Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20171031

Donald Trump Campaign was in touch with russian officials who wanted to defeat Hillary Clinton. He revealed a former policy adviser has pleaded guilty to lying to the fbi about his contact with russian operatives. George papadopoulos is cooperating with prosecutors. Former campaign managerPaul Manafort and an aid charged with money laundering. And congressional tax writers considering a phase in for tax cuts. According to those familiar with the matter, they looked at a schedule that would slash Business Rates from 35 to 20 by 2022. The tax bill is that the be released tomorrow. And in spain, the Independence Movement in catalunya trying to find a way forward. Its a leader took off for belgium without telling senior party officials. They say he plans to seek asylum there. Majored has strengthened control of the Catalan Government and the Prime Minister has called for regional elections. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. David . David thank you. Our london colic has been reporting for months on the lobbying business of Paul Manafort, the former Campaign Chair for donald trump indicted yesterday in washington. We welcome stephanie back to explain what the indictment tells us about what Robert Mueller and where he is heading with the investigation. If you look at the plea agreement, what do you make of this . It is hard to not see the two of them as linked. Punch a sort of 12 yesterday, revealing the indictment againstPaul Manafort and gates, which seems like a straightforward case. They have payments that came from offshore companies in cyprus controlled by manafort and gates, from their work in ukraine and elsewhere, using that to pay for home renovations, land rovers, antique rugs, as a way of not paying taxes and concealing the sources of the funds. A couple hours later he landed with the George Papadopoulos indictment and with the bombshell that he had been a proactive cooperator on the investigation. And in the indictment, a detailed emails between george andoulos edit several several campaign operatives, including one of whom we believe to be Paul Manafort, so it does look like he is trying to use the indictment as metaphor and g and gates, manafort as a way of putting leverage on him to incorporate with the other russian collusion investigation that is ongoing. David talk about possible cooperation, but cooperation, because it looks like George Papadopoulos is cooperating. Does this indicate he has hit a brick wall . Would he have done the deal in secret ifPaul Manafort was willing to turn on the president . Stephanie it was clear from the indictment he had been trying to to Paul Manafort and gates cooperate and had faced resistance and that they had provided statements on their work in ukraine and why they had not filed on that work with the two lobbying organizations named in the indictment. They had hit a wall on the and the only way to force them to really cooperate with the hit them with this indictment, where the threat of prison would make them focus their minds. I think what appears to me is Robert Mueller is sitting on more information than we do not know taht weight that we do not know about. I think there is speculation on whether or not george apadopoulos had been wearing wire and may be who he spoke with over the past few months. David thank you. Stephanie baker reported from london. Jonathan lets focus on the markets. We will bring in the Morgan Stanley chief strategist and ben a global strategist at the table in new york. We will begin with michael. And looking at the escalation of the russian affair with market importance is it undermines the if itents authority or is seen as influencing midterm elections . Does it do any of those things . I think it is too early to say. It is right to point out if it does one of those things, the question is whether or not Something Like this will be real the agenda. To be honest, i do not know if we know enough to say that it would. If we look at the historical pattern of behavior, the question is whether the republicans put on pause the agenda to adjust issues with the president. We have a james comey firing, the memo leaks, and in either case did they do that. If we look at comments from Kevin Mccarthy and paul ryan, they seem to have no intention of doing that. The only conclusion i can come to is as long as the president is maintaining the appropriate polling numbers at the base, republicans will act in a selfinterested way about their jobs and they will move toward the legislative agenda, barring other disclosures that we are unaware of. Jonathan same question to you. I think the market is focused on all those things. I am much more focused on the earnings, and where bond yields are, i think the fed is really supported the multiples that are much higher than they have been historically. I think that is in play, with the equity markets and a tax reform is what i really care about. Jonathan yesterday at least. Ben i think tax reform is important and i think that is probably where there is the greatest agreement. I am not necessarily sure it will take the market off, probably makes it more defensive. Michael david yesterday, the markets seemed to react that if we face in corporate rates did that surprising that the market reacted that much to that . Michael that surprised me a little bit, because i think there will always be a phase in approach. In order to make it work with the constraints that have been treated by the senate rule, there will have to be phase ins if they want to hit their rate targets. If you consider this to be a moderation of what was coming in, there will be more moderation even after we get the draft tomorrow. David this is just the beginning of a process of a a lot of back and forth and lobbying. Do the markets have their hopes will get if they disappointed just buy the notion that you percent will take a couple of years 20 will take a couple of years . Ben i think the markets are supported by the recovery in earnings and where the bond yields are supporting the high multiples. I think if we get reprostration, i think it will only add to that. I think the phase in will only add some point in the next couple years, which is nice, but not a game changer. Jonathan it is all about the fundamentals in, Earnings Growth in we move on the headline with tax reform more on the rumor of the probability that chair how will be chair powell. And we want the u. S. Gdp that will come in around 3 . It is sensible, to say it is all about earnings and growth but it seems to be about Something Else as well. Michael isaiah think it depends on what market you are looking at, but with the bond market there is more push and pull what the decision from the fed. I think we will have two events that will make us feel safer at the end of the week to go ahead and be a bond buyer. Wellwill probably see po as the next chair, keeping rates the same as it is, and will probably get a bill package tomorrow that will talk about stimulus potential. That story will not be over for a couple of weeks, but it will sort of a firm the idea that there is not necessarily a big wave of bond issuance coming to or a big positive shock to the economy coming through in 2018, it is sort of what is already driving the economy and equity market, that is what you have to go on for now and out the big extra factor at the end. Jonathan michael and been, you will be sticking with us. Coming up, an important conversation you do not to miss. We have a harvard professor and former u. S. Treasury secretary, Larry Summers, on how the jump in mr. She should take tax reform lessons of from the reagan years. We are two hours, about 20 minutes off of yesterdays minor dropped. Future positive 25. And the dow moving about two points. This is bloomberg. Taylor this is bloomberg daybreak. Im taylor riggs with your business flash. Pfizer beating estimates and raising the earnings forecast for the entire year. Pfizer says it will decide what to do with the consumer business next year. The company is considering a spinoff or a sale. The Worlds Largest advertising coveting cutting its forecast. They said sales growth is expected to be flat this year. Earlier the projected growth around 1 . Wpp is having its worst year since the financial crisis. Client like proctor and gamble have scaled back at a budget ad budgets. And proctor and dropping out of an agreement. The deal allows advisors to with competitors without being sued by former employers. Morgan stanley says the government said the agreement is full of opportunities for loopholes. David thank you. Tech titans begin todays of testimony on capitol hill, those from google, facebook and twitter set to testify on how their services could have been used by russianbased entities and in order to influence the american election. Joining us is selena, so take us into these hearings. They will be today and tomorrow. What do we expect from them . We are looking at Silicon Valley coming in to washington dc and they will be thrilled over the next few days about what kind of russian influence was on these platforms. We received documents with their testimonies and we heard that the extent of the russian influence is far greater than what they had previously reported. Facebook said almost about 126 Million People were delivered content that came from the ira, that is a kremlin backed group. Twitter said there were almost 3000 accounts linked to that group. David those are eyepopping numbers, 126 million americans exposed, but is this more of a bully pulpit for congress or do they think they will be able to regulate this . We have seen people come out and say that actually tech is not prepared to deal with the magnitude of the issue. There is legislation in the works. They think the steps of the tech companiestaken by the to regular themselves is not enough. But they say they have enough to deal with the issue. Facebook coming out with their own policies to hold digital ads to the same standard as broadcast ads. They are banning rt and its button and from advertising on their platforms. Tech looking at where the line should be drawn. Jonathan on the issue of fake news, the solution so far is the sort of in front of the news, those pieces of news, and decide whether it is fake or not. When will they develop the technology to address the issue in a significant way . I think there will be accommodation of real humans and algorithms, but the issue with algorithms you will be sometimes catching things that are not fake and it will be difficult to know where the line is drawn. With twitter, a lot of the fake news is developed by bots. It is hard to detect them because now the groups are starting to supplement automated account with human activity that the algorithms cannot actually tell the difference. These Companies Say they are working on the problem, but the technology has a long way to go and it is something that will be left to be touted, but the results have not been fully realized yet. David thank you. Selina wang. Coming up later, we will be speaking with Chuck Grassley from iowa who chairs the Senate Judiciary committee would will be holding the meetings today. That will be able to 5 a. M. Eastern time that will be 8 45 a. M. Eastern time and one of the questions to be addressed is whether we can have the best of the benefits from facebook and google, and avoid the risks from massive internet sites. With us we have ben, a Global Equity strategist, and michael from and our policy correspondent Michael Mckee. Can they have the best of both worlds . Can we get all thecan we get ale enjoy from google and facebook and twitter, and still have some protection against being manipulated . I was going to say no, but then you said some. It is possible to have some, not possible to have a Free Internet that provides truth to people, because the system is setup to allow people to lie to us. This is an unusual situation, because ordinarily you would expect some regulatory action from washington, except this has all caught up