dialogue of a fallen on deaf years in madrid are they falling on deaf ears in madrid . Maria the message is that there will be no talks unless theres a referendum. Having said that, weve got breaking news in the past hour. Saying imter rajoy very confused and no idea what happened yesterday in the catalan parliament. The regional catalan president did declare this a republic. It was a symbolic move and intent seconds later he basically suspended the creation of the republic for talks. Saying were not going to talk unless you drop this unit you need to tell us formally what you did yesterday. If we get a document from the regional president saying we did republic,this a rajoy would have the grants to trigger article 155, which would suspend the regions autonomy. We just got the socialist party saying we share his view and that it was incredibly unclear and we want to know exactly whats going on. The socialist party will back rajoy with this. The liberals made it incredibly clear that we need article 155 now. We have all the legal basis to do it and should do it as soon as possible. Jonathan if i look to the markets this morning and do not know what happened in terms of what the Prime Minister said and the concerns of what the catalan president said, i might conclude things are ok. Equities are up and bond yields are down. U. S. A miss could take a long time you are saying this could take a long time . Maria the market is looking at this in two ways. We do not get the unilateral word at all and we did not get the 48 hour deadline. Thats taking a little bit of pressure. We know whether rajoy actually have laments article 155 and puigdemont is under pressure from his own coalition. This could end in madrid taking control. A any way, both scenarios is catalan challenge that is obviously losing ground and steam. Jonathan maria, thank you. Lets wrap up the Market Action in europe for you quickly. A stronger euro flattened by a weaker dollar for four straight sessions now. The eurodollar up to 1. 1829. 1. 66 and 1. 67 on the spanish 10 year. We have traded up and down and up and down. We are up by 1. 3 on the ibex. Still with us is ben and megan greene. You have seen the crisis over and over again. What you make of this kind of fracture in spain . Megan i think this will be a slow burner like the greek crisis. They essentially went for independence like it was the most likely option. Catalonia where to unilaterally try to declare independence, it would be cutting the nose off to spite their face. They are not in a position to be independent anytime soon. They are gone for we would like to talk about it first. I think there is a deal to be done. The more toxic to the relationship between madrid and barcelona becomes, the harder it will be to hammer out some kind of deal. Jonathan what does that you look like . Megan it would have to give though theyy even are trying to undermine catalonias autonomy. Part of the reason they want to leave spain is that they are annoyed that they are providing so much to the poorer states in spain. Igger thato rej entire system. Its possible, but its hard as long as those relations are still toxic. Jonathan do i have to understand what article 155 is over in spain to get that done . Ben probably not. I think this is just a reminder that one of big drivers of european equities has been this decline in economic policy. It was kicked off by the dutch and french elections. This is a reminder that has not completely gone away and we have the italian election coming up. This is one of the many ingredients that are out there that are going to disappoint european armies going into next year. I think that is what people should be focusing on. ,f those do not come through european valuations look pretty high and european equities look pretty well on. David the markets are not reacting to catalonia right now, but is there another issue which is another opportunity cost issue . We are spending our times on things like catalonia and not on things like brussels. Coming out of greece, and a lot of the discussion was not we need to have this work . We are not reforming brussels because we are spending our time talking about france and italy and the netherlands and spain. Megan european policymakers are looking at how to reform institutions. Macron is on a drive, but merkel made it clear that she is not willing to accept any transfers and rish sharing. And risk sharing. As long as that is the case, there will not be any progress. Macron needs to do his homework at home first. Hey made it very clear that has to push through labor reforms and he will burn all his remaining political capital, which there is not a lot. By the time he gets to his european agenda, i dont think you will have much support. Laidler and megan greene will be staying with us. Manus cranny be sitting down with trolls evans for an exclusive interview. Live from new york, this is bloomberg. Emma is this bloomberg daybreak. Im emma chandra with the bloomberg is a flash. Business flash. Kobe steel says it may have falsified data about another of its products used in auto parts like brakes and steering components. Kobe steel says that factories falsified product data for years. It is down 36 in the last two sessions, but that did not prevent japanese stocks from hitting the highest level in more than two decades. The benchmark nikkei to 25 closed at the highest since december of 1996. The yens weakness against the dollar has boosted exports in the case more than 9 this year. Starbucks sees decades of growth in china. Ceo Kevin Johnson spoke to bloomberg at a summit in seattle. We are now at 2800 stores in china and we are going to build we committed to build more than 500 new stores a year for the next five years. China is the biggest Growth Opportunity before us. The u. S. Will continue to grow. The u. S. And china are the two growth engines for starbucks. Emma starbucks has set a target of operating 5000 stores in Mainland China by 2021. That is your Bloomberg Business flash. Alix still with us is ben e. Idler and megan green you like russia and china. How can you be bullish on those countries and not europe . Ben the only way to make money in europe is a earnings are surprised. In e. M. , you have a big earnings story. He also have the cheapest valuations in the world. You also have investors who are very underweight emerging markets. In europe come all the money that left in 2016 comes back. In em, they are benchmark and its very defensive. And the macro backdrop, its clear the stars aligned. I dont expect that in the second half, but its still going to be a very benign macro environment for the e. M. Europe has to face the sort of stronger dollar i mean stronger the euro. Alix if youre buying commodities, youre buying tech. Ben tech is quite the e. M. Weight as commodities is and that is over the last decade. Alix the chart shows this push over the last few years. Ben absolutely dramatic. Thanech and vm is bigger tech in the u. S. Clearly we are having this big tech revision cycle so that big earnings surprise story has really been led by tech. This is very tech layered. China and korea have these big tech weightings of two markets globally. Key ingredient to this 30 return you have out of e. M. So far. David historically has been up and down with currencies and commodities, but youre saying its maybe a longerterm and really structural change with the middle class and he and that has also to ramifications. All sorts of ramifications. Ben it comes out of asia and its basically a middleclass story. Is also the big tech adoption story. By acohort is going up factor of five over the next decade or so. That is a very asian focused driver. That speaking to a lot of things. And we it all together think the growth rates are going to be the best weve seen in a long time. David one of the things that we have been lacking in the United States is infrastructure investment. Youre looking at that because of the growing middle class. Ben and urbanization. You draw about one thing that really drives infrastructure and gdp growth and thats