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Surveillance. He was the two mario monti later. We are seeing that reverses to the earlier losses we saw. If you look at german stocks, they seem to be remaining lower. The dollar is little changed. Treasuries nudging higher. Lets get to the first world news. Here is sebastian salek. Mugabe failed to announce his resignation. The twist means he may face immediate impeachment hearings. He was expected to announce he was stepping down. Todays meeting with a command element has underscored collectivelyus to start processes that return our nation to normalcy. U. S. Senator Susan Collins has said the republican tax plan passed by the Senate Finance committee needs work. Thed if she can vote for measure as written, she said, quote, i have not reached that conclusion left. Republicans can afford to lose only two votes and still pass the bill. Ron johnson has artie said he cannot back the bill as written. Japans recovery remains on track with exports growing by double digits for four straight month. Imports gained almost 90 from a year earlier, leaving a trade surplus of 2. 6 billion. Improving Global Demand has few growth in exports throughout the year with new Electronic Devices creating needs for parts of machinery. The u. K. Is about to improve its financial offer ahead of a European Union meeting next month. Areers of mays cabinet considering how much their offer in the divorce bill. The suggestions are a settlement will come soon. Global news 24 hours a day. Im sebastian salek. This is bloomberg. Francine Angela Merkels attempts to form a new government have collapsed. The euro has bounced back from earlier losses following the german chancellors admission that Coalition Talks have failed. It puts europes longestserving leader in doubt and means germany could head towards elections. Merkel promised to make states ability to maintain stability. I will do Everything Possible as transitional chancellor to make sure the countries led through the difficult weeks. Francine our German Government reporter is in berlin. Why did the talks collapsed . Fdp thate sdp pulled out. They wanted a turnaround denver turnaround in german politics and would not produce of a it in the government unless they got all their points. It was tough negotiations. Yesterday it looked like they would narrow the differences somewhat. They might be able to agree on something. Look at the fdp whole package and pulled out. Francine what does that mean for Angela Merkel . Its a difficult situation for her now. What she told reporters, its not very likely that she will not at least make another sdp,mpt to talk to the the party that she is in an acting government at the moment even though they have said that they do not want to go into a grand coalition again. It cant be ruled out that michael at least try that. Merkel will at least try that. There will be uncertainty for the next couple weeks and the new german president plays a major role. Francine where does this leave the formation of the next German Government . Luckily, there is a clear procedure as to what happens now. That has to do with germanys experience from the weimar republic. There are rules that ensure there are certain steps that be taken. The next thing will be after a. Of a reflection, the german president will put forward merkel as the chancellor candidate and the german lawmakers will vote. Now she is not very likely to get the 51 majority. After that she has two more weeks to put their Heads Together and try to come up with something else. Moment when merkel could talk to all of the parties in parliament again, and then there is another vote. If that fails, the president can choose to let merkel either have a minority government or start new elections. Francine thank you. How should investors be positioned as these talks collapse . Thought aeconomy once bastion of stability. William porter and max kettner join me for the hour. Max, lets start with you. You are german. Was this unpredictable . Think so. t when you have four out of the trying to form a coalition, that artie tells you that there is too much in terms of diversity and opinions. It doesnt come as a total surprise. I think over the weekend and last week, we saw there was too much disagreement across the most widely discussed issues. Weve had too much vagueness. Weve had this proposal by the greens about immigration with a set we do not want this absolute blinding binding limit. We want a breeding framework. Breathing framework. That phrase does not make any more sense in german. Is it one of those things where she can get it back together and it doesnt get weekend . Max i think she is more vulnerable now. I think she has been weekend. Eek weakened , whatever isget is going to happen, if we do have new elections or a minority government, inevitably there will be a. Of uncertainty, Political Uncertainty, in germany over the next couple weeks. That is more than we are are used to in germany. Francine we dont have an end date. But do these kinds of political on settlements hurt the ucb nasty ecb the ecb . As long as the German Economy is growing, this is much less of an issue. Thisuestion is, does interfere with growth . I think you can say no, broadly. Its not that much of a problem for the ecb. If you look at the markets you sillyok