Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20171106

Over the weekend, a Saudi Exchange just closed. It ended flat on the day. It was down earlier, but an unbelievable comeback. 95 isldings owned. That is down by 5 . Getting ang brent boost on that saudi news. Dollaryen flat on the day. David for headlines outside the Business World we turn to emma chandra. Emma Authorities Say a man walked into a church and opened fire with an Assault Rifle. 26 people were killed and 20 wounded. The suspect was found dead inside his vehicle. One official said he did not appear to be linked to any terrorist groups. President trump and Prime Minister shinzo abe are talking tough on north korea. Abe said he would impose additional sanctions. President trump warned that what he called the era of strategic patients with north korea is over. Broadcom news proposing to buy qualcomm for 70 a share in cash. The 100 billion deal, the question is what kind of fight will qualcomm put up. They are up 3 and broadcom up. 5 . The question is what do broadcom, qualcomm, nsp Brocade Company look like in the world . Jonathan the big thing will be the price. David and the regulars might have to say a thing or two. Theres a lot of regulatory hair on this deal, so they see. Jonathan we have seen the likes of intel takeover you wonder if it is the beginning of much more. Theyve got to get bigger. Semis andall these that is no surprise looking at this potential deal. Jonathan if it gets done, potentially the biggest takeover in tech history. The big story over the weekend, saudi arabias king starting off a sweeping crackdown announcing an anticorruption drive that led to an arrest including city level princes. The move reinforced speculation the king is clearing the way for his son to a sent to the throne. By yousef with the latest. We have a guest coming on this is the equivalent of buffettgates and colin powell being buffett, gates, and colin powell been arrested over the weekend. Use of yousef coming into riyadh, you can feel and see the tension as well. The roundup of current and former officials without the Political Drama is over at the summer when the crown prince was cemented into his position. Around 2, dozens of former and current officials getting rounded up on the basis of corruption charges. The markets are taking this in stride. You look at what the dollar is doing, but the question needs to be asked, what if there is too much of a centralization of power that raises the risk so maybe the markets missed pricing this a little bit. Jonathan we had a rocket come into from yemen into saudi arabia and we had a helicopter that came down and killed a prince on board and a Prime Minister that stepped down and aamed has below has been bollah in the region. The weekend around saudi arabia has been massive. Around draw any dots what has happened the last few days . Drawf it is difficult to connections. One is the domestic conversation around these charges of corruption on former officials clearly pointed at the old guard a little bit. Then you have the external conversation and the risk around what is going on with yemen. A Ballistic Missile over riyadh, this hasnt happened in years. This isnt something that happens every weekend. This is unprecedented or at least recent history. The region is definitely boiling. Domestically, there is a heated conversation because if there are new fights and enemies being created, could this escalate rather than resolve . Avid thank you so much Robert Jordan is a student of the king of saudi arabia having served as u. S. Ambassador to riyadh under george w. Bush. Hes also the author of the book desert diplomat. We also welcome muhammad ali area. Mohamed elerian. We were talking about the turmoil in the saudi kingdom. For many years it was received the royal family operated under consensus. What kind of divisions are being sown . To terrifys yogi berra the berrarase yield the royal family for years has behindthescenes had a series of power struggles, rivalries among various tribal aspects of the royal family. This is about the most breathtaking revelation i think we could possibly have imagined. This crown prince, 32 years old is consolidating power. He is using the power of the Corruption Committee to label as corrupt many wellknown businessman. As i said, its almost the equivalent of arresting bill gates to have the rinses under arrest. Lets make an important point, there has been a corruption problem in saudi arabia for generations. Its important to clear that up. If this crown prince is doing that and is successful, it will add credibility to the saudi business posture, its operations, and the potential ipo of aramco. If it turns out to be a power grab, i think it will hurt the saudis in the long run. David is this all paving the way for a succession sooner rather than later . Robert i dont think it is merely that, but i do think it plays a role. Lets play in mind the saudis have enormous challenges. From a Foreign Policy standpoint, things are not going well. The war in yemen is not going well. The resignation of the Prime Minister is significant because it shows iran is influencing yemen much more than the saudis would like. They have a number of foreign challenges in addition to a useful population youthful population. They have an ambition plan ambitious plan that hinges on the success of an ipo. If they cannot pull that off, the economic underpinnings of the kingdom are severely challenged and this creates an environment in which the legitimacy of this young crown prince in succeeding his father could be brought into question. Jonathan you were there just over a week ago and the events ber the weekend seem to trying to understand what is going on once again. How do you put together the saudi arabia you experience last week and the events of the weekend . Mohamed they gathered 3000 people to roll out in a formal 2030 and this brought out came as a huge surprise. Critical is we still do not know exactly what happened and why, so it is hard to say so what . I think there is judgment to be made between those who believe this is about a concentration of power and those who believe this could be about opening up the system. And we still need to figure out where we are going to come out on this. This is important for the oil , saudi arabia is a massive holder of other peoples assets. It once wants an ipo. This is a major event i think markets need to spend a lot more time thinking about and pricing in. You are a company that does business in saudi arabia or an investor, did your job just get harder or easier . Robert it just got a lot harder because we dont know where this is heading and are we going to see an expansion of anticorruption efforts or are we going to see a decline in the rule of law . Is this going to be a tyrannical power grab . Somethingna do similar. I have come in and accused the number of rivals of corruption as a means of consolidating power. I think weve got to keep this in worldwide context. Weve got to expect a degree of transparency here that i think is going to be important in worldwide confident and investing. Jonathan we really appreciate your insight. Mohamed elerian is sticking with us. The one to watch is this offer. Broadcom proposing to buy qualcomm for 70 a share. Its valued at 130 billion. The price action on this is green, qualcomm well below the offer price of 63. 75. Much more on that story throughout this program. Later, here is a conversation you dont want to miss. Wilbur ross sits down with Francine Lacqua in london this hour. From new york, this is bloomberg. Alix it would be the Largest Technology acquisition ever. Broadcom making a deal of 130 billion of qualcomm. We should see trading resume around 7 20. We are joined by Brooke Sutherland of gadfly. Brooke, what will qualcomms pushback be in terms of price . Brooke i think this is an opportunistic bid and they are coming in when qualcomm shares have been down because they are in this intense legal fight with le and getting antitrust all over the country. Qualcomm last year was trading at 70 a share to i think they representhis does not the overall value of what this company is worth. Then you have to look at is there going to be regulatory pushback from qualcomm question mark they are going to say there is no way Government Agencies will allow us to combine companies of this scale. Alix qualcomm trying to buy an xp and you have qualcomm by brocade and that has been in regulatory tieups since last year. What are we looking at of those 4 companies become one . Brooke you have a behemoth. The brocade deal hasnt closed. Brought broadcom used to be called Something Else and the nsp Company Qualcomm is trying to buy just purchased last year. You are talking about an integration because just broadcom and qualcomm on its own would be significant lead difficult. You are talking about combining operations around the world and taking out cost. When you multiply that by a i thinkf seven or six, that will be intensely complicated and you have to wonder, does that open up the path for qualcomm, broadcom predators to take market share and capitalize on the fact competitors to take market share and capitalize. David how big a role is apple likely to play . Ecowas already complaining we are getting charged too much apple was already complaining, we are getting charged too much. Brooke it is kind of complicated because broadcom is you an apple suppliers or could see they would be disgruntled about the fact these two suppliers are getting together. Broadcom has a battle relationship better relationship with apple. If this deal did happen, would we then see a spin off of qualcomms licensing business which is sort about the crooks crux of crooks this dispute with apple . Maybe if we saw this deal and you were looking for sources of financing, could you see a spin off like that happening . Jonathan thats talk about the currency being used, cash and stock. Are we going to see a lot more stock cash and stock type deals and how difficult will they be to get done considering where the market is trading . We will and it reflects two things. You see it here and how systemically important it is other companies are becoming. From this side, it seems like seven elements coming together and it is so complex, why would you do it . I think there has been this rush for scale in the Semi Conductor industry and we have seen so many deals. You have to question is this m a in this industry or more broadly . David Brooke Sutherland, thank you so much for being here. Mohamed elerian will stay with us. Coming up we will talk with marc short. We will get more on the timeline for tax reform and how they will get it done before thanksgiving. This is bloomberg. Alix japan is only stop 1 of President Trumps trek through asia. He is slamming what he calls an unfair trade relationship between the countries. President trump for the last many decades, japan has been winning. You do know that. Right now our trade with japan is not fair and not open. President trump gave several possibilities to reduce the trade gap between the countries like japan buying more military equipment and of president pushed on trade again, especially when it comes to china. President trump you will be seeing the United States will take very, very strong action. Its already been started, but most of the Legal Foundation has been done and you will see a very big difference and it will happen soon because the United States, by many countries, has been treated very, very unfairly when it comes to trade. Alix joining us from washington with more is Bloomberg White house reporter margaret talev. What is very, very soon and what kind of action . I have an hearing things like sanctions and tariffs on things like steel. Margaret you have been also been hearing from the Campaign Last year that there will be soon. Actions very, very all these things in theory are on the table. Look at the big picture here. There is a 347 billion deficit that is very frustrating to President Trump. There is also north korea, which, so far has taken priority for the president in terms of geopolitical challenges and wanting to work with china and there is theoretically the possibility for more business deals so there is a very large delegation, several dozen businesses that are taking part in this trip. Some possibility for some Chinese Companies to be doing work in job creation in the u. S. Think outside the box here. Even Hurricane Relief and rebuilding. A veryts just complicated picture. A lot of what you are hearing the president talk about is domestic messaging. There is much more nuanced actual discussions and negotiations going on with the chinese president who right now is much more in power than President Trump because of the Party Congress and his own standing inside china versus the challenges the president is dealing with back home. Jonathan margaret talev, thank you. As margaret points out, its a message for the domestic audience. It doesnt seem to have any International Market significant in the way it may have done maybe 12 months ago. What is your take when you hear those words from the president now . Mohamed i think mark market are waiting for actions rather than words. Thats why you have had no reaction in the fx market and hardly any where else. Its a tradeoff between the three major issues President Trump is pursuing. One is economics with trade and currency being very important. 