organization. Urbanization rates remain very low in china. Alix what we get next week at the Peoples Congress . Will i do not think we get much the next day and we will wait a while to figure out how much power has been consolidated. I thought we would get leaks starting in august in terms of what we would get in they have not started. I think we might have to wait a while. Alix the credit impulse what do you expect that to the . Be . Megan after the party congress, theres a big concern about over leverage. Amongst policymakers in china. I think we will get some pullback and a lot of the stimulus and china. Going into the end of this year and particularly into next year, we will see it with drawl a withdrawal of income nations. Accommodations. Jonathan great to have you with us. Coming up, john allison will be joining us. Possible candidate for the fed board, looking forward to that conversation. A story in the markets with an hour in four minutes away from the open. Futures a touch negative. From new york, this is bloomberg. Jonathan one hour away from the opening bell in new york city and this is what follows in global equities. S p 500 futures down a marginal 10th of 1 . We close yesterday just sort of an alltime high on the s p 500. Laidler with the forecast of 2450 and a downside risk. Medium year and for eurodollar is 1. 118 and thats where we trade now. Just a little bit stronger. The dollar index is weaker for a fourth straight session. Yields are up by two basis points at 2. 34 on the u. S. 10 year. Lets get you a pitch of the headlines outside the Business World with emma chandra. Emma the u. S. Supreme court has dismissed one of two cases challenging the trump administrations travel ban. It may still drop the second. Justices suggested that will set up a constitutional should i let the lower courts take a look at the latest policy. Both groups have challenged the President Trump is violating the constitution by targeting muslims. Canadas prime Minster Justin trudeau meets with President Trump today. Trudeau is playing up the similarities between his partys objectives and the president s. Arrived inn leader washington as the forefront of talks begin. President trump said the talks may have to be terminated. North korea may be ready to fire a number of scud missiles. The missiles have been moved to a Maintenance Facility on north koreas west coast. North korea has built its own version based on a design from the former soviet union. Global news 24 hours a day powered by 2700 journalists and analysts in more than 120 countries, im emma chandra. This is bloomberg. President trumps economic agenda includes both fiscal policy in his tax reform policy and Monetary Policy. John allison those both having andbb t as chairman and ceo head of the cato institute. Welcome back to the program, john. Always good to have you here. Lets start with fiscal policy. We have been having a discussion around this table that if this tax reform package went through peopleform now, would knowing these things suggest so much . Can you from your experience this tax reform would generate real growth . John i think it would generate some real growth, but not dramatic real growth because the real issue is how much the government spends. That is how much resources are allocated to government. What we have seen over a long period time is government is less productive than private enterprise. The al qaeda other market you allocate other markets and that increases activity. Therell be activity around the topi Corporate Tax cut and i would bring resources back to the u. S. , but it wont be that dramatic because they are not dealing with spending. Spending is really the issue from a resource allocation perspective. Nowd as you say, the right discussion is what we are going to cut and what were going to spend with estimates of to 6 trillion being invested. If you had a choice right now between the tax reform at all and not increasing the deficit and tax reform that increases the deficit substantially, you would rather do without it . John know, i would still have tax reform because what i hope out of the tax reform is that in the long term it will encourage more discipline in congress. And other words, deficits hopefully at some point will be some discipline on congress. Also the psychology right now about no tax reform markets would be very disappointed. There are a lot of people that expected to generate some growth. I would still take tax reform and i think its still a net good. I dont think its dramatically as good if they would deal with both. David you dont see a lot of discipline and congress except when the bond market its upset with it. Will take the bond market to really get disappointed in our deficit situation . John i do. I think at some point the bond market will get disappointed. Its a little amazing it has not been disappointed so far. , the problem we have around our deficit is really around the entire government entitlement programs. People like me, im a baby boomer, as we get close to 80 years old and our medical costs go up the chart, which is only like 17 years away, thats when you really have some huge deficit problems. Now hopefully markets will incount that a little bit advance and start giving the government someone in so they will start acting sooner, but you dont know about that question. Alix at least you will get medicare. Forget about me im totally done at this point. Lets turn to the fed and the leadership. Friday you are reported to no longer be on the shortlist for fed chairman. Would you want that job anyway . John know, i really wouldnt in all honesty. Alix why not . John i really like what to get rid of the said. Ive been very vocal about that. I think the job is impossible. We all know that pricefixing doesnt work. Theres example after example of failed pricefixing. What does the fed do . They try to fix the price of the worlds reserve currency, which is the most complicated price it could possibly be. You almost always know that they are doing it wrong. Maybe directionally i think they often look to market signals. They follow markets instead of leading markets in some areas. I think the job is impossible. The other thing is that its a huge bureaucracy with hundreds of phds who all have groupthink. Having dealt with the fed and the banking business for a long time, i think its really difficul to move that organization and its also constrained at least in theory by number of lost. Aws. Jonathan my question was when to be expected to your nomination to the fed board . Theres an opening on the fed board for you. Given your background in banking, and your thoughts that you are describing right now could be quite valuable. Would you rule out that position as well . John not necessarily. It would depend on the whole and whether you believe you could impact policy. It would actually depend on what the generals election direction of the membership because theres a lot of positions that need to be filled. If these people are interested in more radical change i think by the way that i dont think we will get rid of the fed. I do think its important that we move towards normalization. Jonathan lets talk about this and i dont want to open up the interviewing process with the right now. Lets say someone like kevin warsh took the role of the fed chair, someone who wants to move things around and shake things up, would you then be interested in taking that governor position on the fed board so you can get your ideas across and see them materialize . John i would have to reflect on that. [laughter] again, i think it would be the context. I know kevin pretty well and i think he would do a really good job. I think it would depend on the context. The overall political environment unfortunately people say the fed is not political, but its extremely political. Forink thats a challenge somebody who tries to be very objective in their decisionmaking and not influenced the political process. David bloomberg has been reporting what the white house is doing is to try to put together a group of people. As you know, there are several openings. What