forward to it worry about similar instability in italy. Look forward to italy and worry about similar instability in italy. Looking at the dimmest between 10 year u. S. Treasuries , isthe 10 year german bund this a fed story . It is a fed story but also a growth story. We had a diverging growth story for the last couple of years. The more drastic is not on the 10 year but on the twoyear. You see it headed towards higher and higher and higher every week. The more interesting question is so s happening to curve curves. We see curve curve flattening. Likely will see expectations for an ecb height disappointing. We see that different to widen. Widening. Fferential francine you agree . William yes. We are starting to build in the second hike for 2018. Its not enough. The fed takes a lot of displacing from its current current path. The burden of proof is on anyone who thinks they will slow down. Will talk more about Central Banks and brexit. Ax kettner and William Porter we also talk later with mario monti. Conversation, 9 30 a. M. London time. This is bloomberg area bloomberg. This is bloomberg surveillance. I am Francine Lacqua. Sebastian toshiba plans to sell 2. 2 million new shares at 10 less than rights closing price. The moves come as the embattled conglomerate battles to be avoiding battles to avoid being delisted. Buy parts planning to of chinas biggest retailer. 400 operate around hypermarkets. Alibabas disinvestment in oldschool shaping shopping. Its alibabas biggest investment in oldschool shopping. Bitcoin hit a thousand for the first time. 8000 for the first time. Futures trading on bitcoin will be offered for the first time next month. U. K. Could be about to improve its financial offer for the European Union. The European Union is pushing for around 60 billion euros. Theresa may had only offered 20 million euros. Theresa may may be on the verge of offering more. Demands, itsout about what is properly due from the u. K. To the European Union under International Law in accordance with the european treaties. We have been clear it will not be easy to work out that number but whatever is due, we will pay. We honor our debts. Francine will this offer be enough . William porter and max kettner are still with us. Moret know what it is important, the budget or brexit talks. William its gone quiet on the budget, which is not the tradition, which makes me think theres something more substantiated. This is often seen as the governments last chance. We have to watch this space on wednesday. In terms of brexit, the stories the same. The uks in the process of swerving and its the matter of whether they can get away with thats worth. Swerve. Is whether the ec j follows the laws. Swerve pretty aggressive going on and a regressive nonswerve from the eu block. There is plenty of more vista calm. Francine pound weekends or pound higher . Its probably net positive for the pound. The pound came off a long way on this and its not fully priced too hard brexit but it came a long way. 120 150 to52 120 move. Seen as we runve towards 135, much of this was an genuine strength, it was dollar weakness. Back, wedollar comes dont have the fed price fully yet. We might go towards 125 again. Stay in that will range between 125 and 135. I see 132 and 133 a little bit more downside. This is the chart to look at. This is the one . William thats a far better way to look at it. Francine is that how Central Banks will look at it . Max broadly, yes. It follows inflation. Francine up next, on the way to 10k. Past 8000 but does it have the momentum to keep going . We will discuss. This is bloomberg. I am Francine Lacqua. Lets talk about big going. Topping 8,000 for the first time. Year as700 this investors shrug off technology concerns that derailed its growth earlier this month. But is it a bubble . Our guest joins us. We love having you on. You make us stronger. Is it a technical level . Does it go up from here . What am i looking for . Inif you saw the dip september, it looks very similar. Last week we saw did when an upgrade for bitcoin canceled. We see a pattern developing. The biggest stories the mainstreaming of bitcoin. Tensee hedge funds raising if not hundreds of millions of dollars to invest in this space. And situational investors are calling their private bankers and saying, why am i not in this . Thats creating this buying momentum. 700 higher this year. The trend is quite amazing. What is the next test . Who is buying it . Hadi think you have hardcore enthusiasts and now you have more mainstream institutional investors. If it is crossing 8000 after an upgrade is canceled, imagine what might happen to this price if the Bitcoin Community comes and says they have fixed that problem. Upgrade and really improve the Processing Power and make it scale even more, thats going to be a massive bullish signal. Francine can people afford not to be in it . We had one highprofile members say they are not convinced that they dont want to take the risk of not being in it. The question for me is it already an asset class . Pipe ave is data of a of a price rallying. Me, it seems like random gold ounce. Is it an asset class . Is it a store of value . People cant afford to be left out but that is the dangerous thing. Me back when i started to sell my parents tech stocks in 2000. Thats the memory i have now. Everyone said