2 is north korea which markets say can conflict with the first objective in the extent that you need china to play a bigger role and the third one is regional security. Countries are asking, can we rely on the u. S. For security . These are the three main issues. We have 5 stop senate will him be important stops and it will be important to see how these evolved over time. David take the first 20 just talked about and square something for me. If the president really cares about the trade deficit and yet we are going to buyer borrow 1. 5 trillion. How do you square those things . Mohamed you square them by the phrase he just said that in his view trade is not fair and is not open. Hes talking about the nature of trade. He is saying if trade were fair and open, then the bilateral deficit wouldnt be as large. He is talking about the way you conduct trade and that is what he has been pressing over and over again. In terms of the fiscal impact and we will talk about this a lot over the next few days, its a balance between tax cuts and tax reform and where they strike that balance is going to tell you whether the fiscal change is progrowth or ultimately prodebt. This is still early days. A lot can change. Jonathan its very early. On the trade situation, it is early enough to know how they will approach the situation. They dont want to do it in the traditional way getting a group of countries around the table. They want to do it country by country. Does that make sense and can you get that done . Mohamed i think they are going micro and macro. Going macro in the past has not worked. They are saying we have to supplement macro with the micro. They are sequencing micro first, country by country and then we go to macro second. I think its a different strategy and comes from the view that President Trump feels strongly about that the u. S. Has gotten a bad deal. I was in singapore last weekend week and people were anticipating this trip with a lot of question marks as to what President Trump will actually say and i think the fact that he has been so blunt in japan will say ok we have to listen to what he is telling us because this is serious. Jonathan Mohamed Elerian sticking with us. In the markets, perhaps one of the biggest tech takeovers ever. Broadcom coming in with a and acquisition potentially of qualcomm. In the markets, perhaps one of will hold until they are trading again. We saw movement in the friday session as we anticipate potentially this deal coming together. More on that later. Coming up next, wilbur ross sits down with Francine Lacqua in london. Dont miss that conversation. 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. Jonathan this is bloomberg daybreak. I am jonathan ferro. Two hours after the opening bell. The longest winning streak since 2013. Other record highs as we approach the opening bell. Futures up positive. This story in the bond market a Little Something like this. Treasury yields grinding lower 2. 32. Ingle basis point at of the dollar weaker against the pound, stronger against the euro. At 2. 32 is ield just remarkable stability. In your words, the beautiful normalization over the fed seems to be going swimmingly. Mohamed its amazing. Theyve gotten the market to price in a very high probability of a december rate hike and a significant probability of a march rate hike. We had a change in leadership and yet the fixed income markets are extremely calm. There were people warning once not, weo 2. 40 we are are back to the average of the year. It has been a calm normalization. Jonathan rational or complacent . Mohamed a bit of both. Rational is in that it has been well signaled and the fed took advantage of the windows it opened. A little bit complacent in the context of very low volatility. Think of all that has been going on this year in the geopolitics and the politics and we have had the lowest maximum daily drawdown in the history of the s p. We have had 56 record closes for the dow. It is a different mentality that supported risk assets in a way i have never seen a my career before. Jonathan theres enough going on to worry about. Mainstreamhair consensus. Big opening on the board that they can fill. Essentially another potentially another opening the new york fed has to fill as well. Another report mr. Dudley is going to resign today. Mohamed shortterm, it doesnt matter. I think the fed is on autopilot for the next 6 months. I think we will see a couple of hikes and i think they will they will stick to the plan announced. Shortterm, i dont get matters. Longerterm, it will matter and a lot will depend on how the new plays interact with fed staff. I think short term, we have clarity on the for at least 6 months if not more. Alix what kind of said opposition would be be fed composition would we be looking for . I think this is an important question. We need to have a Team Approach to the fed rate at the end of the day, you are trying to solve for the intersection of economics, markets, finance, and International Mass markets. It is very hard to find one person that fills all of that. As important as who he appoints is what attributes he brings to fit leadership and he has the possibility of filling out that intersection that will be important because remember, the fed is it normalizing in a vacuum. If the ecb, the bank of japan and the peoples bank of china starts normalizing, the fed challenge will be greater than it is today. David as the president looks to temptingthe fed, its to focus on beautiful normalization and theres the possibility of a crisis coming up. Chances are there will be a recession, a downturn. Have you staff of the fed to be prepared for that. . Ohamed if a crisis occurs and if is in capital letters. If it occurs, it will not be in the banking system. , if it it will happen happens, is the nonbank sector and that is much more than just about people. Of the regulators havent looked at that with the same focus that they have on the payment Settlement System and the banks. I see every day evidence of excessive risk banking and every single day overpromise of liquidity to investors, especially proliferation of liquid asset classes. When that crisis happens, if it happens, it will be in the nonbanks and they need people who understand how that sector works. David in terms of regulators, you are talking about a territory we have never been in before. What sort of background do you look for in a person who would be able to deal with that sort of crisis . Mohamed the first thing you have to understand is risk morph s and migrates. Understand need to technicals, how are people positioned . The worst thing about crisis is when it becomes indiscriminate and people start doing things because they dont not because they want to do it, but they half to do it. You need somebody who understands these technicals and who can break down risk to the various components. What risk factor is driving this . Its a different mindset than when you look at the banks. Jonathan how concerned are you about the Retail Investor with all that going on right now . Mohamed i am worried. I think the Retail Investor and the institution vendors have been on this wonderful journey that has been incredibly rewarding. You simply buy every dip and hold on and the market goes higher and higher and what i worry about most is people have given up liquidity very cheaply and i worry that if we hit a bump, but it has to be a major bump. This is not a small bump that would derail us. We are going to find the system overpromised liquidity. Jonathan and that is confined to a specific asset class or is this cross asset . Mohamed i worry most about the proliferation of products whose implicit contract is it is you can get instant payment liquidity and the underlying asset is inherently liquid. Segments of the highyield market i worry about an emerging markets i worry about. Segments of nonagency mortgage i worry about. Most people would say it is small, but that is the same argument we heard in 2007. Thoseeople cannot sell in sectors, they sell in other sectors. I stress, this is not the baseline. This is the tail. This is the tail you have to be recognizing. Alix how much flatter can the those sectors, they sell incurve get . Mohamed i think the ecb has a massive influence on what is happening to our yield curve. Can it get flatter . Yeah. If the ecb continues being dovish and the taper is what we have seen so far, it can get flatter. European investors are looking for kerry and they get it carry and they get it here. David we hear about synchronized Global Growth all the time. Mohamed thats why im saying that the information content of the flat curve is not that a recession is coming. Its that you have a noncommercial buyer of longer dated government securities and that induces other people to do things that influence us. I agree with you completely, i think the curve is underestimated the synchronized pick up going on. Alix what about a scenario where we get a larger budget deficit and the fed is tearing back on investments . Mohamed look at the ecb. If you ask me in the next 6 months what is the one data point i would want right now, i would tell you it it what the ecb does. I think that ecb will be the major determining determinant of pricing. Jonathan they said we want to put a Duration Risk on the table, what would you say back to them . Mohamed i would say not now. Keep some powder dry because there will be opportunities. Jonathan coming up a little bit later, bloomberg will bring you live reports remarks from bill dudley as reports circulate he could be retiring earlier than expected. They come from the economic hub of new york at 12 10 eastern. A little bit later, if you want all the action away from tb, you can do it on Bloomberg Radio as you commute with tom keene and david gura. From new york city, this is bloomberg. Emma this is bloomberg daybreak. Coming up next hour, Larry Summers, the former u. S. Treasury secretary will get his take on the u. S. Tax bill. This is bloomberg. Alix the action in d c as the house ways and Means Committee beginning a marathon fourday section to take up all the announced amendments announced last week. The drama in the