communications if any have you had with the white house and treasury . Is the reporting consistent with what you are trying to do by putting together a group of people . John that is consistent with what i understand, yes. That would be nice if that in fact would happen. That would be a pretty radical change from where we are today, but whether they are willing to go through with that, it would be interesting to see. The white house talks about a lot of stuff that doesnt seem to always happen. Sometimes im sure they dont have control. David its the nature of washington. Are they specifically reaching out to you just to give them your point of view on what they should be doing . John ive had discussions in the past. Ive not talked to them recently. Alix what are your thoughts on bitcoin . John i think that im real excited about alternative currencies. The idea that appeals to me is to try to do to the Federal Reserve what ups and fedex did to the post office, i. E. Impose discipline on a very Discretionary Organization with the Federal Reserve. I dont know about bitcoin. The problem with bitcoin is that its not really a medium of exchange. Its a speculative vehicle. Thats not that its not a good thing and a much or how many people lose money and bitcoin, but its really not a medium of exchange. I think youll see alternative currencies develop that are truly focused on being a medium of exchange. I think that will be good. I dont think you can drive the Federal Reserve out of business because they have the power of the government behind them, but you can create some competition. I think competition has been good for the post office. They may not like it, but at least in terms of forcing market discipline, and i think the fed needs that. Bitcoin is mostly speculative vehicle, but i think you can design and you will see somebody design an alternative currency that really is complication and the medium exchange. Alix john, great to catch up with the. You. Thank you very much. Jonathan is he running . Isnt he running . I want to head over to someone who is at the fed now. Manus cranny is with a special guest. Zurich forre in swiss day 2017 and i have a very special guest. You are waiting for the minutes and i have present evidence president evans from the chicago fed. Charles we were chatting about the u. S. Economy and to talk about couple of the threads. We talked about the imf updating the growth trajectory for the United States. You thought tax reform would come and that something that you thought about my want to dig deeper. How important is it to suspend the growth and united sits of america to get tax reform from this of menstruation . Administration . Charles let me make sure i get the context right here. After 10 year treasury rates went up, as we were putting together a forecast, we made the assumption that the rates went up in part because the administration was likely to implement more spending and tax reform and things like that. That would support stronger growth. We added a bit of that into our outlook. 2. 25 andwth in the 2. 5 range. We probably dont have as much of that and our outlook and maybe its a little further into the future, but basically the economy is pretty strong of u. S. Theres a lot of organic reasons why im expecting growth of 2. 25 and 2. 5 and the Global Economy is better like we were talking about. Manus if we have that kind of economy and we have rate hikes from the Federal Reserve, how would you describe the fed funds rate right now . Would you say, manus, i think we are accommodative at the moment . How would you describe it at the moment . Charles i think thats right. Going back to december 2015, we raised the federal funds rate four times by 100 basis points. We are now targeting arrange for the funds rate between one and one quarter percent. I figured still, the of and we have a ways to go to getting inflation to our objective. Its disappointingly low. Core pce is under 1. 5 yearoveryear. I think pretty much all of us are expecting it to move up, but i think its going to take a little bit longer to get up to 2 . We might need a continued accommodative stance. We are accommodative now. From here on outcome, every rate increase will get closer to that sure its im not as going to be leading to inflation moving up. I think those are judgments we have to come to before the next rate increase. Manus from the data you have seen so far, where do you stand on the december hike . Charles you know, its too early to say. I do think the inflation data had been disappointed. I understand and i read the arguments and i heard them that its likely due to transitory factors. There certainly have been a number of those in the u. S. In the say lowinflation Global Environment so the whole world is dealing with transitory effects. Ok, im sure there is some of that true too. Im really nervous that Inflation Expectations are low. There have been low for quite some time. Going back to october 2014, we have been regularly calling out the Market Measures of Inflation Expectations. Continue to be low even though they bounce back a little bit after the election. I think survey measures are also weaker than sometimes we talk about. Manus expectations are incredibly important. The forward expectations of where rates are going to go is a benchmark i look at every day. Charles i do too. Manus im glad im on the same page. How does the fed push those expectations . What more should or could you do to push expectations up . Charles this is a big thing question really. This really comes down to how are we talking about meeting our policy objectives . I think we need to be basing our decisions on outcome based Monetary Policy. Andeed to be very clear telling everybody we are supposed to be supporting full employment and price stability. The Unemployment Rate is quite low at 4. 2 . I think wage growth can be stronger. We are pretty close to full employment. Stronger wage growth would reinforce that idea better. Uping Inflation Expectations by just talking about it and making sure we are willing to go about 2 of that action happens because we have got a symmetric inflation objective. I do think we should be willing to push inflation above 2 because we should be spending some time above 2 just like we spent b quite a lot of time below 2 . Manus can i push harder on that . What is running hot . Is it 2. 5 or is it toward 3 . Is it the ability to let it run . Charles i do not think we should fear 2. 5 inflation. Were trying to get inflation up to 2 and we get there quicker than we thought. 2. 5 is not inconsistent with the objective. We should be spending time above 2 just like we have been spending time below that. We should be averaging 2 Going Forward over some period of time. If we started at higher than 2 range, we would be pushing policy to a slightly restrictive point and expecting it to come down over some period of time. Manus you talk on metrics like Unemployment Rate. How low can she go . We have about five minutes left so i do not think we will answer that question in the next 45 , theds, but for you propensity to get to some 4 , is there risk if that keeps dropping . Charles i definitely think if the labor market continues to be very strong, if unemployment , thatues to fall below 4 the signs that there should be mounting inflation pressures. We do have to realize that the technical aspects of this, the phillips curve is really quite flat. We probably will not see inflation move up very much because of that. It might take Something Like 3. 5 before you see inflation really pickup from a strong labor market. On the other hand, there is a risk there. I understand why we dont want to risk inflation getting out of control. I would just say that if we are going to have a 2 inflation objective, we have to be willing to spend time above 2 . Unemployment 3. 