you have to be in tech stocks. Even though no one had a clue. You dont feel very easy about it. Max is headed down the right road talking about store of value. The three criteria of currency our store of value, media of exchange, but unit of accounts . Not so much. Haves going on here is you very real, very new Block Chain Technology. Someone is going to make a lot of money. I heard the argument in tech stocks that you had to be in everything because you did not know who the winner would be. Thats dangerous. Francine any chance that Central Banks will come in here . Not soon but we do have the bank of england examining, is it possible someday to maybe use Block Chain Technology to offer a digital form of sterling. We have the ecb also doing a lot of r d in the space. They are looking at it but in terms of something happening, thats far off. Francine thank you so much. Coming up, we speak with mario monti. Youll be talking about german, italian, and european politics. Is this a phone . 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. Francine this is bloomberg surveillance and im Francine Lacqua in london. Heres sebastian salek. Sebastian Angela Merkels bid to create a new government has failed just before midnight in berlin, when the promarket Free Democratic party walked out on a deal that merkel said was within reach. Points theially oint worlds for its biggest economy towards reelections. We will have to move forward in germany. I will do Everything Possible as transitional transfer to make sure this country is wellled. Reporter zimbabwes Prime Minister failed to announce his highly anticipated resignation. Immediaten impeachment hearing. He was expected to announce that he was stepping down after being removed as leader. Today, meeting with the command element has underscored collectivelyus to start processes that return our nation to normal. Sebastian u. S. Senators Susan Collins says the republican tax plan past others the needs work. When asked if she would vote for the measure as written, she said this week, i have not reached that conclusion yet. Republicans can afford to lose only two votes. Senator johnson has already said he cannot pass the bill as written. Japans recovery remains on track with exports growing in double digits for the fourth straight month since october. Exports rose 14 , leaving a trade surplus of 2. 6 billion. Improving Global Demand has fueled exports throughout the year. The u. K. Could be about to improve its Financial Office within the European Union ahead of a crucial meeting next month. Theresa mays cabinet will discuss how much they are offering for writtens divorce from the eu. Offering for britains divorce from the eu. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im sebastian salek. This is bloomberg. Francine thank you so much. Lets talk about italy and the banking sector. Keys investors backed a share sale. An agreement was reached with the two biggest stakeholders will stepth. Shares were suspended as talks between investors and underwriters were halted. Lets bring in a man with intimate knowledge of how the Italian Government works will he was Prime Minister from 2011 to radekleaving a technique government during the leading a technocratic government during the sovereign debt crisis. Thank you for joining us, mario monti. Max kettner is still with us. Mario monti, thank you so much. We have about one million things to ask you, so lets start with italian politics. The bank scene is taken care of, by and large. Do you worry that if spreads widen, italy will once again undergo a political crisis . Mario first of all, lets me underline that the italian bank issue has been a permanent of session for the markets for the last couple of years. Largely unjustified. Because the italian banks have experienced some problems, of course, later than banks in other countries because those problems were linked less to speculation. Been takenon has care of, not always presently with some delays. The then Prime Minister was waiting for the referendum of december of last year and did not want to disturb the waters. Had, as you said, much smaller amounts of italian money being spent to support the banks than in germany, france, etc. So, it is good if i got this question not only from you, but in the last two years in the brexit, theres been there has been almost the cessa tion of catalonia, very unusual behavior from the polish government. The little thing with which observers have liked to watch fervently are the italian banks. Francine we have talked much of brexit and donald trump. The mostaly is seen as favorite source of problems. Francine the problem child. Yes, but this would be a strong message, if the italian banks were taken care of than a matter what happens in politics caroline there would be less francine when do you think the elections will be called . Mario the elections will be called by the end of this parliament. Electionte, no realy at any rate, no early election at this point. It will be a situation of difficult elections with a coexistence of different shades old stylem and the berlusconi is seen as the protection by many, these ovvis a vis, the aggressive five start movement. And of course, mr. Renzi in the last couple years has become a soft populist from the Prime Ministers office. Francine what are the chances of some