market has to do with the Paradise Papers. Kevin cirilli is here to take us through. Walk through what we knew about these know about these socalled Paradise Papers. Kevin this new report from these Paradise Papers out of bermuda saying that potentially wilbur ross good have a conflict of interest regarding some of his investments connected to russia and the shipping steel industry. Secretary ross thing he has recused himself from any potential dealings. This also First Service surfaced during his confirmation hearing. The commerce secretary saying he has recused himself, but in this heightened political environment facing intense scrutiny. Tax plan is very much underway. House wanes and ways and Means Committee having a markup on their tax ill. Wednesday is when week tax bill. The senate potential iran sanctions. That comes as we have been following closely the Saudi Development and the president s trip to asia. Alix thank you so much, kevin cirilli. David the white house director of administrative affairs, marks short is the point person marc short is the point person. You said four days you will try to get this through, you are responsible for it. Is that realistic and are you rushing it too much . Will congress have the opportunity to review things like these Paradise Papers. What is being done in tax havens, will that be taken into account . What we willr days be doing is the markup in the house ways and Means Committee and next week we take it to the house floor. It will be after thanksgiving before it comes to the senate floor in which the senate will introduce its own bill and likely getting that passed sometime early december and then there will be a confidence report and hopefully a bill on the president s desk by the end of the year. This process will play out over the next several weeks and democrats will be afforded ever every opportunity to offer amendments in the committee and on the senate floor. I imagine the bill will continue to improve and we hope in a bipartisan manner. David the report is the chairman said he does not want amendments on the floor. Is that wrong . Marc i think there will be plenty of amendments in the committee. There will be plenty of amendment on the senate floor. The senate will have an open amendment process. That is par for the course as we operate in different structures and rules between the house and the senate. The house process will be more amendments in the committee and the senate will be in the committee and the senate floor confidence report. There will be plenty of debate open form moving forward. David how confident are you you can get this done in the time set out and what do you think the largest risk is . Marc i think we are confident we will get it done, but what is important is that the economy has begun to turn a corner. We have seen unemployment at the lowest number in 14 years. Need tax reform so middle income families can grow and that is what we are focused on. Its not so much the timetable we need, it is what americans need. David everyone seems to be in favor of tax reform. There are some people that have reservations about deficit spending in part because of what you just said with the Unemployment Rate so low, is that a possible barrier to getting us through this through congress, the question of how much deficit week take on . Marc the president put forward a 10year balanced budget. There is no way that we can pay for the commitments we have particularly on a National Defense perspective and less we start growing the economy. The commitments we have to keep america safe are enormous and there are no way there is no way we will be able to do it unless we get the economy growing. We need 3 or 4 growth to provide us the revenue. David if you work to get there is get this through the house, how conscious you need to be about what you are hearing from things like senator langford who over the weekend was saying we dont need anymore deficits . Marc the margin in the senate is very narrow, thats why you have seen the president travel to missouri and states we hope we can earn bipartisan support. We saw how narrow that majority is when we fell short by one vote at the last minute. As we head into tax reform, right now republicans are united and we think we will be able to we cane party united so bring jobs back into the country. I think that will be easier if we are able to make this bipartisan. We hope we can earn the support of some Democratic Senators who have told us again and again to targettax reform middle income families and corporate release, which is what we are doing. David marc short is the director of legislative affairs at the white house. Jonathan wilbur ross is in london and joins us along bloombergs Francine Lacqua. Good morning to you. Francine good morning. We are pleased to welcome the commerce secretary here in london, mr. Wilbur ross. We need to talk about tax, but also about the Paradise Papers. You retained investments in the shipping firm that has business ties to the russian government. In hindsight, should you have divested this . Ross let me correct what you said, we have no business ties to russian individuals under sanction. The world oining the board of navigator, they entered into charter arrangements with sidebar, which is a russian hydrocarbon company. I had nothing to do with the negotiations, never met the people under sanctions. Sidebar never has been under sanction, so there is nothing whatsoever wrong with navigator having a deal with them. ,econd is to the disclosure much as it is made it was not disclosed, it was on three places on my form 278, which is public document. Placed as well as on the office of government ethics website public website the symbol is o ge. Gov. Couldnt bencine more clear. In hindsight, there are allegations about ethics and creating a conflict of interest. You think you should have divested this . Secretary ross there is no conflict of interest. We dont regulate shipping and that is why the oge let me retain shipping interest. Alix would you francine would you welcome an investigation into this . Secretary ross investigate what . Francine is there not an ethical question that needs to be raised question mark to be raised . Secretary ross i have done nothing improper at all. Independente to an decision. Before i meet with any corporate a, that i oge clears can meet and b, the extent to which i can participate in conversations. I have never saw a sought a waiver to any of those restrictions. You are saying it was improper. There was nothing improper in either the way we handled the meetings or in the investment itself. Secretary ross will you francine well you keep the stake . Problem secretary ross probably not. Itas picking up selling anyway, but that is not because of this. Francine talk about your Upcoming Trip to china. What is the president s stance in dealing with china when it comes to steal . Secretary ross we are hoping for specific deliverables. We are leading a trade mission of some 29 u. S. Companies over there and we hope to come away with some very tangible and hopefully large deals for them. Francine what are you doing in london . Are you talking trade postbrexit . Secretary ross london is several different things. I spoke to the trilateral commission. , doingeaking to the bci all kinds of things as well as meeting with various government officials. I went to the balfour centennial dinner. Francine if there is a brexit than actually rips the u. K. Out of the e. U. , how quickly can the u. S. Have a trade agreement with the u. K. . Secretary ross it should go pretty fast because while we cannot negotiate right now, that rules,britain under ec we do have a working group that met in july in washington and is meeting next week here in london, so they are kind of scoping things out and going as far as they can without violating the e. U. Regulation to make preparations. Talkine will you also with the Opposition Labor Party in case there is a change of people in charge . Secretary ross i think we will be talking with whoever is the government. Francine one very last question. When you look at trade, we are expecting the status of the allegations into imports of steel. Will we get to that . Secretary ross that will be sometime after the tax legislation is dealt with. Francine when do you expect tax to be wrapped up . Secretary ross hopefully soon. Francine before christmas . Secretary ross it would be a wonderful Christmas Present for the American Business and consumer to get a tax reduction, so we hope so we hope so. Francine thank you so much. We hope you come back soon. That was commerce secretary wilbur ross with me in london. Jonathan still with us around the table is Mohamed Elerian. Of the route of the problem in the u. S. Has been wealth and equality. The taxe anything in plan are in the news the past couple of weeks that fundamentally addresses that or do you see something that could make it worse . Mohamed its not just wealth inequality. I think most americans would live with quite a high level of wealth and income inequality because there is a perception that create positive incentive. The problem is the trifecta. Wealth, income, and opportunity and there is a perception opportunities are no longer available to the average american. That is a key issue that has to be addressed. Jonathan some breaking news here, it is confirmed dudley to retire mid 2018. The new york fed says William Dudley will retire as president in mid2018. How much of a loss is that . Loss. D its a big i think he has been influential in the way he has conducted the work of the new york fed. He has been a very good vice chair at the fomc. It is him, richmond is open, it is vacancies on the board. Alix are they all going on vacay or something . Seriously, how many hawks will be left on the fed . Lets assume janet yellen will not go to governor until her term ends. Mohamed bill dudley has been viewed to be typically more dovish until than average. I am characteristic we do not understand productivity well or inflation dynamics or weight determination. When you dont understand these things, you become shortterm and data dependent. Hawks put aside doves and. Talk about independent capital intellectual capital. How concerned are you about replenishing that intellectual capital to deal with those questions . Mohamed i think you are losing it and the loss of Stanley Fischer was a huge loss in terms of his economic knowledge, the way he interacts with people, his international standing. Now you are losing dudley. Thats another big loss. There are people out there you can bring in and the end of the day, i think we would have to judge whether the team put in place, including the new york fed, meets the four things i talked about. If they do, we will say yes, they are able to replenish that. Jonathan it has been great to catch up with you, Mohamed Elerian. Another opening for a permanent voter at the Federal Reserve. This will come up in mid2018. One of the most vocal critics of the tax reform agenda so far, we will get his take on the gop tax bill a little bit later. This is bloomberg. Jonathan saudi arabia clamps down on corruption. A renowned investor is among those arrested. The president takes his economic message on tour in asia. Our trade with japan is not fair says the president. Offers 30 billion is offered 30 billion in cash. City, for our audience worldwide, this is bloomberg daybreak. This monday morning after eight straight weeks of gains on the s p 500, futures are unchanged. In the fx market, little bit of Euro Weakness and dollar strength. Through the year so far averaging about 2. 32. Alix i am taking a look at the impact only oil market after the saudi headlines. The difference between crude gets wider. Brent continues to get stronger. 3. 