9 in and shake the funds rate of gradually the way we have talked about. Manus the single most talked about topic and the collies in the United States talked about it is succession plan. Lets go added a slightly different way. What does the fed need in its next phase of leadership . You lived under bernanke and janet yellen. Youve also had experience with greenspan in the room. What does the fed need in terms of leadership Going Forward for successful succession . Charles i think we have been extremely well served by the leadership of the fed chairs we have had, the once you have mentioned. I think we need thoughtful discussions. We need Committee Members who bring their best thinking to the. Able, different viewpoints the viewpoints im expressing right here is different from many around the table. I think we benefit from everybody thinking what are the risks scenarios we might be facing . What is it that could lead inflation to be of 2 . When you say its ok, what is the circumstance where you would be ok with that . Lets think that one through. We need to challenge each other. We need that giveandtake discussion. Manus we debated that a lot on bloomberg that theres not a full koppelman. To that end not a full complement. Maybe theres a holdback to make Big Decisions about the way forward. Charles i think we had been running the policy decisionmaking the way that any committee would. We have been very thoughtful. Ben bernanke and janet yellen worked very closely. Chair yellen came in and the Balance Sheet we need to get that to a point where it starts to roll off and we get back to normal Balance Sheet. She has begun that. Thats a very important accomplishment. I think we will be well served by getting this started. It will impart a small amount of additional restraint, but we have our other policy tool, the federal funds rate, which will whetherne that we very we need more accommodation or less accommodation. I think we will be very well served by that strategy. Manus the bond treasurers will be waiting for the answer to this. At Balance Sheet reduction the moment and your mind, remaining, the to the u. S. Economy accommodative to the u. S. Economy, the new level of where that Balance Sheet will be . Many people say will be bigger than precrisis. Is there a bandwidth at the chicago fed where you think the Balance Sheet size will be post reduction . Charles i think we dont know the answer to this question yet. We will learn a lot about how the economy works and how the markets work as our Balance Sheet runs off and interacts with our funds rate tool. I do not think we will be surprised with interactions with the funds rate tool. We will be learning as the assets rolloff what is the appropriate size for the Balance Sheet . It will be higher than 2007. It has to be because the economy is a lot bigger. We have some policies and Strategic Decisions to make. Additionalto provide reserves to achieve a bit more of the Financial Stability goal so there is more liquidity in do we want tos or go back to a previous system where we had scarce reserves and we had an active fed funds market . I doubt it will be the latter. I think it will be one with a bit more research, but how large that will be . We still have to figure that one out. Manus Financial Stability we touched on this in the discussion. I quoted janet yellen to you. Are you concerned by Financial Markets . I think the line ive written down here is that there is an increased risk tolerance. Janet yellen cited it back in june. Is there any canary in the market coal mine . Charles i think we always have to be mindful of how the Financial Markets are working and how much risk taking is proceeding. To some extent we need risktaking to get more investment out there and to the right places so the economy can grow better and more robustly. We need to be careful that theres not excess exuberance. We need to be thinking about whether or not our policies are adding to this. I do think we have to make sure that we are delivering on our dual mandate objectives of for employment and price stability. We need to look for signs of exuberance. Four times the year, we have a Committee Presentation where we look at that. We think the risks are moderate at the moment. Manus no irrational exuberance for the chicago fed . Charles you can rationalize a whole bunch of things. Manus president evans, thank you very much. Its been great to have you in zurich. Thank you very much for taking the time on television as well. Thats it from zurich. Is beautiful. Waking myself up for a day on your show. You got to be frisky and ready for your show him a jonathan. For your show, jonathan. Jonathan cant wait to see the expense bill. Joining us now around the table is michael mckee. Still with us is than labeler ben laidler. 2. 5 inflation we should not fear it. Does anyone share that perspective . Michael evans may news that he is not convinced you need to raise rates because he wants to get inflation up higher. Was concerning him is that expectations have drop a lot. I brought along a chart. This is g btv 9351. It shows Inflation Expectations. The blue and white lines are the Consumer Expectation numbers from the Michigan Survey and the yellow line is the fed fiveyear forecast. As you can see they have been going down. That means inflation will not rise because people expect it to be low. They are not looking to raise prices. He wants to get prices up so he is maybe a hold vote possibly in december if we dont see any movement and inflation. Jonathan you havent seventh moving toward the rate hikes not doing damage to the economy, but to the inflation outlook. How does this play out in december . Ben i think you get a hike in december but maybe only one next year. Big call forts a 2018 versus the consensus view. Ben i think the market is there a 25 basis points. We got some standoff again. I dont think you see a 2. 5 Percent Inflation for very long time. The growthtaken numbers up and i think wages are very well anchored. Core inflation is very well anchored here. Jonathan you are more of the brainerd part where you will have low inflation for mediumterm. Michael theres a nuance here to what evidence is saying as well. That we should run inflation hot above 2 for a while. That is price level targeting. To aant to get it up certain level because it has been below that. That is controversial at the fed. A lot of his fellow fed Bank President s and governors dont agree that thats a good idea. Es, its a symmetric target if it goes about 2 , you want to push it down, but theyre feeling as you do not want to run it hot is a get out of control. David what struck me is that he thinks the fed has the power. They have been trying to get inflation up forever. Why does the fed think at this point it even has the power to give up 2. 5 . Ben i think they are underestimating structural trends out there. Theres huge tech adoption and automation. A lot of retirees working on bm growth combined with better technology. All this is suppressing wages. You look at who has lost their jobs and it has been that sort of middle skill jobs. Once theyve lost the job, theyre pushing down wages. I think that is sort of somewhat underestimated. Jonathan its been great to catch up with you. Bloombergs michael mckee, thank you. Count you down to the opening bell, its 34 minutes away. Up next is the countdown right here on bloomberg. Jonathan President Trump faces a challenge uniting republicans behind his tax plan. He says he will adjust it in the next few weeks to make it stronger. Could reveal any reservations officials have over a december rate hike. Catalonias later appears to stop short of declaring independence as rajoy steps up the pressure on separatists. From new york, good morning. Counting you down to the opening bell on bloomberg daybreak. Im Jonathan Ferro alongside david westin and alix steel. This wednesday just a touch of weakness by not even two points lower on s p 500 futures. In the fx market eurodollar firmer. The dollar index lower for a fourth straight session. The longest losing streak since july of this year. In the bond market yields are lower by three basis points. Thats your cross asset picture. Lets give you a feel for some of the movers out there. Alix earnings started trickling out. Delta up over 1. 