with the trump investigation, so it will be hard to get anything through. There are two basic ideas. What you would be doing is regulating the political content, the ads, like those on broadcast media. It may have the best chance of going through, although the republicans are not enthusiastic about it. Run andout when the ads that kind of thing. Which makest law, the Internet Companies responsible for passing along the copyrighted material. if they know something is fake, they do not just pay damages, they have to pay on top of that. Raised the, michael critical issue of disclosure. In washington, when there is an issue like this, you have to disclose. Is that feasible in this world where you have billions of tweets and facebook posting in a given day, can you require each person to disclose . I do not know. It is hard for me to know if the technology exists, but i would say there are a couple of steps in the process. There is the legislative step, the huge question mark. And the regulatory step, the role writing. Rule writing. And if you look at how long it ones to write the rules, average it takes about four years. And the spread is about 110 years on that, so we could be far away from something effectively changing the behavior at this point. Jonathan talk about a tale of two cities. Friday, tech was a glorious. Today in washington dc it is an ugly thing that we need to do something about. Which one is it for you . Ben the timing issue is interesting. If we look at it, tech is accelerating so quickly. It is expanding about four has a five times over the next decade. So whatever fix you need, you better hurry up because the numbers are getting bigger and quicker. And the tailwind this sector have to deal with, what really stands out compared to other sectors is the amount of cash and the lack of debt, and the lack of buybacks, and the point being, there are a lot of levers they can pull if they want to keep going. Jonathan we are trying to figure out if the Technology Shares are reaching the bottom line with some kind of material if you look at the ministration, it does seem like a business friendly administration, so do you see the appetite to make life difficult for technology . When you look at what is feasible coming out of washington, it will not hurt the companys bottom lines. This is a new problem that people did not anticipate and companies were not ready to deal with, so it is backward looking and when you look forward, what can you do about it . Those solutions are aiming at disclosure rather than costing the company a lot of money. They need to spend a little bit of money to regulate, but it will probably not be a major crackdown from washington in terms of the bottom line. David ok. Mike mckee, thank you so much. Ben and michael will both stay with us. Coming up, calmly tom lee, one of the biggest bitcoin goals revealing why will triple. From new york, this is bloomberg. President trump narrows his pick for the fed today. A white house official says the president will announce his decision on thursday. According to multiple people familiar with the matter, they are learning toward powell for the job and not investors are pricing in the pic for the world most important central bank. Still joining us, michael and ben. What are you telling clients about this . Them we we are telling do not have a reason to doubt with a prediction is telling us. And powell in the estimation of our team is more or less status quo in terms of the expected amount of rate hikes for next year, so that should be more the reaction, it is from the levels we are. And again we were going back to talking about tax reform. When you have that event on thursday and the probability of the event on wednesday, we will have a build that will not look like a big difference it. That will make you more comfortable right now. Jonathan will you have a better idea the end of the week what 2018 will look like then you did before it . Michael actually. Knowing the choice of the fed, or at least have a decent estimation of the bond supply for next year, and the upside to the gdp growth from tax reform, that will give us more clarity going to do 20. Jonathan if i throw this that you with vice chair taylor and powell, does that change anything for you . Ben longterm, no. It is built on structural demographic and technological factors, so that does not really change. It may change things in the shortterm and we need to be sensitive to that. The may you weighed money with equities this year, it is because they contracted. The only reason that has happened is because of the dovish rhetoric in the bond yields, so that could be destabilizing in the shortterm, but i do not think longerterm we will see those changes. We will be in an environment that supports longterm valuations. David they have signaled about three hikes in 2018, so is there anything in the data that would cause them tom change their minds . Ben payrolls is a big one. Wages is one that we saw on friday. I suspect affected by the hurricanes. That changes the mind and whether we would get in accelerated cycle if we will be delivering on the dots. I think it is an acceleration in the wages. Jonathan data has not been very noisy. We have a couple of points, but other than that it is straightforward. Ben maybe 3 wage growth on the back of last month. I think it was validated this month. Some people getting worried that it will fall back to 2. 5 , but we are in that environment. Jonathan ben and michael will stick with us. Coming up, we have an interview with Chuck Grassley from iowa and we will be talking to him about the social media hearings taking place on the hill today. From new york and our audience worldwide, you are watching bloomberg tv. Jonathan arguably the most important thing on the s p 500, and it accounts for 24 of it and in focus today, big tex going to washington dc big tech going to washington dc and we are positive after the oneday slide yesterday. It is a minor move after the headlines. The next step is earnings, not just politics in washington dc, we are getting facebook today and on thursday, apple. Treasury yields are higher by a basis point. We are counting down to the fed decision and a trump pick, and payrolls on friday, so it will be a busy week. Fx, and the euro is softer. Inflation coming in weaker. The only currency in the g10 against the u. S. Dollar, sterling. And we are counting you down to potentially the first rate hike from the bank of england in a decade. And lets get you headlines outside of the business world. Taylor special counsel Robert Mueller appears to be building a case that the chum campaign was in touch with russian officials who wanted to defeat Hillary Clinton. He revealed a foreignpolicy advisor has pleaded guilty to lying to the fbi about his russian contacts with operatives. George papadopoulos is cooperating with prosecutors. Die hasafort and an ad aide charge with money laundering. And slashing Business Rates to 20 by 2022. The text of the tax bill should be released tomorrow. And the catalonian Independence Movement trying to find a way forward. Its president took off for a without telling senior party officials. They say that he plans to seek asylum there. Their strengthening control over the Catalan Government and the Prime Minister is calling for regional elections. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Jonathan thank you. I am much more concerned about civil unrest in france given the shortage there. Looking at the consumer of butter. Do we have unrest around the corner . Ben you are asking me about the butter war . David the only country where you do not want to have that war. Jonathan absolutely not. We are looking at the s p 500, banks in europe found out that they are at the mercy of volatility. Take a look at what we saw over the last couple weeks. I mentioned volatility in the past, it is like a Cold Shoulder is good. What we are missing is a little bit of a constructive, positive volatility. I think in the past quarter there was uncertainty related to the uncertainty in the market, that is why so many corporations waited to see what was unfolding. We want to see a better performance. It has not impacted our market share. It has held in there. We have been holding share, especially for the fixed income markets, where we are down 24 this market. If you look at the financing segment, which is apple to apples with our peers. We do not want to destructive volatility. In that sense, you can see our lower volatility pushing more the investors toward a passive investments. I think we expect the return to normal levels of volatility in volumes and a recovery in the market revenues. It has been a difficult market for everyone. We have held share in the market. We anticipate there will be more solutions as we going to 2018 and 2019 on the Interest Rates and volume. We will have to see. Jonathan more on the european banks, we have ben. It reminds me of goldilocks, they do not want destructive volatility, it is too bad, then it is just right, so will they get it . Ben we are sitting at levels of alltime low volatility, so one could bet it will pick up. It is interesting, it is businesses looking better, yet you have a view of the world that we do, which is the bond yields will be staying low, and it is not good as an environment as we would like to see. Jonathan given domestic economies, does the same thing apply to europe at a time when the gdp growth is coming through pretty good, yet the banks cannot deliver the way that we expect . Ben we are cautious on europe. It is more glass half empty. And for much of the year we had a weaker euro, which is helping the corporate, but earnings have not delivered at the regional level. I think the expectations have been stuck at 10 all year despite the fundamentals getting better. And i guess my point would be if they do not come through this year, they will not come to next year when you will have higher bond yields. Jonathan i was looking at the situation and i had a positive view on the continent, justify it with the data and am trying to understand how i can push it to the markets. Fx,nnot get it through the because it is at 40 over the ecb. I cannot put it through the bonds, because they are stubbornly low. And i cannot get it through the equities, because we peaked in may. What is the optimum way to express my view on europe where i actually make money . Ben there are some things that we like. Europe is full of big multinationals, which we like and they are trading cheaply. Switzerland, we think will keep depreciated. And we think that the corporate are doing well in the there is high possibility. There are things that we like, but fundamentally we are not really buyers of the European Investment opportunity right now. David why is it in this day and age, 2017, we are still so fixated on trading in the banks . After the 2008 crisis i thought the idea was to get the banks doing to what they do doing what they do, they charge interest and things like that, trading, are still we that depend on the trading . Ben i think the recovery in europe is not a strong as we had hoped so we are looking at other ways to make money. And the sector is very cheap. So it is sensitive to the earnings coming through. David why have we not seen the loan economy, why are the companies not borrowing money from the banks . Ben that is a big question. It is very depressed, 25 of peak levels, yet we think the recovery will be 2 , so it tells you how high the leverage is. European leverage is almost as high as american leverage. It tells you how uncomfortable they are with the profits recovery they see and that means investing. Jonathan wpp came out with numbers today it used to be classic data. Chartisenthal put out a versus the main equity benchmark and it tracked and of for the last couple months, wpp rules over. Rolls over. Can we be more specific about where this study will take place, because Companies Like wapp, the classic market based story on the back of more spending and going into an Advertising Company like wpp, that is not