47 is crazy. David we go back to the news we broke a few minutes ago. New york fed president bob dudley is retiring in mid2018. It is creating another vacancy at the Federal Reserve. Michael mckee joins us for more. It seems like an awful lot of people are leaving the fed. What will this do . Vacuum int leaves a terms of experience and institutional memory for the open market committee. Thats the Interest Rate setting group in the Federal Reserve. The new york fed president is the vicechairman of that group. The chair is the chairman of the Federal Reserve so jay powell will come in new and by mid2018, someone new will be in the vicechairmans role. Becauseley is retiring he wants to have a successor in place well before the end of his term. Fed president s can only serve for 10 years basically. His time is up in january of 2019 so he is leaving about six months early which is not a huge deal but it leaves a bit of a vacuum. He has been at the new york fed since 2009 and is considered an ally of janet yellen. He has been seen as someone who believes that keeping rates as low as possible for as long as possible as long as inflation does not come up. Jonathan the nomination process for the new york fed will not be the apprentice all over again. Talk to me about how this competition may or may not change over the coming months. Michael youre going to have three or four openings of janet yellen leaves and four vacancies on the board. Those are nominated by the senate. The fed Bank President s are net are not chosen and nominated by their individual bank boards. The Federal Reserve board in washington has veto power but has never exercised it. Has a searchfed committee looking for a replacement for build oddly. Is being led by the chairman of new york of the new york fed board, Sara Horowitz and Glenn Hutchins who is the head of silver lake partners. The fed boards have three categories of people. One is bank members including james gorman who is the head of that group. They are not allowed to participate so the banks are choosing their own regulator. We are waiting to hear what happens with the fed search board and according to bill dudley, they should have someone in place by mid2018. Will stayhael mckee with us and coming up later, we will bring you live remarks from the new york fed president build oddly when he speaks at the Economic Club of new york at 12 10 p. M. Alix lisa coleman is joining us on set. Your take away . Retires, heoddly had more of a hawkish bent around inflation and rates. If he is replaced with someone more dovish, that could shift things but there are a number of vacancies. It raises uncertainty generally for the market. What winds up if we look at a fed composition where you have different strains of different people like a business person, and academic, how do you think fed decisions will affect the market . It makes it more difficult to negotiate agreements on the board. I think it would be a good thing if you had people from all different backgrounds. If you had outofthebox thinkers not looking at traditional things like economics, that would be positive. So many of the rules that we look at as economists dont hold up anymore. Jonathan how much of a loss is this . To have the experience of building up the Balance Sheet since 2009 is terrifically important when you want to unwind it. Yeah, and thats what we are waiting to see is what that will look like. It would be nice to have that level of experience but we knew he was going to retire at some point. For us, its thinking about getting into the inflection inin a sober, 2018, early 2018, its interesting to see how it plays out. Jonathan we have talked about this over the last couple of years. Markets have not adjusted in treasury yields are it 2. 32. When two things really change . I have been waiting for it as well. It does not seem like it is happening. It almost seems like the flows are accelerating into the u. S. Japan and we asia, know there are a lot of flows that have come into the u. S. Market out of japan and that shows no signs of abating. Thing about today when we sear 10year jgp. Ongoing depression of yields globally on the only market where you get a yield and inis the u. S. Market particular, not just treasuries, but looking at corporate bonds. The differentials are in favor of the u. S. David we may not know when the we knowppens but do what will cause it . Is the world essentially waiting for the ecb . I think they have been pretty transparent in broadcasting their tapering. Then they will start hiking rates gradually so i dont think it needs to be an event. It could be the culmination of a lot of things adding up. Over time, the numbers add up and the ecb buying less and less over time, that adds up and chinas backing off their accommodation as well. It could be the accommodation all coming out. Alix this is with the backup of whats happening with tax reform. Happens to corporate leverage when you have repatriation and Corporate Taxes being rolled back. You with think we might see corporate leverage going down but its not clear. One thing i thought was fascinating about the tax proposal is there is a cap on the amount of interest to deductibility. It will look at that, have virtually no impact on the u. S. Investment grade corporate market. To me, it feels like its all clear ahead for companies that want to borrow. I think we are seeing signs of evidence today looking at the merger activity in the market you were talking about broadcom and qualcomm and talking about cvs and edna and these are deals that need to be financed with debt. The tax proposal have no impact on the ability to do that. Jonathan on those big deals, this is not the case of a window closing anytime soon . Absolutely not, we saw evidence of some people trying to bring forward their debt issuance. Those were companies that wanted to take advantage of refinancing high coupon debt, getting the benefit of the tax break in this calendar year. As far as m a, it feels like all clear sailing ahead. Jonathan great to catch up with you. Lets get you an update on some of the action around the potential deal. Broadcom proposing an offer for qualcomm for 70 per share in cash and stock. The news from qualcomm, they are concerning this they are confirming the receipt. Here is the premarket trading for you. The message here is we need to get bigger in this space. Coming up, Larry Summers, former u. S. Treasury secretary, one of the most vocal critics of the tax reform agenda, we will get his take on the gop tax bill later. This is bloomberg. Jonathan a crackdown in saudi arabia over the weekend and several princes were arrested. Many are calling this a power grab. Is 32yearold crown prince off the throne. We have the latest. Talk to me about what looks like a domestic consolidation of power amidst a Regional Power struggle with the likes of iran. Yeah, it could be seen as a power consolidation. The government is putting this a wave of arrests about corruption. Some of thelled in former and current officials. Its unprinted it its unprecedented in scope and scale. We understand many of these people have been taken and. There is still quite a lot of ambiguity about who has been arrested and where they are at and what they are charged with. The government has been tightlipped about details. The new antiCorruption Committee has the power to arrest individuals. They have said they will move ahead and freeze assets. Thats something very interesting. David from your reporting, how much of this is directed externally . Plan for clamping down on corruption within the kingdom itself or is this directed at iran . And whats going on in yemen . There is no doubt that saudi arabia has had to deal with corruption issues at the top level. The fact that you got the government coming out and doing a campaign to clean things up, that could be seen as a positive. If it is a power grab and inated to the wider tensions the saudi arabia iran rivalry, that could be seen as negative. Investors are unsure how to trade on this one. Asset classes across the board, the smart money is not telling us a clear direction at this stage. I could change in the coming hours. Jonathan great to catch up with you. Struggled toor understand whats going on in the middle east, megan greene is still with us. Help me understand this. Youve got to the experts in Monetary Policy and over the weekend, you have to be aware ia tensions in the middle east, that has to be incredibly difficult. You have to look at the basic story. What are they trying to do . The first thing that saudi arabia has done is try to reduce its spending to be more profitable and at least be able to bring down the deficits at around 70 oil. If they are going to go through t spendingnifican plan which would be positive, they need to clean house. Whether this is the right way to do it, we will see in the months ahead. The steps they are taking to bring the oil prices higher, reduce the spending, position themselves for the investment cycle seems rational. Thats what i dont think you are seeing as much of a reaction in the capital markets. Alix the logic is that we will see 70. Is that the correct logic . At least on a temporary basis, think 70 oil will bring massive supply. Alix its already 52. Absolutely and it will only get worse. Somery to provide patchwork before you start the toward investment for technology and other things. Its extreme merrily difficult to do and very few countries have succeeded. Underpines this really the oil price . It appears the crown prince is very much in control and we know what he wants to do. What does it mean for them and aramco . It could put up or pressure on oil prices and thats an effective tax hike on u. S. Citizens so that could have some economic implications if this has legs. That could be one of the implications but investors dont really know how to react to this. There is so Little Information on whats going on. It could be positive longterm in terms of policy and diversifying the economy. It could just be more chaotic. Jonathan i saw the president tweet about this. That was hours before all of this came down. From a technical standpoint, it sounds like if you want to short crude, you should back away. There is the potential for geopolitical stress. If you wanted to make a trade, you probably have a couple of ideas. We could short the yen where see declining trade surpluses. You could continue to short of the turkish lira which would be adversely affected by high oil prices. These are not long horizon ideas. If you want to go along crude, how do you do that . Long crude,nt to go how do you do that . Contango is three dollars and safety five cents. Is 3. 55. 3. 65. 