5 beating targets on earnings and sales. It also had to take a 100 million writedown on hurricane irma. The storm canceled thousands of flights. A solid corridor at delta. Up. 05 . Was a killer. Hat the quarter was up by just 5 . Barracuda networks down 8 . This is a Tech Services company. Revenue was just in line. The reason that was disappointing is because there were giant data breaches all throughout the quarter that should have benefited barracuda. It was a weaker than expected margin that led to that. The growth in the Cloud Business will be very solid. Billings were just up 8 for the quarter. Earnings season finally something thats not tax reform. The noise from washington continues. Senator bob corker may not be the only Senate Republican to stand in way stand in the way of what the president calls the biggest tax cut ever. Slimming down support in an already difficult 52 seat majority. Economists and Business Leaders are conflicted on its impacts. I dont know about you, but im nervous. Seems like when investors are nervous there are prone to being spooked. And nothing seems to spook the market. It just crawls up slowly but surely. Based on the expectation of some big tax cut surely investors should have lost confidence that that was going to happen given whats happened so far out of congress. Now,e psychology right markets would be very disappointed. There are a lot of people that it to generate some growth. I would still take tax reform. I just dont think its dramatically as good as if they would deal with both. Jonathan joining us now, paul hickey. You reckon of him realizing some Market Participants arent so rational . He already knew that, didnt he . I think hes the expert on that. It wasnt like the market was slumping before the tax plan for the framework was unveiled. Stocks with high tax rates and did rally a little bit following the unveiling. Thisll i dont think market is solely rallying on the promise of tax reform. Jonathan a lot of people would point out to the rich we saw from the summer lows that a lot of that was the idea that these tax cuts were going to get on. Goinglar strength and is to be good for small caps. They had underperformed. You are seeing a market crawling ever so slightly higher. There have only been three other years above the moving average of the s p more often than this year. Youre looking for investors rotating. Looking for something that is an out there to go out and buy it. Bretts . Re are we with how does that play out for the tax reform scenario . Market breath off the february lows every time the market rates higher brett confirms that. Brett is 500 stocks on the s p 500 and its hitting new highs with each new high in the market. Alix its only going to get more exciting when we get to earnings. They track each other step for step and thats exactly what you should see when the markets rally. Biggest emergence ever was probably in the late 90s when you saw a major divergence. That was a thin rally. Even in 2000 you saw a little bit of divergence in brett. Confirmingt has been price as we got along. The internals of the market most of them are supporting the rally we have seen. Alix good stuff. Paul hickey will be sticking with us. Earningsy get big bank tomorrow. Citigroup and jpmorgan kicking off those earnings. This is what you can expect in terms of revisions. The white line is the overall financials. Whichn blame the insurers is the purple line for most of that revision. Overall helping to subtract 140 basis points from earnings revisions overall for the financial sector. Banks, itsthe big that blue line looking pretty good. Joining us now is an exclusive interview, mike mayo, wells fargo head of u. S. Large Cap Bank Research calls the start of the financial crisis 10 years ago today. Earnings. Drill you on good to see you. Where are your props . Thats why we like you on the show. I give you a copy of my book. Alix what is the bank that is going to surprise the upside into earnings season . Quarterly earnings are overrated. Fargost key to wells earnings and the banks. It will be another quarter that shows the resiliency of the Banking Industry. Every quarter banks can put points on the board without blowing up helps to proof we are a long way from the crisis. Im a little surprised we are so far above consensus on Goldman Sachs. We had fixed income trading down one quarter yearoveryear yet we are well above consensus. I think people have gotten overly pessimistic about goldman. They had huge trading shortfalls in the first and Second Quarter and they came out with a historic presentation just a couple months ago when the copresident of Goldman Sachs used the word pivot. They said Goldman Sachs is going to pivot from what they have done in the past to what they are doing in the future. A lot more intensely at Goldman Sachs, a lot more control of expenses and a lot more intensity to gain market share. I think we will see early signs of that in the short corridor third quarter. Alix you are seeing loan growth across all the big banks really start to deteriorate. We are really talking about a transition from fixed income currencies and commodities to financing, Asset Management clients, corporate clients. There are shifting their emphasis for market share gains. I dont think you are going to see a huge improvement. I think the intensity can help control revenues per dollar of expense. Take a look at banks financials. What it feels like right now is weve got training wheels on and we are not going to get in trouble like we did in 2007 but its not terribly exciting. When you move away from trading theres not as much upside. I disagree with half of what you said. I think theres a lot less downside. We have the training wheels on. We also have elbow pads and shouldnt guards at the double reinforced helmet and a mouth guard. On theprotected downside. The upside is banks are not getting full recognition for the improved resiliency of earnings in the Balance Sheet. Pricetobook ratio at banks should be one third higher just a equal where it has been historically. A decade ago banks have 700 billion of additional tangible equity. 3 trillion of additional deposits. Thats resiliency. David that proves they are not getting into trouble. What are they doing with that cash and and when are they allowed to . The markets are saying, we are not sure we see the upside growth. If you are just loaning out money your dependent on what the discount rate is coming out of the fed. Theres not that much upside. Lets define the word upside. Before the financial crisis people defined it as doubledigit growth. When you are a bank and you have a growth target make more loans. Thats easy. About islking sustainable more modest growth. I dont want the huge overly Aggressive Growth like we had financial crisis. As a banking analyst im ok with 2 3 gdp growth. Less boom and bust is quite good. Jonathan final word on goldman. Do they miss gary cohn . Goldman has a pretty deep debt. Let me finish my windup. Goldman is under pressure here. We have a lot financial crisis. As a banking analyst im ok mors asking questions. Why is goldman underperforming their historical performance. Why has goldman messed up in terms of trading the first half of this year . They used the word pivot. You dont use the word pivot at Goldman Sachs lightly because goldman outperformed for so long they didnt think they needed to pivot. This decade they said we are going to survive to thrive. Our Business Model is fine. Now they are saying pivot. Cohn leaving combined with underperformance has led to this pivot and they certainly will miss gary cohn if they dont improve performance soon. Jonathan paul hickey, view of the banks at the moment . The fact that the Regulatory Environment a year ago we were looking at financials and big banks being regulated like utilities. Theyre are not Growth Stocks now. Thats the upside versus what we were looking at a year ago. Earnings, less focus on that and more on the broad shift in trend on the outlook for the banks. Alix now i will use the prop. This is your old book. David hold it up so the camera can get it. Lets talk about the anniversary that