kind of government possibly a collision between the fivestar and the Northern League getting into power and if they do get into power, what does that mean for the economy and for the euro . Mario that would be not good at all for italy and for europe. They are, although being populists, both, they are really, i believe, almost incompatible for a number of reasons. So, i think that it is not totally to be ruled out that in ar will be taken worst casebut the scenario, the Northern League and the five star making a coalition of themselves is, i think, extremely unlikely. Francine investors keep asking about percentages and probability, but what is the probability of a central bank government, and who would be the right person to lead it . Mario i n the end there would be a Broad Coalition between the Democratic Party, the central right and the central left. Who runs the government, it would be neither mr. Berlusconi, for a number of reasons, nor mr. Renzi, for different reasons. It would be somebody else from the party which will come out first. I hypothesize, the current prime andster gets a bit more somebody present within the european parliament. Francine max, when you look at the markets, in some ways, hes right. Italy has always gotten a bit of a rubbish time. They could have done it better, but they havent. Are we now over that, the blaming game, or do we need to wait until the elections . Max that is probably a story for this year, when you look at bond spreads, or italian equities versus spanish equities what we did see was the italian equities were outperforming by 20 percentage points. There was some focus, like you said, shifting from italy being the favorite problem child towards actually, things are not that great in spain either, at least from the political side. That is what we have seen this year. Obviously the, market always had to have problems with Political Uncertainty in europe, and now that we have been expecting or now that the expectation hasnt shifted over the last couple months that we have more euro area integration, now that that is coming from germany and france, those hopes are getting slightly diminished. It remains to be seen if that is confirmed in italy. Francine the fact that germany is now struggling to build a coalition, does that impact Political Risk in europe . Eacht will, because for country, the scenario in which it works becomes a bit blurred. Also, for italy, of course. I was always convinced that the exemption of a trustbased strong relationship between france and germany would help italy, rather than the opposite. Now we will see what happens. But concerning italy, i dont want to have given an overall optimistic impression about italy. We have a very serious problem, which is a very persistently low growth than most of the eurozone countries. This is a problem which has to do with structural elements. Too little competition, yes. And with insufficient recognition of merit in many articulations of italys economy and society. This needs to be taken very seriously. But of course, the two key problems are tax evasion and corruption. Progress has been made, but i hope during the next five years of legislature, italy will change the agenda. The focus will not be on the outgoing legislature, but on constitutional reform. Because i think fighting seriously tax evasion and corruption is far more important. Francine mario monti thank you. The former italian Prime Minister stays with us. We look at the outlook for the eurozone, and of course, we talk brexit. This is bloomberg. Watching you are bloomberg surveillance and im Francine Lacqua in london. Mark barton has been watching all the action. Mark this is the five year chart, the eurodollar. The biggest decline in three weeks, 0. 6 . Now, markets say the euro could fall to the bottom of its recent if5 to 1. 20 range elections take place. As you can see, to the right of the chart, the euro has rebounded from its lows. That is euro dollar. This is the gap between the two yera and 10 year treasury yields, adding to the concern about the pace of the u. S. Economic growth. Market participants will gage fed officials eagnerness to boost the benchmark rate. This is the u. S. 10 year spread, the white line. The german 10 yeartwo year spread is the blue line. Lets talk about brent because after a record, futures surged to two year highs. There is a sense that the valley has reached its limit and wages have improved. Uncertainty is looming over saudi arabias push to extend opec output curbs. The difference between bets on price increase in wages on a 537,557 contracts at the week end in november. At the top of the leader board here, patrick plans to reduce debt. It does not include the sale of equity, reiterating the intention to raise cash by disposing of assets, such as the phone and cable giant, which is trying to sooth investor concerns over its ability to manage the debt load, topping 50 billion. The companys stock has plunged by 50 since november 2, when it predicted earnings at the lower end of the forecasts due to costcutting efforts. Top of the leaderboard today, 11 . Ine, altice, up by francine lets talk about the eurozone now. The block is already enjoying the strongest growth in a decade and now economists at Credit Suisse and Oxford Economics say it is heading towards the golden period of