happening anymore. This is different. Talk to me about how different it will be. Ben you have a huge story justd tech, millennials, ramping up their usage of tech, so that in many ways is sort of set apart from the rest of the market. And huge ramifications for the macro story. I think the industrial cyclicals. Cap x is depressed. It is very depressed numbers. And Energy Materials are very interesting, probably more from the supply side. Demand is fine. Supply is restricted. And consumers are a little bit worried. Wages not coming through and oil prices will bounce a little bit, that is a headwind. You have to pick your sectors with some caution. Jonathan and you think that will remain docked because of that . Ben i think tech changes i really playing out in retail right now. David take retail and you put it with wpp, there is a question about how much is cyclical and how much a secular. Are we seeing a deflationary effect with all sort of aspects of the economy is it limiting the growth . They are getting the ad dollars and they are a lot cheaper, in the case of wpp. Ben i think that is it. We are looking at jobs, where do they go, they go to the lower end into pushes the wages down. That is why we are getting the lower inflation and the fed struggling to raise the rates. David thank you for being with us. As you commute today, you can tune in to bloomberg surveillance which can be heard in boston and washington and all across the United States on sirius xm radio. This is bloomberg. Taylor this is bloomberg daybreak. Im taylor riggs. Coming up, Larry Summers, Harvard University professor and former u. S. Treasurey u. S. Treasury secretary. This is bloomberg. David in the wake of the indictment ofPaul Manafort yesterday and the disclosure of an earlier plea agreement with another campaign official, the question is where is Robert Mueller going next . And the statement from the white house today, Sarah Sanders saying there was no plans in changing special counsel. There is no intention of or plan to make any changes in regarding special counsel, but look, the announcement today has nothing to do with the president , nothing to do with the president s campaign or campaign activity. Is,real collusion scandal it has everything to do with the clinton campaign, and russia. David when it comes to understanding high profile investigations by special counsel, fewer people have the expense of robert rate it has led several such investigations such as whitewater. We welcome him back to the program. Good to have you. There has been a lot of talk since yesterday when we first heard about the indictment ofPaul Manafort. Tell us what we know and what we do not know yet. Robert first major activity from the special counsels office and it comes within five months of his appointment. Public sentiment clearly is in favor of taking the investigation where it will ultimately lead to the facts that either support collusion with russian officials, or it does not. And i think what is important to know is significant progress has been made, probably more so with regard to the prosecution of the third person, who was arrested in july, pleaded guilty in october, and the public knew nothing about it. And the more significant detail is he is core with authorities and has been for some time. I think the purpose of which is to determine whether or not highlevel Campaign Officials were involved and complicit with russian efforts to affect the election, that is what they are looking for. David you suggest the plea agreement with George Papadopoulos is more related to the Trump Campaign, as opposed to Paul Manafort, which took place largely before the Trump Campaign. Of pauland the issues manafort and his deputy involved activity between approximately 20062015. It does not mean the charges are not serious, they are, but they are separate from the core of bob muellers mandate. David if you compare the and im with the plea agreement of George Papadopoulos, does it tell us anything about how he is cooperating and where they have gone public with the indictment if they had not run into a brick wall, if they knew they could get him to cooperate, would they have just taken the information . Robert that is one signal. When you announce a prosecution and return in a diamond by a grand jury and you have an arraignment without a plea deal or a cooperation arrangement, that is suggesting that there is going to be a prosecution and in some sense they will have to prove the charges they allege. Those charges are serious, mostly tax related, failure to register as a foreign agent, failure to report income and a Foreign Bank Accounts as an elaborate scheme to discuss activities and discuss activities, which are serious felonies, but they do not directly relate to the mandate. The one piece that is directly related, if you look at the facts from the plea of George Papadopoulos, there is a relationship because of the unnamed officials mentioned in the George Papadopoulos are obviously Paul Manafort and his deputy, for the purpose of this was to get his cooperation as to what he could tell investigators about what senior Campaign Officials were doing. So far, it looks like they will have to go through a prosecution now of Paul Manafort and his deputy before they get to whether or not the individuals are prepared to cooperate. David jonathan you mentioned david you mentioned has been five months. Are you surprised with how fast this is moving . Robert mueller is known for taking his time. Robert i think the lesson that was learned from the prior independent counsel during the Clinton Administration is the publics patients is not an inexhaustible resource. Public sentiment right now is in favor of allowing Robert Mueller to investigate in order to find out where the truth is. But you do not have an unlimited amount of time. And fairness dictates the white house that this should not be hanging over the ministration or the country indefinitely. The hope was that while it will take time to put together in investigation, that we could get to the finish line sometime with a major finding of the investigation in 2018. I think past experience has shown that yes, it is relatively speedy to have returned charges within five months of his appointment. Other investigations have taken as long as a year or 18 months before they gather enough steam to move forward. The problem is, whie that is while that is how long an investigation usually takes, in the public eye i think the country expects the answers to be found relatively quickly. David in her remarks yesterday, Sarah Sanders said we were getting closer to the end of the investigation of the investigation. Does that sound plausible to you . Robert i think that is a little ambitious. This signals, once public proceedings have been announced and first indictments returned, i guess in some sense that is the beginning necessary to get to the end, but that process could be fairly protracted. I think the hope is the investigation does not extend beyond 2018 and into an election year. Whether that is doable, i guess we do not know and it remains to be seen. You know, i do not think everybody seems to have learned the lesson that it is not desirable to have this thing extend through the entirety of President Trumps term in office. It seems one could expect that we get to the bottom of this obviously sooner rather than later, over that span of time. But again, this is only the first phase of the public phase of the investigation. I do not know if we can say that we see the light at the end of the tunnel. I think the white house has the right to push back and to expect that this thing will reach Critical Mass and a conclusion one way or another, and their position is if there is any evidence that Campaign Officials were complicit in an effort to collude with the russian government, and the plea from George Papadopoulos, if you read the facts carefully as i have done, they suggest that while there were efforts to get meetings with russian officials during the course of the campaign, at least from what we know the meetings never actually took place. So if that remains true and we passed through the investigation that analyzes what happened during the summer of 2016, and it never got any further, i suspect the conclusion of the investigation will become a yes the efforts were made, but the Campaign Officials were not complicit. David finally, because you have dealt with this before, how does this fit with what is going on on the hill . They are conducting investigations at the same time, so how do these fit together and it can interfere with the investigation . Can. T it obviously, there are a lot of conversations going on between the political folks on the hill and the investigation and the investigators and representatives of Robert Muellers office, so there are not collisions between the two of them. There can be parallel paths. There could be discussions about allowing, for example, bob muellers investigators to go first before the congressional of the theaters get involved, but there is a political process involved as well and a dynamic, one that cannot be ignored. Obviously, bob mueller has to give way as well to allow the congressional investigators to do what they will do, because there are political consequences to this, in addition to what we saw last week and early this week, there are legal consequences and people can be charged and people could go to jail as a result of the process. David robert ray, an expert on high price fall profile of ephesians. We will be right back with Larry Summers joining us on the topic of tax reform. This is bloomberg. From new york city, 36 minutes away from the open up markets. Liftgate you up to speed on this tuesday morning. Yesterday was all about tax reform headlines, phasing and Corporate Tax cuts that shook the market up. Equities falling a little bit and we are coming back a little bit. S p 500 positive, around five points on the day so far. Dow futures are up. And critical as the week progresses. Tomorrow, facebook. And on thursday, apple. And we are waiting to hear from them was to bring industries in the United States. And ahead of the fed decision and a truck pick and payrolls as well. We are growing higher around a basis point. Fx market, you will see the broadbased Dollar Strength against most. A 10thlalar, coming back as inflation comes back a little bit weaker. Sterling showing a little bit of 1. 32. Rformance, at and in a moment my will be stepping out and lisa will be stepping in. Welcome to the show. Big week coming up. Lisa a lot of people saying it will be a pivotal week for a bond traders. We will find out. Jonathan and payrolls, said decision, tax plan. Lisa the tax plan is getting everybodys attention. Talking about the failing in phasing in over five years. People talk about how it could send the company that country into a recession. Jonathan and we will not be getting the 100 either . Lisa just kidding. The u. S. Treasury department talking about that. Look. David coming up, we will be talking with senator Chuck Grassley from iowa and of the Senate Judiciary committee chair. Talking about the social media hearings taking place on the held today. Later, live from the civil Securities Trading floor in new york. Live from new york, this is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Congress will be grilling facebook, twitter, and google about russian meddling in the 2016 election. More people drawn into the spotlight here the white house downplays the indictment. And, if it begins with the meeting of 2017 yellens probable replacement standing by. Welcome. Along with lisa abramowicz, alix steel, and jonathan. Thank you for having me. Letst us caught up get us caught up in the markets. Rising. Yields are not that much activity and a slight decline in crude oil. Setting up today with a , we willy muted action get to taylor riggs who has an update. Taylor special counsel Robert Mueller history building a case that Russian Campaign was in close touch with russian officials with trump officials. George now what bring with prosecutors. Congressional tax writers considering a gradual phase in for tax cuts and discussed. They look at a schedule and the tax bill is set to be released tomorrow. In spain, the Independence Movement struggling to find a way forward. Their leader took off from belgium without telling senior a party officials. May seek asylum. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. David two of the biggest stories in d. C. Today both involved the alleged meddling into the president ial election. One, lawyers from facebook, in an effortgoogle to influence the president ial election. The other story is the molar investigation. Isning us from washington is sarah frier and kevin cirilli. Let me start with you with these hearings here and what are we expecting out of that . Countries will try to look as they possibly can. We obtained their testimony in advance and it looks like they will talk about the extent of the russian influence on their platform. Beyond cases, it went the past. Facebook will say 100 Million People massing coasts from russias agency. It is much bigger than we heard before. Twitter made similar extensions of what they have seen. David that is roughly one third of the entire country. 40 of the countrys population. David is there legislation to deal with this or is this more of a matter of fact finding and grand thinning . There is a bipartisan honest ads act. To lookthey will try for legislation that is a little more friendly but that is supported by mccain in the theye and it is something have continued to push even as the country self regulates. Transparencywith rules in the last few weeks. They are preventing this from ever happening again. Enough to stop senators for calling for the act. I am struck by the confusion about what fake news is. Techwondering how some giants will adjust that when they are dealing with congress, currently trying to deal with the investigation. Is this an issue . The definition of what fake ons is has changed depending who you talk to, including our president. Facebook defines that is privileged false information. It is not going very far. I reported yesterday that the fact checkersrty only scratches the surface in the amount of contact content they can get. They may debunk 100 stories one and a month. Mann a lot compared to the vast nature of the problem on the internet. Moodwanted update on the on cut on capitol hill. More than the actual indictments. The fact that special counsel mueller has a it ricocheted through yesterday, talking with a lot of folks in the former white house staffers, they are sent stunned. A 31 page indictment. It suggests this is not the end. They anticipate there will be more indictments handed over in weeks and thee of investigation is very much ongoing. You see that in the Public Comments with folks wrapped up in it. Several folks, including Campaign Officials and the investigation is very much ongoing. , the investigation here on capitol hill will only continue. Senator collins, a republican from maine, i spoke about the this is despite what the white house would want and will not end by the end of the year. We now anticipate it will be very much an issue that will dog the administration well into early next calendar year. Thed give us a sense of dynamic at capitol hill with this molar investigation and now indictment . Are they on the one hand saying that if the white houses tax reform moving in those areas . Yesterday, House Speaker paul ryan speaking basically moments after the indictment was made public saying they would move forward on that. November 1 tomorrow, we will get the details ahead of the markup, a Public Meeting of sorts. I spoke with a Republican House simply wanted to because they were processing the moves witheriousness of this these tech companies, not call it fake news, call it rubbed russian propaganda. The seriousness of this as we head into the midterm elections and the 2020 election, is palpable here in the halls of congress. Thank you so much. Coming up later, we will speak with Chuck Grassley, who chairs the Senate Judiciary committee. Coming up at 12 45 london time. Joining us around the table is greg peters, chief investment officer, and we do not know how the investigation will play out but we know this is raising some go withs about where we the tax plan. It seems to be effective markets. I am wondering from your perspective. There was concern that perhaps these tax cuts would phase in over five years and slow growth substantially in the u. S. With at least one big man money manager saying into a recession. Would you agree . Our expectations for tax reform our modest. That is the difficulty of passing legislation on her reconciliation rules in congress and so on. I think the dollar suffered a little bit yesterday when the news broke out but the market has not priced and significant fiscal stimulus for the dollar and i would not expect too much damage from this kind of back and forth. David the reaction yesterday would indicate the markets are little out all they said was it would take longer. It was not a radical suggestion. It is not radical but it kind of is in a way. A shot ins expecting the arm stimulus boost. It basically realizes the fact there will not be that boost. Recalibrated Investor Expectations where there will not be such a nearterm boost. It will be if anything over time. It was one of many disappointments we are finding when relying upon tax cuts and other types of agenda items. David we are just starting the process and do not have the legislative language yet hear them various things, curtailing, business interest rate, 401k. The market going through a turbulent time as they get disappointed again and again . Not fully anticipating anything broadbased. It is hard to ascertain what the percent is priced at to the market. What we have learned is that this will be a long process and there is a difficult road ahead to pay. David coming up, we will have timely, Global Advisors head of research are we will talk to him about his latest call on bitcoin. This is bloomberg. Pfizer posted thirdquarter results that Beat Estimates, also risen forecasts for the in terror year. It will decide what to do with the Consumer Health care business next year. The company is considering a spinoff or a sale. Thirdquarter profit more than doubled. Earnings Beat Estimates on real estate and energy holding. Before today, shares were up 53 this year. Shares of under armour are falling in premarket trade. The Company Posted thirdquarter sales and profits that missed estimates and it slashed its fullyear forecast. The business has struggled recently. That is your Bloomberg Business flash. David another big week for Central Banks. The bank of japan left its Monetary Policy unchanged, as expected, but it took down inflation projections. Committeeen market begins meetings today and markets do not expect any change but we may get an indication of where the fed could be heading in december. Still with us, greg peters. As you look at this and try to price out bonds in particular, what are you looking at first and foremost . December going into 2018 . Are a lot of open question spirit you see broadly not just in the u. S. , a synchronized growth dynamic without any inflation. The markets are pricing that in an increasingly pricing in disinflation versus inflation. It is hard to factor in what tax cuts mean and what a new fed chair means in terms of where the path of rates in the u. S. Ago. But it seemed appropriate to me. The meeting does not matter. It is a parlor game of who gets announced thursday supposedly, and the next year, basically two , predicated on the fact that we do not get a lot of tax reform and other things. It is very much an open question. David we do not know who will drive the bus next year. How important is that to you, who the fed chair will be . Click those become much more important than the december meeting, for sure. Markets have judged the probability. We had the market the Dollar Strengthening and the risk has been priced in a little bit but the base case will be jay powell. From the point of Monetary Policy, he voted with yellen but do not expect if in change. The interesting part will be on the regulation front, a little bit of easing. I love that john taylor, the risk of him being fed chair is called the taylor risk. Very similar to janet yellen what comes to Monetary Policy. He is not similar to her in Bank Regulation p are he is more willing to diva regulate the banks. How do you begin to factor in what that would do to the economy and the bond market . That would allow a lot more leverage to build up in the system. I think too much is being made around deregulation. I think the less regulation and less enforcement of existing regulation is where we are going. That is semantics. What are you talking about . Can i dont see a situation where lets say banks or wall street for firms are going days. O the i do not see that on the table. I think it would be a much more of around lending hopefully. But we will see. As optimisticy about this being a boost to the overall economy at the banks will lead to a much higher growth print growth plan. On the margins, it is positive but i do not see it as a game changer. Ok, greg peters will stay with us. On howup, Larry Summers donald trump could take a page from the reagan years on tax reform, particularly has he turned into a deficit hawk . This is bloomberg. Dont use qualcomm components did apple has confused the designer of charging high royalties. Worlds largest Advertising Company cut its Sales Forecast for the second time in three months. The sales growth is expected to be flat this year. The firm had a growth of one third percent. Back adhave scaled budgets. U. S. Regulators are investigating bond trades made by a partner who left the Third Point Hedge Fund earlier this year. If causedknow the pricing in 2014 for portfolio her portfolio accounted for half of thirdquarter profits. David thank you. Hit a serious snag. It was the deal in jeopardy after months of negotiations. Joining us now is brooke sutherland. This deal seems to be on and off for years. Why is it off again . It seems like they had a gut check moment. There is some concern about valuation and the state of the business. It has been losing money for years and is burning through a lot of cash. From softbanks side, they had this, we will not have control over this anymore. I have set all on their willing to do a stock swap and now they seem to be having second thoughts about giving of control. David cohen it is money and governance, the two things that usually clear a deal. But from the outside, is it inevitable they get together if they will survive in the marketplace . Why it ishink that is so curious to see the last minute doubt. It is the best deal for both companies. Look at sprintsituation and how much it struggled to turn a profit and tried to lure customers with a year of free service and crazy offers and it is not necessarily working. Tmobile has done a good job but there might be a limit to how much they can grow with the low cost. Othercompanies need each and it raises the question of, are we just reaching the point of inevitability our is this just really the end . What you areup on saying, the market responded seriously. Sprint shares down more than 9 on the news. Going forward, what are the options for the two companies if the inevitable does not happen . Has 30 billion dollars of debt and it makes it difficult for them to invest in infrastructure and keep up with him competitors. Could there be another merger with other telecoms, or is it selling off the parts and becoming insolvent . Him i think tmobile has a ber shot of finding another partner. There is speculation, could comcast acquire it . To find othered partners and physically raised his hand and said charter to find other communications. And kind of been shot down. So i do not know where they go after this. Some said they would look to make those in their network what they do not have a lot of money to just throw around. Softbank does but does it want whenmore cash to this has proved to be a headache for them . Integratethey need to into mobile . Is it just that sprint is too small and not big enough to pick them up . I do not think that is totally out of the question. It is sort of the way the industry is moving. People are talking about it with video and phone service. The question is on what terms and are the Companies Going to be interested in a deal with sprint this point will do awill get itself into a worse and worse situation and they can scoop it up when it is hanging by a thread . I think it is a possibility but you have to wonder, why are you pulling this negotiating tactic at this point . Reporting their willing to give of control and take no premiums to sort of change your mind at this point and say actually no wait, we put our foot down here and we have the upper hand, it does not make a lot of sense because sprint does not have the upper hand. We will see what happens. David ok. Thank you for joining us. Senator Chuck Grassley from iowa, the Senate Judiciary chair. Talk to him about social media treat hearings going on today. He will tell us what he will talk about with social media Companies Like google and facebook. This is bloomberg. Who knew that phones would start doing everything . Entertaining us, getting us back on track, and finding us dates. Phones really have changed. So why hasnt the way we pay for them . Introducing xfinity mobile. You only pay for data and can easily switch between pay per gig and unlimited. No one else lets you do that. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit or go to xfinitymobile. Com. Some breaking news p are the Japanese Bank that reported earnings, a proprietary Trading Group in london. It is a relatively small group of 10 people. They invested in bond currencies. They largely went out of fashion at her the volcker rule one out of of effect. After it display number, particularly overseas on it has to do with debt traded debt trading. France posits biggest Bank Reported thirdquarter net income on it has to do with debt traded debt trading. Rose 8. 3 percent, slightly beating estimates. The bank was hurt by the trading spots the hurt, it impacted joining us from paris, what is happened this quarter . The past quarters where it was always outperforming peers, even Investment Banking on the environment. The is not the case on quarter. 26 . Rming by rising equities. Overall, the trading business called the Global Market division, so revenues declined by 17 . Who had declines of around 30 , but still sees approaching as the worst performing stock in the stoxx 600 banking index today. As you can see. About theth difficult quarter for trading and here is what he had to say. I think in the past quarter, there was uncertainty related to uncertainty in the market. Waited to seeets what is unfolding and now we have to see how that goes forward. It is not impossible with the clarification the ecb has given, that we find more normal evolutions. A little ray of hope here. Thinks the recent ecb announcement could actually benefit the bond markets in the trading business in the future. In the shortterm, this time, it is no exception. What else does the cfo tell you . We also spoke about the situation in catalonia. It is barcelona is not the biggest market in europe of course. Concern aboutr the situation there because the spanish Banking Sector had done the necessary changes already and if you look at the other geter retail markets, you dealt him and italy. We saw Consumer Banking revenues pretty much flat. Tell me he expects the turnaround for the french retail toward the end of 2018, beginning of 2019. He expects less pressure from the low Interest Rates environment and he also told me he sees the french president macrons response and this could help also for the 9 nch retail, of nearly compared to last year, something and analyst described. We will be watching the earnings fridayench banks this and next week. Thank you so much. A great interview. Ets bring in greg peters both are still with us. Great, i want your sense about just generally, trading and how much it has been declining. Trading has plummeted in recent months. Does it present a risk to you that if there is a selloff, it will develop quickly . I see it somewhat differently. I think liquidity has been quite and er the past months. It is market directional and it is good the markets are doing well. What we have to be concerned about is when the markets go the other way, we got a whiff of it in the february 2016, a short snippet of time. If the end of the day, you have tremendous size mismatch versus the community and the ability to traffic ons through that is very difficult. It is something we worry about but i do not see it as you do. It is something people are raising as a concern in the fx market, where we have seen values declined tremendously in an increase in electronic trading and i wonder how that affects dynamic from your perspective. Youre right about the general trend. I would point out we started the year with a strong consensus long dollar view and there was a lot of trending going on the andign Exchange Markets that usually entices investors to jump on the trend and put positions on. As we move to the second and Third Quarter, the view became more mixed and it ran out of steam. Noteuro recovered but necessarily a consensus choice. Lack of conviction around the g10 currencies is what may be kept down the volatility as well. David lets talk more generally as you see it. Incredibly tight spreads on a highyield over there. It is a most ridiculous where they are. The same time, you have the u. S. 10 year with a substantial spread. Where is the bond market headed right now . Class of think the market continues to grind tighter in europe and we have pretty big moves and it was slightly more dovish than expected, marginally so versus expectations. Line is the ecb will be involved in the market for quite some time to come. I think that will broadly be supportive but you are right, the overall dynamics are pretty good except for valuations. Valuations are tight. But i felt i think there is capacity to grind tighter here. David nothing we heard from mario draghi last week dissuaded any of that . Unwind the Balance Sheet but very gradually. That is the key message across global Central Banks. It will be gradual. The fed is the first one over the wall. We have no idea how that will play out. Before never seen this and never had a Balance Sheet online before. We shall see. It will have an effect, we just dont know. But europe and the doj still far behind. On one hand come you have strong growth compared to now in europe, which would tend to push the euro higher. Bankt you have a central him so where does that take the euro Going Forward . It will not go as fast as the beginning of this year. It is still higher. It is interesting to go and look at what happened between the time bernanke he first mentioned tapering in the spring of 2013, and when the fed hike in december 5 15. Twoyear yields went up. The yield can still move higher gradually. That is what we expect even without actual policy tightening as markets anticipate the change in actual interestrate policy. Think sincepeople the fed has already lifted off and has already begun moving away from an easy Monetary Policy, that the rest would be easy. People areconcern not factoring in how much more difficult it will be to normalize as rates get higher and as the fed starts to unwind its Balance Sheet. D think the market is currently underpricing the risk of perhaps a bigger distraction from the other tightening measures expected to take question mark i think the fed is lucky in the sense it is getting cover from the doj. If you look at it independently, i would be much more concerned and worried but you have the ecb in the boj broadly being quite supportive in terms of Monetary Policy. I think it allows the market in u. S. And the fed what they are doing. David thank you both for being with us today. You can tune into our colleagues, tom keene and david gura on the radio. Beomberg surveillance can heard all across the country on sirius xm radio. This is bloomberg, live from new york. Coming up, fixed income currency ahead. Now to your Bloomberg Business flash. Up short in the Third Quarter one of the world policies exist posted weaker than expected sales. Outlook, strong demands and helped boost sales. Slower salesaces of its playstation gaming console and the business has had a lack of block luster hits. Are lower today and chief creative officer is calling it quits. Mixed reviews earlier this year that is your Bloomberg Business flash. David todays on social Media Companies and possible links to russia today. Joining us from capitol hill with a very special guest, kevin. Kevin we will about social media hearings. Chuck grassley, i want your take on the fallout from yesterday. Tony podesta resigning. What do you make of all of this . Is a special counsel process and it is working its way in. We need to let that work its way out. I was very happy we brought out one of the charges. I think this law is being ignored for a long time. Some of these people are charged because they were working for a Foreign Government and they did not register. Because that is something youe been aggressively pursuing for years. On the left in the right, do you think the Justice Department has been forcing these disclosure laws adequately . No. That is why we knew that. That is why we were bringing attention. The investigation by the special workingand the folks for the ukraine and i dont know how many other countries being our government this like a dirty secret in washington, d. C. . Not anymore. The law needs to be enforced. These people will have to register now. The Justice Department will see you are there will be held to be paid from the standpoint of our oversight ringing attention to the Justice Department not doing its job. This is republican and democrat administrations. Debbie wasserman schultz, will they be called, do you think they have to retestify or come back . I dont have plans to do that now. We will let this thing evolve. Would imagine there are a lot of unanswered questions. Congress has other things on its plate such as tax reform. Willis hinder the responsibility by next year . Neither one were you might get overlap members. Take more hard work on my part. Sense, congress can walk at the same time. Mid middle income tax cuts done i am sure. How will you pay for a tax package . We have an understanding that as far as dynamic scoring is concerned, the way the ceo does it, we will account for 1. 