5560 dollars, you see profitability from the marginal suppliers. The Smaller Companies will tend to do better in this type of run and you have seen a massive divergence between the Energy Equities and the energy futures. To the extent oil stays at these level, this should be a catchup. Jonathan if you dont understand something, most people are doing nothing and carry on. Is that changing . Momentum has been a powerful trade for the entire year. Crowded trades of got more crowded and credit trades have outperformed more. I am a little bit more nervous from eight trading perspective. Youll get a selloff sometime in december but you have not im a little bit more nervous from a trading perspective. You will get a selloff sometime in december. Alix thank you both so much. Coming up, Larry Summers, former u. S. Treasury secretary has been one of the most vocal critics on the tax reform agenda and is still. His take on the gop bill. This is bloomberg. Your Bloomberg Business flash. It would be the Biggest Technology takeover of all time. Buydcom has offered to qualcomm for 105 billion. It represents a 25 rhenium to the Closing Price from november 2. Premiumpresents a 25 to the Closing Price from november 2. A change at the top of Health Insurer anthem, the ceo is stepping down and will be replaced. Gail drove was formally the ceo at united health. Formerlyoudreau was the ceo at united health. Retail sales are falling at cvs. It reported samestore sales fell more than 3 in the third quarter. According to people familiar with the matter, cvs is in talks to buy Health Insurer aetna and it would create a health care giant. Thats your business flash. Monday, they dont call it that for nothing. Broadcom and qualcomm are both moving higher in trading. What do we know so far . We know the broadcom has made the proposal to acquire qualcomm for 70 per share in cash and stock. They are willing to allow qualcomms purchase of mxp which is a 40 billion deal. Qualcomm is trying to get shareholders to sign off on. Broadcom is willing to let the deal go through which would swell the size of this merger. Qualcomm said they will review it and Bloomberg News is reporting they are inclined to reject it on the basis that it undervalues the company which is a fair pushback to make considering qualcomm is trading at 70 per share this time a year ago and the shares have been significantly under pressure because of a nasty legal fight with apple and antitrust investigations. Alix one part is the regulatory issue and one is the price. Which one is the biggest obstacle . Mm, you need a price to consummate a deal in the end. 8080 fiveobably dollars is more like it. 8080 five dollars is more like it. 85 dollars is more like it. It would create a semiconductor boat payment behemoth. It could create some problems from antitrust perspective. David on the price, maybe they are trying to get qualcomm cheap because the stock prices down. Broadcomtrying to pay with inflated stock of their own . Yeah, its only 10 of the 70 so far in stock. They want to have a little skin in the game and they will have to take out a lot of debt here. If you have a portion of that in stock and decrease that leverage ratio come i think thats a key part of this transaction. What is it mean for the Semiconductor Sector . If this deal goes through . It means a lot for the sector. In terms of the Handset Semiconductor market, this combined entity, particularly if you include nxp, we are probably talking about 65 of all of the materials for semiconductors that going to handsets will be controlled like one company. Do they bundle with pricing . Do they increase prices because of their almost monopoly power . From are a lot of ifs regulatory standpoint and a lot from a market dominance position. There are a lot of unanswered questions. The other issue is that broadcom said a few years ago that it would relocate to the u. S. People were correct in assessing that as a potential set up to make m a easier with u. S. Targets but they have not done it yet we dont know if that will change the way regulators look at this deal. Its still a company that gets a vast majority of its revenue from asia. Alix can you approve this deal . Jonathan brooke sutherlin, good to have you with us. , up next,ork city Larry Summers, for my u. S. Former u. S. Treasury secretary, we will get his take on the gop tax bill next. From new york, this is bloomberg. Jonathan 60 minutes away from the opening bell. Following eight straight weeks of gains on the s p 500, futures are not change. If you take the stoxx 600 and break it down to its individual groups, basic resources is leading the charge. Its a rally in base metals that continues. Thats the story of the market. The commodity resource stocks are doing well. In the bond market, treasury yields are lower bite one basis point. The eurodollar is down. The cable rate is up. A mixed session for the u. S. Dollar, little stronger against the dollar debt against the euro and a little bit weaker against the sterling. Lets see some headlines. Emma lets get you caught up with first word news. Attacker in the deadliest mass shooting history does not appear to be linked to organized terror groups. Carriedies say the man an Assault Rifle when he opened fire inside a small church in south texas. 26 people were killed, 20 others were wounded. The suspect was later found dead in his vehicle. Is tellingrump Business Leaders in tokyo the u. S. Trade with japan is neither fair nor open. He called on the japanese to build more cars in the u. S. And he urged primus are shinzo abe to buy u. S. Military equipment to create jobs in america. In the u k, claims of Sexual Harassment keep getting worse for Prime Minister theresa may. Her secretary has been forced to resign. Now david green has to deny a report that pornography was found on his computer. A junior conservative party whip has resigned after he allegedly exposed himself to an activist. This is bloomberg. House republicans are on the march, trying to get tax reform passed before thanks giving. Democrats are saying they need to slow things down so that can look into ties between commerce secretary wilbur ross and Vladimir Putins soninlaw. There are also tax havens . Will that slow down the process . Its ricocheting as we speak throughout washington. Later today, the house ways and Means Committee will have a markup on this tax bill legislation beginning at about 11 00 a. M. Eastern. The senate will release their version of the tax bill on wednesday. They are moving ahead in the question becomes with these distractions bet theyd stay focused on this. As of today, they have been able to stick to that timetable of getting a tax package done by the end of the year but there is that later today, Paul Manafort and rick gates, those indicted last week are facing another Court Hearing later this morning that will begin that in a little more than hour from now. A lot of busy times for washington. What about the senate side . To what extent do they have to watch what the scented with the representatives do or not do . we heard from senator marco rubio saying they have to get tax reform done. He has tried to family frame this through the family tax credit. Unitedts are really against this tax proposal, making the case that its not going to help the middle class. , tole like senator rubio some extent, when this gets to the senate are trying to push back on that and try to play a little political offense. To the extent they do that remains to be seen. We still dont know the major Sticking Point between the house in the senate version. Have they, we still markup later this morning but remarkably, the factions we saw with health care such as the freedom caucus, are nonexistent as of now in terms of politics on the tax bill. Look to see where realtors get on board on this as well as some of the other special interest groups. David the third house of congress is the lobbyists and what do we know about where they are . Kevin the mortgage deduction issue is making realtors not happy with this. The smallbusiness lobby group coming out against this as well is something that was a bit disappointing for republicans. Its too early in the process. The republicans that i speak with say this is the new reality, that no bill will be perfect and if republicans want something to take back to lawmakers for the Holiday Research recess, this is what they have to do. David thanks so much. Alix megan greene is still with us on set wil. You have Paradise Papers and tax reform trying to get through and their call to delay tax reform, ethical questions about gary cohen and wilbur ross. Whats your take question mark even without the Paradise Papers, it was going to be difficult to get these tax cuts through by the end of this year. Agree onhe house can something, the senate is coming up with their own tax ideas and they have to merge the two in the senate is the bigger problem. They got a razor thin majority of republicans in the senate. Even without the Paradise Papers, this will be hard. This will consume some of the oxygen in the room. Alix one thing you liked before it came out was deducting capital interest expenditures for five years. What else do you like in the text bill . What else do you like in the tax bill . I have been largely critical that i think it will boost the market which is positive for investors. If we get some funds repatriated, that will go back into buybacks and dividends and that will be good for the market. For the economy, maybe some stimulus. It could encourage some companies to invest more. That would be positive. I dont think this will move the dial fundamentally. Ifts unfortunate because you had supplyside reforms in this tax reform or tax cut bill, that could be a real opportunity. Reportgave rq3 gdp without a name on it, i dont think anybody would argue that it would give tax cuts. David megan greene will stay with us. Lets turn to Larry Summers who was secretary of the treasury and he was president of harvard. We welcome him from boston, welcome back to the program. Good to be with you. David you said this is the most important debate on taxes in the u. S. In a generation going on now. Tell us what you like about whats going on. Right thingts the to be considering the tax code in a comprehensive way. Instinct in the bill. Code that have a tax is shot through with loopholes and shelters. Reformulse to have tax is, i think, a good and welcome impulse even if i dont even if i have a lot of questions about the particular directions that have been put forward. I think its probably the right thing to be lowering the u. S. Corporate rate somewhat given how high it is relative to the rest of the world. Thats probably a necessary step. I think some of the adjustments that are made like the expansion of the child care credit are probably steps in the right direction. You, dont want to mislead while the word tax reform is good, fundamentally, this is not tax reform. This is tax cutting. ,ts a rather indiscriminate nonstrategic kind of tax cutting that i think is likely to increase unfairness, is likely to cheat the future, and is not likely to provide significant benefits in terms of economic growth. David lets talk about cutting the corporate rate because you said it makes sense. You agree with other economists who say if we cut that rate, it will encourage investment . They think that will create Capital Investment and jobs. Not very much. There are two reasons. Is we already have record low cost of capital. Companies are sitting with large amounts of cash invested in treasury bills were they are earning 1 . They have attractive investments, they can make them at a low cost. Right now. Thats the first problem. The second is the bill includes an element i think is constructive. Its expensing of investments for equipment. I make andn equipment investment, i can write it off in the first year. Think about what that means. If you make a one dollar investment, you get a deduction equal to the Corporate Tax rate. Then you share all the profits. You share a fraction equal to the Corporate Tax rate with respect to the government. The government is paying for the same fraction of the investment that its claiming later and benefits. As long as thats true, the Corporate Tax rate should not really have any effect on the incentive to make the investment. The Corporate Tax rate taxes monopoly profits. It taxes rents that are somehow derived from a source of competitive advantage. The profits earned on capital lets already been put in place. Expensing,ence of its an elementary economic principle that the Corporate Tax rate should not affect the level of investment and indeed, because of interest to duct ability, it may even be that a higher Corporate Tax rate an Interest Rate deductibility, it it may even be that a higher Corporate Tax rate would help. If you take the simplest view of it all, the principle that the administration is pushing is socalled territorial taxation. What that means is that instead of taxing the Global Income of u. S. Companies, they will try to u. S. Nly the u. S. Income of companies. What could be a more straightforward incentive to invest more abroad than that . Its more complicated because they have a global minimum tax and there are of viral a variety of complexities but at cut on oldaxes being capital and the taxes being cut on income earned abroad. I wouldve thought the right focus for a tax reform would be cutting the tax on new investments made to employ new workers in the United States. Me thathere it seems to the tax bill is more responsive to the special interests than it is to the economic interests of american families. Jonathan from what you see, you dont cnn increase on Capital Expenditure . An increase ine Capital Expenditure . There may be a small impact but not one that is of scale compared to the 1. 