we are seeing today. October 11, 2007. That was the start of the financial crisis for me. I was at a next basketball game and started getting many texts that the then ceo of citigroup was firing a lot of people underneath him and robert ruben came out and said the ceo than chuck prince would be around for many years to come. That was the most out of touch statement that ive ever heard in covering the Banking Industry for three decades and that was when citigroup had tens of billions of dollars of subprime losses on its Balance Sheet. I still cant believe the arrogance at the top of citigroup 10 years ago today. The ceo waster gone. Citigroup stock went into a freefall from over 500 a share. Citigroup led the u. S. Banks into the financial crisis and it took a few more years to work things out. Alix and now it is your favorite stock. Its night and day. In terms of resiliency citigroup has the strongest Balance Sheet in a generation. In terms of Revenue Growth not pushing for too much Revenue Growth theyre looking for modest singledigit Revenue Growth. In terms of Quarterly Earnings cs. Scribe it as the three we think they have a lot more room to optimize. Of, citigroup arent they great. The main difference is the resiliency which is much better and evaluation which is much more attractive. Alix thank you for coming in, mike mayo. Wells fargo securities. Coming up on the program, rich will be richard daly joining us about activism in companies after png rejected nelson tells activism yesterday. This is bloomberg. David this is bloomberg. Im david westin. We look forward to release us afternoon of the latest fomc minutes. We will be looking for clues about the Central Banks rate pass. We spoke to Charles Evans, Federal Reserve bank of chicago president. This is what he had to say. Its too early to say. I do think the inflation data have been disappointing. I have read the arguments. Heard that its likely due to transitory factors. There certainly have been a number of those in the u. S. Low inflation is a Global Environment and so the whole world is dealing with transitory effects. David still with us is paul hickey of bespoke investments. To what extent are the equity markets in their remarkable to what extent is it dependent upon loose Monetary Policy and how sensitive is it to what people like Charles Evans do with the rates . We have seen the fed hike rates a few times. As long as the market is under the impression that the fed is behind the curve and not hiking to aggressively than the market will take it just fine. At this point you have inflation stable so low whether its transitory or not that the market is ok with that. You are looking at environment even though the commentary has been more hawkish of late the market is more likely to think the fed is going to err on the side of caution rather than being too aggressive. David what makes it too aggressive . Fiscal conditions have loosened rather than tightened. How much of that is because of the weaker dollar . As far as the inflation data is concerned i dont think that should be weak dollar oriented at all. Youre seeing societal impacts of the online sales keeping prices lower. I think you have an overall environment where you have Older Workers who are higher wagers coming of the workforce and younger workers who are lower wage and that is keeping compensation down and keeping the lid on growth and wages. Overall that is keeping a lid on inflation and keeping the fed at. Paulalls baking hickey will be sticking with us. Tomorrow there will be an interview with imf managing director Christine Lagarde. This is bloomberg. David one of the most striking things about markets has been a surprising lack of volatility. Our editor in chief sat down with cme Group Chairman terry duffy. They talked about how little geopolitical events have affected investors. A component ofs what we do. Its not everything that we do. Theeed volatility to move markets so people can manage risk. At the same time there are fundamentals outside of volatility that will move markets whether its geopolitical or others even though in light of whats going on in the world it is surprising how little markets have been affected by some of the events. When i first started in this business 27 years ago it had a very adverse effects on markets. Reactor inear chernobyl blew up people believed Eastern Europe wouldnt be able to grow a dandelion for 10 years and the agriculture markets group. Grew. You have the unrest in north korea and our own administration going backandforth with them. Nothings happened. The market hasnt really reacted. The u. S. Equity markets have gone straight up. The Interest Rate markets have stayed stable to lower. Its really surprising when you look at all of the events that have gone on in the markets become so jaded they dont react to it like they used to. What happens now Interest Rates do seem to be moving a bit. Presumably that is nothing but good news. Is that going to change the nature of it . Changesay it really even though it could be a small move in rates of the difference is with the u. S. Fed the central bank of the United States that was acquiring so much debt in a qb situation for the last several years has announced they are not going to acquire any more debt so everything they have is going to come off their Balance Sheet. We have to have other participants come in and assume the debt issuance is to take it up. Whats interesting about that the u. S. Has the only central bank in most of the countries that does not have. The Central Banks throughout the European Union all use hedge vehicles. The u. S. Central bank assumes all the rest of their own Balance Sheet. Now that that risk is going to be turned over to other participants other than the u. S. Government we think even with the small rate environments that gone up or down we will see more people hedging because they are not going to be able to hold it without hedging it. One of the things we have been really successful about, we have been able to create new vehicles in the Interest Rate product. Maybe a derivative of a derivative. Whether its the 10 year bond that has been very successful. Things of that nature that we have created over the last several years where people may not be trading the traditional fives, tense and 30s. That has been a big success. We continue to innovate within our own Asset Classes and outside to grow the business. Duffy. That was terry still with us is paul hickey. You have taken a look at volatility. How historically low it has been for an extended period of time. What accounts for it . Just had itsconomy longest stretch of job creation in its history. Its not a gangbusters economy. Its an economy that has been growing steadily. This is a great chart. The blue line shows historically what the s p 500s average daily move is on a given trading day of the year. The red line shows the moves this year. So far this year theres only been 23 days where the s p 500 absolute value of the move was above average. Its historic, the lack of volatility. The market is just gliding along. One of the reasons is we are seeing more rotation within the market. You used to see all stocks in the s p 500 going up. These days you see energy go up, other sectors go down. Hickey ispaul sticking with us. Futures are treading water. Talking about the lack of volatility. From new york, this is bloomberg. Jonathan stocks coming into the wednesday opening bell just offer record high. We close to just below it yesterday. Futures are treading water. We erased some of the losses from earlier in the morning. Nasdaq,500 and on the not much price action to be seen. Fx market isthe dollar weakness. The dollar index down by. 3 . It would be the longest losing streak since july of this year. Dollar weakness starting to creep back in. Charles evans speaking to bloomberg little bit earlier saying we should not fear 2. 