5 chilean dollars coming in because of reducing rates. Takedoes not can into consideration Economic Growth. This the economy can grow. 4 , we will make that up. What about on the issue of 401ks. Like one , wehe tax reform bill trading jobsis and middle income tax cuts. We will let people save more but be tax exemptl when you put it in and you put more in and pay tax on it before you put it in. It has got the same tax benefit. Will still have creating a lot of Division Within the republican caucus, what do you make of that . Worried aboutcans the taxes to being progressive, this would be a nobrainer. If you want middle income tax cuts, this will be a nobrainer not having the exemption gives us more opportunity of middle income tax cuts and the top 1 , get 40 of the benefit from the deductions, state and local. Another issue is the issue of Silicon Valley. You will be present for some of that. What does facebook, google, and twitter, what is the message you need to hear from them about whether or not they are adequately protecting u. S. Interest . Want the end result that they will take every precaution they can to make sure Foreign Governments cannot use our google, facebook, twitter, etc. , to influence the election . We have to maintain confidence in the election. Tot is a problem we have deal with. Hat is what we want if they cannot show us that, it could lead to the regulation. Senator mccain, do you agree with that or do you have a position on that piece of legislation . Rep. Grassley it is up to these platforms to show us they can control control this and make sure Foreign Governments do not try to control our election. It would not be an issue if they have not been trying to influence the elections in the United States and france and netherlands and germany and who knows where else. Everyone thinks they want to elect Hillary Clinton or trump or merkel or someone else in germany. Who are not interested in runs the countries. They are interested in discouraging confidence in the democratic trust because their autocratic and i do not like democracy and democracy might sneak into russia. We very much appreciate your time. To david in new york. David terrific. , this is the man who wrote the book, the author of what would google do, spent time as a journalist in tech entrepreneur and is now on the faculty of the Journalism School of new york. Welcome. Good to have you here. We like selfregulation first but if they like selfregulation, we will regulate. It is early days to think we know what it is going on with the internet here. With anyone regime and anyone country, whatever we do, iran and china and russia will do. Lets separate the two different elements. The russian influence, where they are posting things, and the other is fake news, somewhat. Ifferent subjects one thing people talk about is disclosure. Political ads said where they came from. You have literally billions of will figure out who each person is who posted this. Paid for ads. I think that should be fully and they should set a standard that goes way beyond where television is. They should not be behind where they are now p Facebook Says 146 my people saw stuff from the russian propaganda factory. That is different. Shared it do we want facebook and google to decide who can say what, who can be in there or not . That can be dicier. They go around and at least try to monitor what is going on. Lets look at that phrase though. We have to be careful about theting in governments into free speech. Wrote a book and got money from Facebook Though i am independent of them. Attended be favorable of Silicon Valley but i am very critical here simply of transparency and thinking ahead. Openthought they had work they got manipulated and we got manipulated. They have to do something about that. They also have to understand as we journalists try to, and get ahead of it. Meanwhile, we have to get our act together. We expect everybody to come to us here the russians and altright, they were having an influence we did not have. Im struggling with the idea of being proactive. Has been trying to self regulate and finding it very difficult. What goes up . E what options do they have . Clarify do not think we should look at fake news. Large issue of people not trusting institutions like government and politics. That is fundamental and we have to get to that. We need to give people truth. When my daughter shares a better, she says this speaks for me. Why not provide that in the conversations . We have heard mark say maybe there is an ai approach. D think that is viable . We have to have an intervention. Reliabilityw at the and they have people looking at sites and reading them and then they learn from that. Can help us but humans are still necessary, im glad to say. Will this cost money . Yes. It will cost them money to create a quality experience. Great. Jeff, of the City University of new york, we will bring you those hearings live later today beginning at 2 30 eastern time. Coming up on bloomberg daybreak, calmly, Global Advisors head of research, he will join us to talk about why he is so very bullish on bitcoin. He says you aint seen nothing yet. This is bloomberg. David big tech things that help your congress will be grilling facebook, twitter, and google about the 2016 election. Charges, thest white house downplays the charges. The fed begins its penultimate powell of 2017 with jay standing by. Welcome to bloomberg daybreak. Alongside aestin lisa abramowicz. Alix steel is off today. Lisa is taking a look at the markets. It is halloween. Lisa it is following. I decided not to wear my zombie outfit. I want to get you caught up on the market action. The activity that doing much. S p futures up 18 basis points. Unchanged despite the fomc meeting, the ongoing speculation of whom President Trump will name fed chair on thursday. Not that much activity, but there is a lot that is coming on tap that could potentially rattle these markets. Lets head over to Abigail Doolittle with a look at stocks on the move. Abigail good morning. Good morning to all of our viewers. Lots to at in the premarket. Qualcomm, shares of the chipmaker are down sharply on a report apple may no longer use qualcomm chips in iphones and ipads. Apple may be exploring using other chips next year, including intel chips. This represents an escalation of an ongoing legal dispute between the companies. It could hit the bottom line of qualcomm. Between 40 and 60 of all pounds chip earnings come from apple, that is a total of 17 . Soaring on the companys first posting of sales growth since 2013. They put up 6. 53 billion, eating consensus estimates. The first time in about four years, this apparently on chocolate revenue strength. They are getting a boost from currency tailwinds. It looks like maybe this move higher today could help the companys stock recover on the year. About 0. 9 . They beat earnings 18 . Nearly 15 billion in revenue. Thisraised the forecast, being helped by the Affordable Care act changes. This is perhaps why aetna is an attractive option or takeover by cbs emigrating a onestop shop for health care. David thank you so much. All eyes are on washington today as the house ways and means todaytee meets to release details on a tax plan tomorrow. Through allake us that is going on in washington is kevin cirilli. Happy halloween, kevin. Kevin i did not wear my batman costume. David you didnt . You just had a terrific interview with senator grassley of iowa. On tax reform, he seems to be committed to getting this done by the end of the year. Kevin they do. Republicans echoing that sentiment as well. Weve heard that from senator grassley in that interview who is a little more conservative than someone like susan collins, who was also saying that. This will come down to whether or not the house of representatives in their proposal, details of which are being finished today to be released tomorrow and in a markup next week, that could look different than the Senate Version of a tax package they will pass by the end of the year. We are starting to hear rumbling of how those differences might align. We have focused a lot of are reporting on the state and local deduction in the house of representatives. Issues on taxes for the wealthy, the super wealthy in particular and the top tax bracket, how that race down is going to be a sticking point. There is so much pressure, i cannot stress enough the pressure republicans are under to get something done by the end of the year now that the mallinckrodt has reached the judicial level. Whether or not they will be able to reconcile that between the house and senate is the story. David we know they have said they are willing to tolerate 1. 5 trillion in deficit. We just heard senator grassley say the ceo does not take into account dynamic scoring. Does that get down off the 1. 5 trillion . Tohe saying we may be able tolerate more than 1. 5 trillion because dynamic scoring will get it down to that . Kevin i think it was interesting that senator grassley brought up dynamic scoring. That is a hot button, political issue about the calculator of sorts. Some folks like it. Some folks dont. Republicans suggesting Economic Growth should be factored into the payments of how they are going to pay for this plan. Quite frankly, that argument will not work with democrats. It really also may not work with some republicans. Senator grassley suggesting he agrees with the administration that it should be factored in. That said, they are going to face some skeptics within the Republican Party who want to see other things brought forward as n. Y for such as rothificatio a lot of different competing interests here. David thank you so much. Kevin cirilli reporting from capitol hill. Lisa . Lisa are you dressing up . David no. This is as much as i dress up. I will be handing out candy. Markets handled the first charges from Robert Mueller in stride. The proposed cuts to Corporate Taxes would appear in phases over several years, small caps most affected by those taxes fell the most since august, and the dollar fell to session lows. Joining us now is timely, fundstrat Global Advisors head of research. Do you think this reaction is appropriate . Does the market truly have yet to price in a taxcut . Tom i think it is hard for the markets to fully price in a tax reform because we dont have all the details. We have heard from our clients they are mostly constructive. I think investors are inclined to simply by whatever outcome is on tax of one. Lisa i am struck by a twitter night thatote last phasing in Corporate Tax cuts would slow the economy and might lead to a recession. This is a pretty bold claim and something that has been repeated by others. You agree . Do you agree . Tom i am not familiar with his post. Lisa this concept that you would have a recession if you have fiscal stimulus that gets phasedin for a very long time that the benefit is not realized for three or four years. That is the point. Tom i think people are just guessing. It is possible. There has to be a lot more discussion on the negative implications of these tax cuts. For the most part, the dialogue without lyons seems to be with our clients seems to be the benefits of giving more tax cuts. One, whenves would be you cut the effective tax rate, you are raising the cost of debt. Leverage becomes a problem for a lot of businesses. Because youre cutting tax rates, youre giving capital to all businesses, which means even businesses where you want to reduce capital allocation, you are getting more capital. Youre going to amplify negative return industries. David we are going to have Larry Summers on to talk about this. One thing he said is this is the worst possible time to be running up a big deficit. He has been in favor of that sits to build infrastructure. Deficits to build infrastructure. He said this is the worst possible thing to do for the economy. Are you concerned about that . Tom if you look at the big those cametax cuts, shortly after a recession was ending or in the middle of a recession. You are really providing a lot of flame to the upside of capital spending. I might not disagree with the idea that we are not late cycle, like this expansion is about to end, but is this a time you need to fuel inflation . I dont know. Lisa i thought what you said about the specific companies that this type of plan would benefit was interesting. Could you give us the name of companies that would benefit the most . The servicelook at of a lot of domesticbased industries, the biggest beneficiaries of the tax cuts, unless we have repatriation. A lot of these Domestic Industries have a lot of capital invested in businesses that are being killed in the digital age. The real question is do you want the Retail Sector to get more cash so they can dressup the stores when they are really better off trying to reallocate capital to fighting amazon . Lisa this is fascinating. It is like the coal subsidies we are seeing. Is it worth it . Tom im i just point out an extreme to you to give you a way to think of this. In europe, policy rates are so low that it is effectively propping up all industries right now. Highyield companies, which they are not investmentgrade. A lot of them do not make money. In 50er is bringing basis points cheaper than the u. S. Government. In japan, junk grade issuers are borrowing money at only a 10 basis point premium to the investmentgrade. What is happened is policies from the Central Banks have made bad businesses able to borrow money, which