5 trillion cost. Any reckoning of the tax bill has to reckon with any direct effects it has and the indirect affected has to enlarge the budget deficit and therefore putting upward pressure on Interest Rates. Ifould be very surprised there was a net substantial and even investment more surprised if there was a net substantial positive impact on hiring. Jonathan are you concerned about the deficit . View is that the deficit needs to be used as a tool to stabilize the economy. I think its very important to be running deficits to stimulate the economy when there is unused capacity. When the economy is booming, you have to reload the fiscal cannon. When you got 4. 1 unemployment and we create 260,000 jobs last month, that is not a moment to be hitting the accelerator. Thats a moment to be reloading the tank so we will be in a position to respond whenever the next recession comes because it will come at some point. A big increase in the deficit right now for a form of expenditure that, for the most part, will not be productive. Remember, most of the money is being spent for the benefit of monopolies, capital that has already been put in place, and the passive owners of existing businesses, not those who operate those businesses. Spending that kind of money to no great benefit seems to me imprudent. Beathan some people might listening to this in arguing that its ok to make this argument around the deficit when you are not in power. The republicans are in. Would say thats not an economic argument but a political one. I hope thats not true. If what was being proposed was productive Infrastructure Investment that would substantially expand the capacity of the economy, financed with debt, i would be supportive of that. I would not have supported and cutsot support large tax when the democrats were in power. My judgments about this dont have anything to do with who the administration is. They have something to do with what the money is being used for. I think that is elementary economic good sense. If somebody in my family asks me about borrowing money and they are borrowing it to put a valuable extension on their house, im going to say is a good idea. If they are borrowing it because they like to spend more this year, im likely to say its a bad idea. I think ive got a pretty consistent principle on this in supporting borrowing for investment and borrowing for stimulus when the economy is at a below normal level of strength. But not supporting blocking in a longterm increase in borrowing largely not to finance investment at a time when the economy is very strong. David as an economist, give us your prognosis. Through asl goes specified now, what would be the effect on Interest Rates . What would be the effect on inflation . We have pretty low inflation and pretty low Interest Rates so we can afford to move up a little bit if it stimulated the economy. , yeah, but as i explained there is likely to be not much stimulus. Ratessaw interest increase 50 or 100 basis points, you would see a meaningful impact on markets come a markets,l impact on a meaningful impact on business decisions. I dont think this tax bill the likelihood is that growth would be slightly slower over five years with this tax bill than it would be be without this tax bill. I think it would leave us in a weaker position to respond to the next recession and channeled income away from the vast majority of the population toward a small minority of the population. The precise impact between Interest Rates and inflation would depend on the decisions that the Federal Reserve made. My guess is you would see some increase in inflation which is does not trouble me and you would see some increase in Interest Rates which i think would work to discourage investment and offset any possible benefits here. Alix where is the biggest miss price in the market . I dont know that im in a position to call ms. Pricing is risings inet mis the market. What the market has mispri cings in the market. It has responded to Certain Companies that are seeing substantial in creases in province and cash flows. Thats what has been driving the market rather than the macro news out of washington. You can see that by looking at whats happened to baskets of stocks that might be most affected by tax reform versus baskets of stocks that would be relatively unaffected. What is striking is that it is not hugely the stocks that would be the greatest beneficiaries of tax cuts that are the ones that have rallied. Responseests this is a to an economic rather than a political phenomenon around higher profitability. Alix nevertheless, President Trump said the reason our stockmarket is so successful is because of me. I have always been great with money and jobs, thats what i do. What do you think . Its a preposterous claim. Its highly irresponsible for a president to make. Its highly irresponsible and foolish for a president to make because if you take credit when the market goes up, its hard to see why you shouldnt be blamed when the market goes down. Thats why im a more thoughtful have,ent in both parties over time, not tried to score themselves on the basis of a particular market movement. I think is very foolish for any on adent to try to brag market that has strengthened. As a factual matter, markets all over the world have rallied very , more than the United States, calling into question the idea that its specifically what our president is doing. And if you look at the composition of the rally and you look at different stocks, its not the case that the ones that are most affected by the policy are thex ones that have rallied the most. At the risk now of descending to a cheap shot, i dont think its a completely cheap shot. The president says he is good with money. It would be easier to evaluate whether that claim was right if the president , like all previous president s, allow the American People to see his tax returns and see the sources of his income and see what possible tax shelters he is using and see who his Business Partners have been. It seems to me that if hes going to claim his prowess with virtues,one of his thats a further reason why the requests to make available his tax return as every official who works in his government is required to do. It seems appropriate. David thank you so much for being with us. Megan greene, thank you for being with us. Whats your reaction . Larry really well and i agree with a lot of what he says, in particular about this not intentionally significantly shifting the economy. To davids question about what this will do to inflation, its hard to get inflation right now because there are big global drivers. Theres not much tax cuts in the u. S. Will do about that. I dont think we will see inflation move that much. I think the fed is much more concerned about Financial Stability at the moment and it is about inflation in the shortterm. As long as equities are soaring which i think well continue to do on these tax cuts, the yield remains low and the dollar doesnt spike up, i think the fed can hike into that. Larry touched on the fiscal position and how it has been exhausted and we need to reserve some of that for the next downturn. Biggest risk to respond to the next crisis . Thats a great question but it depends whether you are a money person or a physical person. We have more on the Monetary Policy side because the deficit us obey. When we going to a downturn, we need to rely on the central bank. Cut ratesntral banks in the face of a recession and we are far from being able to do that. Ofhave an effective rate zero and the u. S. Because of money markets. Thinkqe will do more than fiscal expansion. Alix powell was not necessarily supporting that we dont know what his views are of an economy that has higher inflation or is in a downturn after mark we . No we dont know what he will do if inflation spikes. He was not in favor of qe but he did vote for it. Crisis, we of a could see the fed being the only actor to have any power to do anything again. Doathan how much time t you think about the Federal Reserve . It matters because its still the only game in town. It has been that way for a long time so it absolutely matters. The governments hands are pretty tied worldwide. I think it matters and i am not justifying the amount i spend talking about the fed. Great to have you with us this morning. Coming up in the next hour, the chief equity strategist at Asset Management will weigh in on the composition of the fed. Counting you down to the opening bell is monday morning in new york city, 34 minutes away after eight straight weeks of gains, stocks pretty much unchanged in a little up on the dow. The story in the bond market, treasury yields are a little lower. The dollar stronger against the euro and weaker against the pound. This is bloomberg. Joanathan worldcom offers 100 billion for the chipmaker, a largest tech takeover ever. The president takes his economic message on tour to asia. Saudi arabia is clamping down on corruption, among those arrested is an investor. Good morning, good morning. This is bloomberg daybreak alongside david westin and alix steel. We have a brandnew trading week and we are 30 minutes away from the start of the trading day. Another record high potentially in the cards. Follows, wet is as are down i. 2 on the currency. The treasury market is to 32. Ive been banging this on the head all morning. Treasury yields are low still. We are down a basis point. The cross asset victor ahead of the opening bell has some movement. Alix it sounds like a british thing. Its all right. Individual tech to Pay Attention to is not just qualcomm. Is trying to buy that company for 15 billion. If it goes through, 19 could be created. Thats big numbers. They get sales from only for customers and cadmium has a lot of say in cisco and amazon. 