5 inflation. Cash openis for the as follows. Lets go to alix steel. Alix we do not have a record open on any index today. Dow jones pretty much flat. Nasdaq unchanged on the day. Earnings starting to trickle in. The big earnings really start coming tomorrow with the big banks. We got paypal trading higher on a recommendation from Morgan Stanley is saying, it will never be cheap again potentially. Potential upside on consumer spending. Juniper networks down 2 . Goldman says they see week spending by phone carriers. Cable cutting will really take away any kind of catalyst for that company. It just matched earnings and that wasnt good enough. For multiples manufacturers seeing higher Wage Inflation and hurricanes taken a toll on that company. Kroger having an investor presentation. Really interesting headlines. They reaffirmed their 2017 forecast and 2018 theyre looking for earnings to be flat or slightly grow. Or want tonerating 4 billion in Free Cash Flow over the next three years. They might sell their convenience stores. They see stronger sales next year. Headlines you wouldnt expect when you have amazon teaming up with whole foods. Program had gotten so hit on those headlines kroger had gotten so hit on those headlines. Earnings revisions have been lowered quite a bit. 4. 9 , double what we normally see going into a quarter. Bars are the s p onemonth return prior to earnings season. We have seen a huge pop of almost 4 . Bead is itave a enough to keep the stock market right around record highs. A really interesting dichotomy that could play out in this earnings season. Lehmann isark joining us alongside paul hickey. Potentialainst a weakness is never a good sign. It seems to be whats happening. Theres a lot of liquidity. We will start to see thirdquarter earnings shortly. Is earnings will be at or above expectations and you will see the winners continue to be the winners. I hate to be a broken record but i think you want to stay committed to the market. Jonathan it is something you have said again and again. When we put that chart up in the commercial break you said you did exactly the same thing in the last 24 hours. What did you conclude . The last 12 Earnings Seasons you have seen negative revisions going into earnings reason. The market was up 11 times. Run coming a decent up into earnings season. Have we had a strong run as a market ahead of itself. Even when the markets rally this chart is showing the revision spread. The s p has moved in the same direction as the earnings revision spread only seven times. The orange dots are the only time were earnings revisions were positive and the markets went up or they were negative. Analysts are always negative heading into earnings season and the market pretty much always goes up during earnings season when you see this kind of layout. The strong run we have had in the market over the last month. Have we gotten ahead of ourselves. Are investors gaming this . Whether the markets have been up strongly or not eating into 1. 9 versusson is 2 . It doesnt really mean a whole lot. The potentiales for more upside if you look sector to sector . Analysts itre works for sectors as well. Financials you are seeing negative revisions. A lot of that is from the weakness in the insurance sector. Analysts are very negative on the insurance sector heading into earnings season and even the banks have seen downward revisions. You look at what the bank stocks have been doing to what the analyst revisions are they are telling a whole different story. It has paid to go with the stocks rather than the estimates. Theres a lot of liquidity out there. I dont think we have seen anything in the way of legislation or anything in terms of shots to earnings that will make anybody feel like we are due for a massive correction. You have to watch politics in washington. The market remain intact and theres more good news and bad news and you want to Pay Attention. The blue line is financials. We already kind of know that is an insurer story. We also have energy. Financials is the yellow. Had been trending lower but then moved up. How are you playing this . You continue to have the employment and rages wages that will grow. Thats a good thing for overall the width of the market will expand. Some of the areas where we have ien huge revisions downward think you have to be more exposed to the market. One thing you did not mention was biotech. This is probably the best performing subsector of the market. 30, 40, 50 this year. More drugs are getting approved. Companies are better at Getting Better results and youre going to want to play the biotech market. You have to have exposure. Mark lehman will be sticking with us. Speaking of company stories Procter Gamble may have declared victory in its fight against nelson peltz. Investors are divided. There is broader dissatisfaction among company shareholders. Joining us is richard daly. This company has a market cap of nearly 10 billion and generates 80 of its revenue from proxies. Thank you for joining us. I feel like paulson is trying to get people on his side to have an activist company to go after gold companies. Thats how much activism is really prevalent right now. Whats the best way for investor to approach this . When you talk about broad process e in this yesterday was just another day. Our goal as the honest broker in this who is indifferent to the outcome is to ensure that the results are accurate. At 920 thells closed street side is very efficient versus the register side. When activists are going after on the street side broad ridge acting as agent for the brokerage is solely there to ensure that there is an unconditionally accurate result. 920 the polls close at vote we submitted which both my knowledge has not been disputed by either side and the controversy going controversyactivist Going Forward will be over the remaining registered shares which in this case is far less than 10 . That is what he is talking about in terms of we dont know the answer to the vote and all of that. What are the trends you have noticed . We issued something called proxy pulse. It actually tracks the activities that go on in proxy voting. Number of contests. How they are handled. The one key trends that you are seeing here and in the past is that retail shares really matter. The way retail shares get by the agencies that report these things they dont have the ability for example to firms institutional shares versus the retail shares. I believe the chairman of p g yesterday said that retail voting was about 40 . On average for fortune 500 companies its about 30 . In gauging those retail holders is really going to be the difference Going Forward in these type of contest. David how are you going to engage them . This is all about corporate democracy theoretically. How many Retail Investors really are voting their shares . Question. Retail shareholders are voting about 30 of the 30 of the shares they vote on average. The answer to all of these things is technology. On the street side it has a limited over two thirds of the paper. Its an online process. Companies can use Technology Delivery tooud engage investors on a regular basis. The reality is the focus is almost entirely on Institutional Investors until you run into an activist situation and then the cost of engaging Retail Investors is extraordinary and i would say the cost is happening too late. You need to engage investors on a regular basis. Tracker that see a would indicate that participation goes up when you do it electronically . You do it through the cloud rather than with paper . When you get shareholders a technology which the street enables because in your brokerage account when you decide to go electronic you dont go electronic for a company. You go electronic for every position you own and every position you alone in the future. Phone so itding my wont go off here. Proxies andi get my in three clicks i can both the proxy. Alix talk about the broader proxy. Your company used to be part of adp. What do you think about the battle going on there . Because we are the honest broker in this process i was at adp for over a decade now. I may have a personal interest in watching what happens. From abroad which point of view we only have one interest. The results are indisputable. Let me give you an example of what we do. Wen darrow and processes hire a Big Four Accounting Firm comes in on a quarterly basis and for every meeting that we do across the world they report on a quarterly basis that they are 99 confident that our Voting Results are at least 99. 