they cannot even fail. Are 1 . Default rates they are trading as if they will never default. David tom lee staying with us. This is bloomberg. David this is bloomberg. Todays of hearings on social Media Companies and russia begin today. Sarah frier joins us from washington, d. C. We just heard from senator grassley who said his first preferences subrogation, but preference is saw regulation. Sarah i think the companies are going to try to appear as cooperative and proactive as they can. They have already taken steps at selfregulation. Twitter has banned rt from advertising. Facebook has come up with the whole plan for advertising on plans, verifying identity. Not everyone feels like they are enough. There is a bipartisan act on this ads act that they are still pushing for despite these selfregulation attempts from tech companies. The hearings are going to have to come and put everything on the table and make it seem like they are looking into it and preventing it from happening in the future. They dont want harsh regulation to come down. David you have seen the prepared testimony. Is the industry coming together as an industry towards selfregulation . England,ess area in they have a body that will look into complaints and enforce it. Is there something with any more meat on the bones than a policy . Sarah not so far. Facebook has been very proactive about their communication. Companies like google have been more behind the scenes. Twitter came and gave closeddoor testimony, which mark warner said was fully insufficient to show they were on top of things. The companies have kind of taken their own tack. Several of them say they are going to need to Work Together on whatever the future of this looks like, whether that is legislation or simply sharing notes on what is going on in their platforms to stop these foreign actors from influencing future elections. David theres a sense of time wasting. This issue has been kicking around. Congress is going to get inpatient at some point. Sarah frier, thank you for joining us. Still with us is tom lee. Let me ask you a broader question about tech and regulation. Some of these tech giants have gotten awfully big. Regulation,titrust, is there a sense this will constrain the growth of these businesses that have been such a big driver in the stock market . Tom some reform is overdue because social media has benefited from essentially no touch regulation while industries they are grabbing shares from have been highly regulated. It makes sense that we are starting to realize that if 65 of young people get primary news from facebook, we have to treat it as a media company. Runway. Ll has a huge if you look at the two best eras to own tech stocks, it is 1950 to 1959, and 1990 and 1999. They were both times when the legal market was constrained labor market was constrained. If we are looking at today, tech is your only solution to drive growth. I would still be buying te ch stocks. Lisa even if congress does not take any action, banks have talked about what a drag that is, tens of thousands of compliance officers that are highly paid individuals. How much of a drag could that be on tech earnings if that becomes a reality . Tom lets hope that doesnt happen. In the last eight years, three industries bore the brunt of regulation. The last eight years more regulations were signed then the history of any other administration, but it fell on energy, financial. It would be a negative development, but i doubt it will be that extreme. I think selfregulation makes a lot of sense. We have to introduce the concept s equal of whatrd is acceptable. Uivalent of what is acceptable. Are seeingthing we is the fundamental transformation of industry after industry because of digital because of tech being transformed or destructive. Our investors properly taking into account the effects to which there may be real effects on the economy . They tend to reduce prices, whether it is amazon or facebook or uber. Is that essentially a deflationary trend . Tom it is a good question. It is hard to measure. Technology innovation in the 1940s and 1950s was greater and had a bigger effect on a larger portion of the economy than today. I would not characterize most of the century as deflationary. And you look at frozen food that affect on the food supply chain, that accounted for 25 of peoples wallets. Spoilage disappeared. Deflate. Didnt it grew at cpi. I dont think technology is associated with deflation. David that is fascinating. Tom lee will be staying with us. Later today, we will bring you those tech hearings on capitol hill. Live from new york, this is bloomberg. David another day, another record for that point. The cryptocurrency has passed another milestone, total value over 100 billion. It was a matter of seven or eight years it got there. It took car sales 60 years to get to that level. Still with us is tom lee of fundstrat. He is one of the biggest bulls on bitcoin. The basic question, what is bitcoin . Put it in an asset class, is a currency, security . Tom it is both. What bitcoin is at the core is a new way to maintain a database. It is introducing the concept of decentralization so that nobody is centrally controlling information. It is all distributed on the nodes. They achieve this through encryption. It is a huge innovation in the way data is made secure. Alex lisa do you use bitcoin to purchase things . Tom i do not, but i also do not use gold bars to buy things. If something is seen as an alternate currency, you cannot dismiss it just because it is not easy to spend. The u. K. Economy is roughly 7 trillion. Guess how many pounds are actually in circulation today. It is about 77 billion pounds. There is a 100 to one multiplier on actually every unit of the pound multiplied through leverage. You might say most people are spending pounds digitally. I think people are conflating that issue when they say you cannot spend it, therefore it is not legitimate currency. Lisa if the Block Chain Technology is revolutionary, that is different from bitcoin being the vehicle for how that is used. Tom i think that is something we have heard a lot. I have been fortunate to spend a lot of time with businesses that have really developed in this space. What people have to appreciate is bitcoin has drawn the most passion among qualified developers. If you look at the development community, there are more people developing on bitcoin then watching. Bitcoin is blocking. Fad. unless it is a there is no underlying value, right . Tom again, i think it is easy to dismiss it. Lisa clearly it is gaining. Tom lee of fundstrat, stay with us. The opening bell is up next on bloomberg daybreak. Getting you up to the drumbeat of the open, futures up 13 basis points for the dow, 20 for the s p, 40 for the nasdaq. Tech Companies Keep on going. From new york, this is bloomberg. This is bloomberg daybreak. Just moments away from the opening bell. Rain on the screen, nasdaq leading the way. S p up 19 basis points. Dow jones up 12 basis points. The dollar fading a little against comparable currencies. Heading into the fomc week as well as the fed chair Reality Television show. Nymex down just a touch. Abigail we are looking at small moves to the major averages after yesterdays modest pullback. We are looking at very small gains for the dow and s p 500. Tiny decline for the nasdaq, i think that is yesterdays close. Not surprised by this action, he believes we are in a nearterm consolidation phase. He thinks were going to see the same thing for the rest of the major averages. We actually have a record high for the nasdaq even though it is not showing here. A bit of a bullish open. International flair, sony trading higher. Quding up 11 on a beat arter. Shares of British Petroleum trading higher nearly 3 after earnings doubled yearoveryear. Highere trading slightly on the news that softbank may be thinking about backing out of that sprinttmobile deal. We will be talking about that quite a bit. Up 8 ez, the snack maker,. They posted sales growth for the First Time Since 2013. Investors rewarding those shares. We are always talking about valuation. This is g btv4323. Pe on looking at forward the s p 500 going all the back to 2009. The price to earnings ratio measure of valuation sword, then soared, then traded in lockstep at 15 times earnings. The u. S. Is now at 19. 4 times next year. The rest of the world closer to 18 times. That could have to do with tech. 24 weighting to the s p 500. Those highgrowth tech stocks tend to have a higher p. Lisa fascinating chart. That brings us to the conversation we want to have with tom lee of fundstrat and joining us is Bloomberg Intelligence chief u. S. Equities strategist Gina Martin Adams. Is difference in this chart our u. S. Stocks poised to underperform International Stocks Going Forward . What do you think . Is i think a lot of the pe because of mixed. Is 63 times earnings. Global growth is stronger. It makes sense global stocks should do better. If they have lower ps, total long return might be stronger. Gina valuation has not been a very strong measure of Stock Performance in the s p 500 this year. It has been about relative growth prospects. Out in emerging markets and europe and japan as well, where you are seeing growth drive investment opportunities. As long as growth is strengthening, that seems to be the primary determinant of relative performance. Is not actually commodities anymore. It is heavily tech. Gina it is heavily tech. When you look at msci emerging markets, it is more heavily attacked because of china. Tech because of china. There is this overarching tech theme that is impacting a lot of different markets. It is kind of left europe in the dust, which is more financial center. Rates are rising across the world and tech deflates, you might seat Sector Performance shift. David whenever we talk about pricetoearnings ratio, we have had a lot of very cheap money for a long time. That appears to be starting to unwind, not just the fed but the ecb pointing in that direction. That put pressure on those pricetoearnings ratios . Tom not necessarily. Historical between where Interest Rates are now, rising Interest Rates are pressured by rising pe. When global banks start to do synchronized tapering, i think it will drive a big shift back into value stocks. Interest rates generally explain value versus growth. A lot of value sectors are high pe. Statistic the other day that was interesting about how European Companies have increased their sales by more than u. S. Companies. We see that in the latest earnings reports. I find it compelling. Does that mean european stocks have more room to run that even u. S. Stocks . Gina i think a lot of it will depend on currency. Sales have accelerated rapidly. They are having a rapid bounceback. Europe than in the the u. S. The trouble is the currency has been the primary determinant of relative performance between europe and the u. S. Over the last year. If we continue to see the recovery and growth but the euro is no longer an impediment for those companies, you get a much stronger pace of recovery. Lisa if the euro continues to gain against the dollar . Gina it depends on which segment youre talking about. The euro continues to grow against the dollar, and you look at Second Quarter earnings season, industrial segments of the european earnings segment were constrained relative to the growth of the other sectors in the european market. If we continue to see european currency strengthen, that phenomenon will continue. If we see a reversal, maybe some of those depressed areas of the european earnings stream can bounce back. David as we look at this remarkable runup in stocks in the u. S. , what is the number one risk factor . Tom if i had to say what bothers us most about markets today, i think it is the state of european high yields. It is a most reflecting the extreme of Monetary Policy in europe. That is the market we are watching. David turning to health care. Aetna earnings beat analyst estimates. The Health Insurer posting beats on both the top and bottom lines. Joining us now on