80 a share could the what they have to pay. We are looking at sprint and tmobile and verizon. A fascinating story about the merger we talked about for years is finally falling apart. Softbank founder said he did not want to lose control of sprint. He needed sprint or a hightech fund is supporting. Its an interesting turn of events. Sprint stock with hit hard, down 12 . They are going to need to do something. Qualcomm and radcom are the deal of the morning. The number is 70 share. Question is qualcomm is buying an xt Semi Conductors. Will we see a tie up of these four companies . What does this say about the sector . How much m a can we see. Joanathan it would be the largest Tech Acquisition in history, that unsolicited offer coming from broadcom for 100 billion. Join us around the table is the internet analyst. What is the message in the price this morning . For 70. Id is i dont think its going to go much higher than that. You might see 75. The idea that qualcomm could fetch 85 is unrealistic. Joanathan the 75 get it done . Thats up to the shareholders. You are looking at a premium where paul, was trading last week, that is on the lighter side. I think that could be enough considering the issues qualcomm has been dealing with the last couple of years. Joanathan talk to me about the rationale for this deal. What are they getting that they dont have now . They are getting scale. There earnings could go from 19 a share to 25 per share. Strategic. Area carriers and customers like apple will be spending 100 billion to improve bandwidth. They would be wellpositioned with qualcomms motive modem. David is it accretive because you are so if you should . Is it because of the Pricing Power . What happens to the price of chips . Probably not much. Apple and samsung control so much of the market. It would be a root glitter lucrative deal. Qualcomm could cut 2 billion in operating expenses to drive earnings for share. David what will customers say . Romit in the release this morning, they said they wouldnt have made the offer if they the global confident customer that both Companies Share werent on board. They were talking about apple. Apple is really important. By the sound of the press release, they endorsed the deal and the doj will feel more comfortable. Joanathan this is the final big deal in this space . Romit i dont think there is a lot left. This touches on the news you will see a flurry of deals in the range of 1 billion to 5 billion. Joanathan its great to catch up with you. For more on the deal and the broader m a aspect, we are joined by bob. It looks like its open or business. Cash. Tely we mean is that a story that can continue . It is a positive, it is probably going to continue. Its about the vast amount of energy that still exist despite this far into the cycle, how much cash there is on the sideline with incorporations, individuals, foreigners. The last i checked, the return on cash was not are from zero. The upward movement in risk slowly drying the money and. Alix weve seen a huge run. You can see what they have done. The blue line is the infotech level versus the white line. You can see the rating we have done in the last two weeks. The bottom panel is the difference between the overall tech sector. Out nownot seen it move as we have. This is the best farming sector in the text area. Bob theres no question tech valuations are up, but earnings are up and sent my earnings and valuations are up. I would not put some eyes at the highest semis at the highest. You have to be overweight technology, look out strong the earnings of an across the board. They are still not out of line. People compare this to 2000. Look at the valuations, they are hugely different. In those days, it was price to earnings and price to sales. We can still talk about price to earnings. We have farther to go. Alix why have sent mes done so well . Semis done so well . Bob in technology, there are a andof components, semis devices require a higher concentration of semi components. All of that accrues the benefit of the chipmakers. David they have gone through enormous transformation. Will the next transformation come from with and it or without it . Within it or without it . Bob we know it cap bringing up demand higher and higher at lower prices. As you pointed out, there arent a lot of Companies Left at the big level. Its going to take place at the smaller level and inside you are right. If Technology Advances and the type of things we look at, cloud for example, what does that mean . There will be a lot of internal disruption. We talk about technology transformation, technology disruption. That can help happen within the Technology Sector itself. Joanathan coming up, the republican congressman joins us to talk about tax reform and a lot more. We are 20 minutes away from the opening bell. Another record high to close out last week. Futures are unchanged. On the dow. Mer this is bloomberg. Alix that was the stands of wilbur ross says he gave his take on tax reform. We think it would be a wonderful Christmas Present to American Business to get tax reduction. Is kevinsng us now really. Kevin surreally. What are the hurdles we are encountering . Hours,in just under two the ways and Means Committee will start the hearing, a markup on the legislation. For some time. It will go to a floor vote and they are trying on here to get the house to pass a bill by thanksgiving. That is a really good sign they might able to get something done by the end of the year. In the senate, there is a parallel track happening. We will be hearing from ted cruz and Grover Norquist as they try to build consensus in the senate. Whether or not there are major differences between the senate version, there are groups such as realtors who have come out swinging against this, including the Small Business lobby. Some Top Republicans say this is as good as it gets and weve got to get something done. Joanathan Larry Summers earlier had this to say. This isnt tax reform. This is tax cutting. ,ts a rather indiscriminate nonstrategic kind of tax cutting that i think is likely to increase unfairness and she the future cheat the future. Its not going to provide a significant benefit. Tonathan that is not unique Larry Summers. As it resonated with congress . Kevin he is making the case by saying the tax cut plan would do nothing to address income inequality and its a giveaway to big business. Republicans are trying to push back on that notion. Marco rubio made the case that he thinks would really help middle income america. Alix thank you so much, kevin. Joining us is bob. Lastt get harder over the 24 hours with the release of the papers . Bob probably so. Thinkas simple before, i there are constituencies and combinations of different opinions within the Republican Party which is going to have to get this done. This is not a layup. There will be noise. It might feel like its falling apart. Republicans know its political suicide if they dont get something done. Accountants may care about it with reform rather than cuts. What dohe markets the markets want . The corporatet in tax rate will be enough of the market to give a thumbs up. It is simpler in some ways. Im not sure its simplification. Re is going to be a debate debate between domestic and multinational companies. On the individual side, the middle class mostly, not entirely, will benefit. There is a hedged answer there. Some americans will be going up. David do the markets care if we have to our own to get that or print tax cut in . Corporate tax cut in . Bob the number that has been discussed, the market will be ok. Perhaps it is shortsighted. With low Interest Rates, the market is not worrying about the debt. That will happen again some point. Its the entitlement programs that create the problem. That is not being discussed as part of these packages alix . Howd you pay tax reform . Smaller trait . Bob i will come back to the debate between multinational and domestic. States, itent land is more positive or Domestic Companies then multinationals. What is the tax rate you are paying now western mark who drops the most . Higher capitalization pays a lower tax rate than Smaller Companies. Benefit some more. These are important nuances that have to be considered. Joanathan theres a big debate whether this increased the stock price. Whether it be evaluated elevations or a result of some of the business friendly attitudes and tax cut proposals. Yes,ebate goes as follows, of course, no. Be where it is now if Hillary Clinton was in the white house . it depends on what she proposed. I think the Trump Administration among other things are the regulatory side have made probusiness progress. A lack of enforcement of some existing regulations. Thats why corporate earnings have been good this year. I will come back to your first question. I think the vast majority of the , volatility rise remains low, we have Global Growth which we didnt have a year ago to the extent we havent now. There could be more icing on the cake. Bob will be sticking with us. You think the confidence numbers have had something to do with some of the buying and the risk in the market. David we thought they would all be uniform. They have been at each others throats. Joanathan we pause to have a one minute moment of silence after the shooting in texas. Silence that moment of right now. [no audio] david the new york fed announced the president will be retiring in 2018. Joining us is mike mckee. This was not a big surprise. It was expected. He cut his term short by vix months. He was familiar with the plumbing of the markets. The new york fed has the lead role in regulating and operating the natural markets. We dont know what it means for Monetary Policy. We dont know who will replace him. The president has nothing to do with this selection. Its not like hes going to bring in somebody who is sympathetic to the administrations views. Its hard to say. Will what influence Jerome Powell have on this . Mike he probably doesnt have any influence up front. The board of governors has veto right over the choice. You have never exercised that area its unlikely he will have an impact on who is selected. ,avid as you look at the fed there are so many vacancies, are you concerned about on a terry policy Monetary Policy . Bob i assume we would get a fed the does not look a lot different and they will be conscientious about the issues. The fed chair is similar to the outgoing fed chair. The number of vacancies has to be a concern. Institutional memory has been brought up. These are a lot of changes in a short time. I would like to get those seats filled and let them figure out what the chair feels like a move forward. David thank you so much for joining us once again. Bob is going to be sticking with us. Joanathan if you look at the situations in cross asset, equities are up on the dow. Straight00 after eight weeks of gains, the longest winning streak since 2013. It closed friday at an alltime high. Stockspe, we have performing well off of metals. All, metal, copper performing well. Board,switch out the this is what it looks like to begin anew trading week. Yields are coming up a basis point. , the fxavent heard market is set up for the year. The dollar is a little bit further against the euro and weaker against sterling. About one dollar 31 flat. 1. 31 flat. This is bloomberg tv. 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. Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. 