9 accurate for shares less than 50,000. Checking we do, the shares over 50,000 are 100 accurate. In every contest we apply the triple check procedures to every vote. Thats why its highly unlikely the vote we issued yesterday right before the close of the polls is going to be challenged or disputed. Jonathan fascinating insight. Anchor, richard daly. 12 is into the session. At ofs were doing nothing the cash open. The s p 500 just off an alltime high. Down by almost a single point. From new york, this is bloomberg. This is bloomberg daybreak. Im emma chandra. Coming up on Bloomberg Markets republican congressman kevin brady chairman of the house ways and Means Committee that someone 00 p. M. Eastern. Thats at 1 00 p. M. Eastern. This is bloomberg. Another blow for qualcomm over the way it practices mobile phone taiwan has find the company for antitrust violations. Regulators say it has monopoly status over tmobile phone standards and has abused its advantage. The steel scandal has deepened. The steelmaker says it may have falsified data about another of its products including breaks in steering components. Uber now faces at least five criminal investigations from the justice department. Thats two more than previously reported. Bloomberg has learned that authorities are asking question on whether the ride hailing startup violated Price Transparency laws. Theyre also looking into the alleged theft of documents. Thats your Bloomberg Business flash. David rubensteins son revealed that he missed out on the opportunity of a lifetime by not investing in amazon. Sometimes in the past it you try to buy companies. You disagreed on the valuation. You try to buy a piece of amazon at some point. You and jeff bezos couldnt agree. Is that true . We almost agreed. The difference was not that big. We almost agreed. When i really wanted to invest my executives could not agree and at the time i am the one in the startmoney up before ipo. He had a great vision. Strong passion. I was really convinced even from then. In hindsight you made a mistake. You should have agreed with his valuation. Totally. You would have felt like that if you had sold amazon at the end of last year. There seems to be a theme for tech. People scared to sell because it keeps ribbing. It has been a sea of the franks stocks and beyond for some time now. The question investors have to look at is is the competition on , is regulatory parol coming. Those are issues investors have to Pay Attention to. As you watch earnings and visibility accelerates i think issues like this will creep up. People its high enough to buy now. I looked at the blackrock inflows for the etf is this. They are surging. Wonder just how much people have gone in passively into a big sector that has grown exponentially and whether you need to get a little bit more precise on what you want to hold and what you dont want to hold. Its a great point. A lot of people are seeing this passive revolution. At least theyre are getting involved in the market. For the average investor thats probably a good way to start. Being very deep in a couple names is probably not the best for the average investors. There are places where people are spending a lot of time and a lot of their dollars. Maybe that is a place you want concentratedr dollars. David you mentioned regulatory risk. How do you price that in as an investor . You have to watch washington. I would not say this administration is so keen on the monopolistic powers of some of the companies we have mentioned. Frankly theres more rhetoric rhetoricdistracted from higherups in washington as opposed to real antitrust violations. Have to puting you in your calculus because amazon is not slowing down. Theyre Competitive Landscape is widening. Facebook obviously is not slowing down. Half a billion people check their instagram every day. That is beyond powerful. I dont see that slowing down anytime soon. Alix is it a fang for you . Facebook earnings are going to be as good or better than they were. I think theres nothing getting in the way of netflix right now. Amazon has more earnings issues. Core business is phenomenal. I wouldnt change that at all. Google is putting a billion dollars here and a billion dollars year. What does that do to the earning power of the company. Alix putting a billion dollars here and a billion dollars year. What does that do to the earning power of the company. Go to bloomberg terminal, check out tv. Interact with us directly. Just go to tv on your terminal and rewatch anything you may have missed. This is bloomberg. David this is bloomberg. Im david westin. We will be getting the fed minutes at 2 00 p. M. Eastern today. We are looking for a banks taking on inflation. Is federal bank of chicago president. Here is what he had to say. Moving Inflation Expectations itby just talking about making sure we are willing to go above 2 if that happens. We have a symmetric inflation objective. I think we should be willing to push inflation above 2 because we should be spending some time above 2 like we have spent quite a lot of time below 2 . David joining us is carl riccadonna. We spent six months below we should spend six months above . Is that what it means . Very simplified world you could say that much. The point is if you have been undershooting for a long time theres both the amount of time and the magnitude of missing the target. There has to be some equalization in the other direction. If they dont do that and means they are not defending a symmetric inflation objective and maybe they have a target band of 1 to 2 . Certainly they havent been very successful on that front. He makes a very valid point. Im very nervous about Inflation Expectations and if you continue to undershooting tighten policy while you are undershooting than Inflation Expectations could very much be at risk. David the important thing in that sense is continue to undershoot. When do you think they can get above 2 . Havent gotten up to 2 . Goes back to the tom keene interview. The phillips curve is flatter but at some low level of unemployment you will bump up against labor scarcity and generate wage pressures which will drive inflation higher. 4 or even high 3 territory which goes back to the yellen speech from a yearandahalf ago where she said maybe we need to look at full employment and estimates of full employment could potentially be meaningfully lower than where economist currently believe. I saw strains of that in his remarks this morning. Alix how common on the fed is his view . He has been on the more dovish side. You have cash carry aligned with him on that front. I think the lord is on the same page. We heard from the dallas fed president earlier today also hinting that he needs to see some evidence of inflation rebounding if hes going to support. Its an increasingly prevalent view on the committee and its going to be a very difficult vote at the december meeting because we have a lot of vacant governor seats and that means every vote counts and theres a lot of doves on the committee right now. Jonathan carl riccadonna, thank you very much. That does it for us. S p 500 moving just a little bit further away from alltime highs. From new york, this is bloomberg. Vonnie it is 10 00 a. M. In new york and 10 00 p. M. In hong kong. Mark welcome to Bloomberg Markets. Vonnie here are the top stories we are following. Markets are higher ahead of the fed minutes. We will speak with Michael Holland of holland co about the future of the Federal Reserve board leadership. Withdent trump set to meet canadas justin trudeau, then has to pennsylvania to pitch tax reform. There are new indications that more republican senators could be potential roadblocks. Ukip Prime Minister Prime Minister theresa may raising more questions about brexit negotiations. We will speak to the Prime Minister of wales. We will get a check now of the european