the telephone is frank morgan, Rbc Capital Markets analysts. Give us your take on the at the numbers aetna numbers. Pretty much down the page results were better than expected. , sorate medical cost trend overall a very good quarter for the company. There was a slight raise in the guidance for the balance of the year. David it is now down a little over 3 . Why isnt the market agreeing with you . I think it is not so much about the earnings as some of the commentary during the call. I think investors where expecting commentary on a potential rumor deal with cbs, and we did not expect them to just go there, but they did not in the call. There was a little talk on slightly slower topline growth in 2018. Some cost managing should still make it a good year in 2018. David go to that possible acquisition and merger with cvs. If you look at these earnings, is there anything that gives you pause if you are interested in trying to buy aetna . Frank no. I think they posted good numbers. The fundamental backdrop of industry is quite strong. We expect really solid results out of the rest of the sector through this earnings season. The bottom line is you are buying into a business, and you are buying into an industry that has really good fundamentals. How can we determine what the fundamentals will be in six months given the backdrop of talks on capitol hill . We know there is an executive order with respect to insurance companies. We now President Trump wants to curtail subsidies to them. Did they address this at all . Frank for most of the large players including aetna, their exposure to Public Exchanges has dropped considerably. They will be down considerably in 2018. They are making slightly breakeven on that business right now and will produce a similar result next year. The bottom line is when you think about managed care and all the external noise, the reality is people need insurance, and Plan Sponsors are looking for options to Lower Health Care costs. Whether it is a merger with cvs to combine the Health Benefit and drug benefit, all of those things are designed to lower costs. We still like this sector. David the headline cannot on the bloomberg on aetna, are they better off with the Affordable Care act or without it . Sounds like they are happy to move on without it thank you very much. Frank the Public Exchange products get tweaked and improved, it could be a great opportunity. There is a Growth Opportunity out there. At this point, they are perfectly fine with or without it. If they can continue to make tweaks to it, it is an opportunity they are interested in. Emd the remains a big anth remains a big player in that market. David good to have you with us. Frank morgan of Rbc Capital Markets. When you look at the turmoil in washington, attractive or not attractive . Tom there is demographics, really good businessest here, and reasonably priced stocks there. That is attractive. At the end of the day, health care is growth at the last 20 years has come at the expense of the rest of the economy. David does the market Like Health Care or not . Gina it did until the last few weeks. A lot of Health Care Stocks started to break down, particularly in the bio health sector. Unfortunately, the technicals have turned against health care recently. Their earnings backdrop is still stable. The technicals have driven the stoxx in the shortterm, and they have come to face that headwind. David thank you to Gina Martin Adams and tom lee. He is going to stay with us. Live from new york, this is bloomberg. The fed kicks off its two day meeting today under the shadow of a longawaited the session of who the best decision of who the next fed chair will be. President trump is said to be leaning towards Federal Reserve chairman Jerome Powell. Joining us is Michael Mckee. It seems like the market is treating this as a done deal, that Jerome Powell will be selected on thursday to succeed janet yellen. Is there any chance it will not be him . Eric michael sure. I have a two word answer for you, donald trump. We were laughing in the newsroom as News Organization after News Organization reported yesterday that sources said it is going to be jay powell. There is a massively coming out of the white house designed to push everybody in that direction which does that mean anything because donald trump could change his mind. Imagine being around the table today at the fed. Lisa awkward. Yellen probably knows she is out. Probably donald trump has called her. If you are janet yellen, and you figure out you are going to be out, arent you actually happy with jay powell because he is more like anyone else to continue your legacy . It is not a radical change from where you are going. Ofhael given the list retainers, she probably is. He is not a phd economist, and she might have preferred somebody who was more like her, but there was nobody like that on the list except for john taylor, whose views are antithetical to hers. Lisa you think this will make any difference . Do you think this might not make any difference . Tom the bigger driver this year has been the economy and deregulation. Longerterm, i think we have to think about how the next eight years of the cycle looks. It is not about keeping rates low. It is about managing shortages of labor and Monetary Policy. David in all likelihood, historically, there will be a recession in the next eight years. Tom yes. David who is going to manage a recession better . Tom i think this is where if you look at this last recession, we were really glad we had bernanke. He was willing to create a whole new toolkit. Bernanke, is that a thing . I want to get your perspective on board. That thepeople feel market has not adequately priced in the new direction of the fed Going Forward. The next fed will have to be much more actively engaged and could be dealing with sincere market disruption . Anyael leaving aside exogenous disruption, i think most people believe it is good to be steady as she goes now that they are pricing in jay powell. He is on record saying he agrees with the way they are doing the Balance Sheet and is not anticipate any changes, and he is also on board with the tightening path that has been laid out in the Economic Projections of the dot plot. 2018, you can start to make trading decisions, and people are basically doing that on the idea of jay powell. Beyond 2018, you dont have a lot of visibility on what is going to happen with fiscal policy and elections coming up. You. tom lee, thank Michael Mckee will stay with us. Stocks are fluctuating between gains and losses. Two stocks are making major moves. Abigail doolittle has the details. Up, rockwellt automation, shares are surging 10. 3 on the news that Emerson Electric has made an offer to buy rockwell automation. They are Industrial Automation company. If the two Companies Come together, it would be one of the largest providers of the equipment and software to make industries faster. Take a look at Emerson Electric, down 2 . More thanutomation up 50 your today. If that deal goes through, perhaps those gains will continue. One stock plunging, under armour shares down 13. 5 after the company missed sales by 5 . Slashed the fullyear forecast, cutting the profit forecast by half. That is remarkable given the numbers have been coming down. The north american sales slide not offsetting the international gains. These shares down more than 50 your today. Some big movers around the open. David coming up, we will take a look at what is happening on capitol hill today with the tech industry. This is bloomberg. Facebook, twitter, and google face scrutiny on capitol hill today and tomorrow on russias use of their networks to meddle in the 2016 election. Journey has now is selina wang, and still with us is Michael Mckee. Selina, when we talk about this issue, it feels kind of wishywashy because it is unclear what the problem is. Is it the paid advertisements, the misinformation shared by individuals . What is the issue . The short answer is all that. Ads is the easy part to deal with. That is what they want you to focus on. But that is only a miniscule part of the overall problem. Especially if you look at twitter, they allowed anonymous totent, they allow bots proliferate on their platforms. At issue is this content is shared acrosslly social media, and is being delivered to people in a way that it seems it is part of their friends. It is wishywashy as it is a problem that extends across all those areas. David we tend to focus on paid advertisements and russia. If you take that out of it, you still have a big issue of people putting things on the internet that could influence politics that we have no control over. Michael the other issue is we are all focused on russia because of the last election, but you could be talking about a company. You could have somebody go after a company in the same way. What do you do about it . We have a First Amendment that makes it very difficult to clamp down on any kind of speech. The technology is ahead of what any companies are able to deal with. Congress wants to do something, but they dont know what yet. They can do with the paid ads, but in terms of the fake news, that is much harder to attack. David if you are a company, and a rival decides to go after you, in the past you had to go through newspapers and tv, and you know who it was, but now you dont. How do you defend . That is at issue. They have to have Automated Systems to deal with this problem. They need to know who is making these purchases. That is why these regulations they are trying to put in place is very difficult to understand where the line should be drawn and not running into these free speech issues. Like toatforms emphasize that they are simply platforms, not the minister of truth. I think there will definitely be some grilling. There was a closeddoor meeting earlier were they said mark warner said they were thoroughly unprepared. It is unclear if anything will come out of it. Wang, thank you for joining us. Thank you to Michael Mckee. Later, we will bring you those tech hearings on capitol hill. They begin at 2 30 p. M. Eastern time. Lets get a check on markets. A mixed picture. Dow jones industrial average basically flat. Nasdaq still leading the charge, but off the highs from earlier. That does it for bloomberg daybreak. Markets is up next. This is bloomberg. Im done. Done with figuring it out for myself. Im done with surprises. Im done with complicated. If youre on medicare, and ready to be done with complicated, turn to unitedhealthcare and our Medicare Advantage plans. Like aarp medicarecomplete. These plans can combine your hospital and doctor coverage, with Prescription Drug coverage and more, all in one plan for a low, or even no, monthly premium. So call now. Lan for a low, or even no, monthly premium. So call now. We can answer your questions, even help you enroll. I deserve to get the most out of my plan. Well make sure your doctors are all connected, you know what your copays are. And you can save on prescriptions; plan members saved an average of over 5000 dollars last year. Medicare open enrollment ends december 7th. If youre done with complicated, if youre doso done. Complicated, so done. Call now to enroll in a plan from unitedhealthcare, like aarp medicarecomplete. [sfx mnemonic] vonnie it is 10 00 a. M. In new york, 2 00 p. M. In london and 10 00 p. M. In hong kong. I am vonnie quinn. Ahn andi am shery welcome to bloomberg markets. Here are the top stories we are covering around the world , President Donald Trump playing defense from the fallout of the indictment of three campaign aides. The cooperation of George Papadopoulos could be the bigger threat. 126 million, the number likely to get center of lawmaker scrutiny of tech companies. General councils of facebook, twitter and google are set to face questions from the Senate Judiciary committee on how they fail to keep russians from interfering in the 2016 election. And European Research roles are shaking up the financial industry. Paul hamill, citadel mobile head takekes, joins us with his and much, much more. All