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. Joanathan we are kicking off a brandnew trading week. 20. Res are positive by the s p 500 is dead flat. Start at an alltime high on the s p hundred. A lot of supplies coming through this week. Threeyear notes are coming tomorrow. Thursday, 15 billion worth of 30 year bonds. Yields are a little bit lower by a basis point. The dollar is firmer. Given the events in saudi arabia, we wont get short crude anytime soon. That might be a brave trade this morning. Picture, lets get the scores. Alix the market is attached softer, still around record highs friday. The s p is off by two points and the nasdaq is slipping. Full point. N up one the story of the morning is going to be about qualcomm a and broadcom. Up 3 . E its a 130 billion. Is going to be 70 per share. It is 60 in cash and 10 in stock. Does qualcomm like the price . What will wind up happening with regulators area broadcom is trying to buy nsp. That has been a regulatory thing for about a year. They have to merge for companies into one company. How much difficulty does that create . Its a fascinating deal with a lot to talk about as it unfolds. The tweet of the morning was this. Donald trump tweeting in asia, unemployment is down to four. 1 . The highest stock market ever. Thes taking credit for rally in stocks. Is that accurate . There is a fascinating note out today. He basically went through the year and looked at the main events. He wound up seeing what the percentage was of how much it added to the s p. Of ignored. Its interesting. He found that earnings contributed about 50 points to the s p rally. Added 100 points. Risk subtracted 90 points. The fed 50 points to the rally and washington d c was actually a detractor, taking away a couple of points. Global issues in general added 40 points to the rally. Its a little bit in the weeds. The Broad Perspective if you scan what happened to the s p and major news headlines, this is what you find. Washington is a headwind. Joanathan lets bring in the team. Still with us is bob. Do you agree with what you just heard . Added or. Has subtracted. Do you agree it subtracted from the rally . To the numbers were close zero on you see. D. C. The Regulatory Environment is a tailwind. The absence to get anything done is a headwind. A lot of people say washington is a mass. Im not sure its much of a tailwind. Joanathan the correlation between the election and the confidence numbers are going off the charts. There must be some causation . If you look at the economic data, it has improved a lot over the last 10 months. The hard data has inched higher. There is a big sentiment affect in the economics. Whether that translates into the market affect is another issue. About 70 of the gain this year has come from improvement in the earnings stream. That is dependent on data improving. Shrinkingf it is a equity risk premium, which is the expectation. Maybe we will see better improvement in hard to going forward. I tend to side with the author of the report. Economics and Earnings Data has been supportive of stocks at this time. Effective inare styles and sectors. Overwhelmingly, when you have earnings double digit, it supports stock price. David that is what this this would like out of washington, basically nothing. If you look to prior administrations, there could be a negative affect because of regulation. Bob im not going to disagree with you. There is generally too much noise out of washington. Keep it simple. A tax bill does bring down Corporate Tax rates and enables businesses to be more competitive globally has to be a positive for the United States. I think that is part of why sentiment has improved. These things were talked about in concept corporate ceo confidence moved up more than anything else. I think its all related. Alix yes, washington has not contributed. We wont have the earnings surprises we did its going to get tougher. Do we need the washington boost in 2018 . Gina it could provide a surprise. We dont need washington because the economy is improving. You have rising earnings. The acceleration is not likely to be as rapid next year. That may provide some impediments. Pricesly, you assume will rise. If washington could provide a number of surprises, if we do have tax reform and that results in better Earnings Growth for the index, that is positive. Monetary policy all year has been tighter going forward. You assume going into next year that will be a potential negative surprise. More than likely, if growth accelerates, Monetary Policy will be on the tightening path and not a support to the equity market. Surprise that a is not impacting the underlying. Stick with us. When we ever hear President Trump talk about the bond market . Joanathan according to our reporting, d 30 year offering may yield 1. 25 percentage points. Can you imagine that . Alix forget repatriation and you can bring that home. Joanathan what does apple look like in 30 years . David what does austria look like in 100 years . Alix we are seeing some big moves in the tech industry. Offer formaking an qualcomm. The question is, what is the response going to be . They are probably going to say the offer is 70 undervalued. I think that is a justified response. When you look at qualcomm stock, it was trading in that 70 range. Been pressured for good reason. It is in a nasty legal fight with apple, trying to argue its using this market dominance to get an unfair advantage. They are facing antitrust investigations around the world. Stock is down for a reason. I think they have a legitimate case. Joanathan this is a space where we see a tremendous amount of consolidation. This is the last deal in this space . Gina i dont know if its the last deal. The chipmakers have been under tremendous pressure and have done a lot of acquisitions. There are other sectors in the economy where acquisition potential is much higher. When you look at things like financial, which had lagged for the entire economy, that sector seems most prone or potential acquisitions going forward. Tech has a different story. You have the role of the regulatory in iron, which prohibits transactions. ,owever, when you look at tech you made the point about apple. What is that Company Going to look like an 30 years . More than likely, this is a continuation of a trend. Week. Han what a busy the president was talking about moving his head orders and it feels like it. He is going to have this massive deal next week. Brooke i think it was matt with skepticism area the fact that you have this deal being announced after he was shaking the president s hand, you have to look at this as a ploy to give him an advantage in m a. Its easy to buy if you are also a u. S. Company. Broadcom is based in singapore. That can be problematic in the u. S. When it comes to semiconductors. Youve seen deals blocked where Chinese Companies were trying to buy chipmakers. They are wanting more m a and there is not a lot of growth opportunities. You need that scale in some a conductors. Joanathan that is a great final point. Thank you very much. We are 11 minutes into the session. It is debt flat and unchanged. We go nowhere as we kick things off monday. From new york, is bloomberg. Emma this is bloomberg daybreak. Coming up, we will take you live to bill dudleys remarks at the Economic Club of new york. Alix citigroup is down. 9 in early trading. A saudi prince was arrested saturday. He had an interest in citibank. Citibank is trying to rebuild it saudi arabia and business. Did that just get harder . Charles, walk us through the implications of the arrest and what citibank is trying to do . When it comes down to is did the prince play role in helping citi get its banking licenses . They were granted the ability to have a cma, which allowed them to do Investment Banking in the country. They met with the prince in march. That is the open question. And itdidnt play a role was improper, their ability to operate in that country could be setback. That could affect the growth of their institutional services, Client Services group. Tox does business flow hsbc . He is now the head of the economy and Planning Ministry in saudi arabia. Do you see market share erosion . How important is this . Charles i dont want to overstate the importance overall. If you look at the projections about 2. 5 billion of pretax earnings is supposed to come out of there Corporate Investment bank. The key product in that bank are things like treasury and trade solutions. Are the products that have been driving growth year to date in 2017. If you look at the goals, they are saying its going to come from market share gains. If there is anything that sets act the ability to gain market make and compete, it would it more difficult for them to achieve the goal. Moving back into a broader sense, what developments say to people who are investing in the market . Bob i think the question is why did they do this . Is this a clamping down . Is this saudi arabia trying to shore up rings internally . What does that mean for relationships externally . Its not a great sign. Alix to wrap it up, what is the thing youre going to need to see to get quality clarity if this impacts citigroup were not . Or not . Charles 2018 is going to be a key year. To see of citigroup has been penalized in that process at all. Alix great stuff. Really appreciate it. 62 ave brent over barrel. Thank you much. What are you doing thursday at 9 00 . Joanathan watching the shale special. I have had to listen to her on the phone. David for the graphics. Alix its going to stop friday. You should be watching bloomberg television. Watch us for a national on the rise of shale and how it changed the u. S. Economy and its impact on Global Markets are in do you explorationg shale outside the United States . I had a million pictures of me in a hard hat. You definitely want to turn in. You can watch us online. You can interact with us directly. David the house ways and Means Committee has a busy week ahead as it takes up amendments to the tax reform hosel. One of the people in the center of the hearings will be tom reed from new york who sits on the committee. We welcome representative read. Its good to have you here. Give us a week into your next four days. To be fours going days of hearings. Its going to be an open and honest debate. Ist we are trying to deliver tax relief for those hardworking families did i think we hit a sweet spot here. Or days iseems like not a lot of time to restructure the entire Internal Revenue code. You concerned things will mistakes will be made . Tom we have in working on this for seven years and are chairman rewrote the entire tax code. We are ready to go. This is the process where we find tune it. Now the people can engage and bring in that conversation. Explain to me your position. In the past, youve been outspoken about the deficit. How have you overcome those concerns . Tom when we started i would have referred this to be revenue neutral. That 1. 5ng to borrow trillion as investment. The debt crisis was driven roommate Growth Perspective on a spending problem. That is a continuation. David what is the rush . Why are we rushing this right now . Rush. Re is no weve been doing this for seven years area we just cannot continue the status quo. The American People are suffering. You are seen businesses being bought by foreign competitors. We cant compete with our roque and tax code. There are issues in play. This is a Long Time Coming and hasnt been done in 31 years. Joanathan can you name a deal that has done you just described . Tom when you look at the foreign acquisitions of walgreens. Valeant. Look at you see companies relocating to ireland. That seems to be the place. Joanathan you think thats the epicenter of economic problems . Codei think are broken tax is the problem. They are acquiring our companies and because of the tax savings they get relocating overseas, they pay for the acquisition. That cant be sustained. Thats why we are fixing this. David what do you tell your constituents in york . What will they benefit . Tom when you look at the lowering of the rates, for our family, that is 1600 they get to keep of their money. They can go on a trip. These are the opportunities that money represents. Take our Small Businesses. That is about 3000. Thats a lot of money to people struggling day today. David thats a lot of money for the average constituent. If you dont it done . , i believe it to the people to make that decision. At the end of the day, we are doing our job to do that. If obstructionist want that money out of their pocket, thats for them to offer. Congressman you mr. For joining us. Joanathan that wraps things up for us here at bloomberg daybreak. We had it back over to bloomberg markets. Stocks were unchanged, closed at an alltime high as we kick things off for new trading week. This is bloomberg. Vonnie from new york, i am vonnie quinn. Mark i am mark barton. Welcome to bloomberg markets. Vonnie here are the stories we are covering. Over the weekend in saudi arabia. The crown prince announcing a corruption crackdown. A live report from dubai this hour. A mega emerges. For and offering will build a chip colossus. Billg to the shakeup, dudley will be retiring early. What his absence means for a vacant Federal Reserve board. We are