low inflationary expansion. Of course, theres the Political Risks, like populist parties gaining strength, the catalonia brexiton, and the talks. Thank you all for staying with us. When you look at brexit, is there anything the u. K. Can and should do now to brace for impact . Andhat the u. K. Can should do now to break the impasse . It should break the impasse. What is out there under all of the attention is the amount to be paid. Today the government may authorize the Prime Minister to increase the amount, perhaps double it. But this might give the Public Opinion the impression that it is a market negotiation. Hasamount of a penalty that been inflicted to the u. K. Are having decided to go its own way. This is absolutely not the case. This is not a fine on the u. K. This is just what happens when there is the liquidation of any company. The different shareholders take on assets and liabilities. So, it would have been much preferable if these sums had come out of a fine calculation, which is going on, about how much objectively the u. K. Has to pay. Then, there are the other negotiations, of course, on many other aspects, but it is a pity, i believe i mean, if i were a brit, i would be a bit offended that there is a price out there guaging for the of emotions. Mario good politics is to dominate emotions, basically. Francine david davis said there is a 5050 chance that there will be an agreement at the december summit. Do you think its higher or lower . Mario hes wellinformed, moreso than me. I believe there might be a 5050 chance. Francine 5050. I dont know if you want to get into probabilities, or if you just take a bet that you need to hedge for the worst. The problem with this is there is a relatively hard to deadline and this is not it. So, were going through this and i know it slightly demeans the process. So, im sorry, but we are going through this fundamentally, a game of chicken. My analysis is not presenting be completely united front. The u. K. Therefore, has the choice to collide or dissuade. The resolution point of such a game of chicken is later. Ofis down there in march 2019, it is no december 15, 2017. In the meantime, participants must keep talking and keep the ball rolling. There should be some sort of agreement on the 15th of december it is over 50 . The problem i have is, again, the question of how this gets past the u. K. Party politics, in all of its forms. To youe in 10 seconds, think brexit will happen, or is there a way out . Idle think there is a way out i dont think there is a way out and that will leave its mark for the next 10 to 15 years. Francine do you think it will happen . The way out is a second referendum and no, there is no way back. I think there is a 25 chance. Francine when you look at the Coalition Talks in germany breaking down, does that hurt the Brexit Process . I have always been told that if you are going to strike a deal, you must relate directly to chancellor Angela Merkel. Mario which will become more difficult now. It will be interesting to see to what extent it is the position of the liberal party in germany, which blocked the outcomes of the negotiations because they are wellknown for being rather strict on all eu affairs. Not well,may the only possibility where the difficulties in germany might benefit the u. K. Is the hope will notat happen from the european point of view. Namely, breaking down of that remarkable unity so far of the 27. That was held by the strong leadership of germany and by Angela Merkel. As much as i like an early settlement between the u. K. And the 27, i would not be ready to wish that that is achieved b disruptionhe of the 27. Francine we started the conversation talking about the banks. You said, there are bigger problems i. E. Catalonia, brexit, and donald trump. Do you still believe that the Donald Trump Administration is putting globalization at risk . Mario it is putting the governance of globalization at risk. Globalization is not an irreversible phenomenon. It may be blocked in some way. But it is a huge dynamic ina nd and of itself. But we have seen the damage that can be produced from an ungoverned globalization. Societies than being able to create huge problems for civilization, besides suffering themselves. Governance ofs a globalization. We were at the point of making some progress slowly over the years. With strong cooperation between the u. S, the eu, and other partners, the g20. Now, when the u. S. President of the parisep out agreement on climate change, but also in a totally different area from the iran agreement, he creates a precedent that after all, the stipulated commitments are not that crucial. This undermines, at the root, t he governance of globalization. The european, union feels an enhanced responsibility. It is a bit paradoxical to see this at the helm of the free trade crusade of the world now, made up of chancellor merkel and xi jinping. Order,e this new world if you want to call it that, the implications the possible closeness between President Trump and putin what does this mean for the market . How do you price it in . Point wethats the one saw very drastically, when we had volatility quite low. That is still sort of the case, that you have this spread between them. The problem markets are having is, it is in many ways, very binary. You cant really price it in. Mr. Monti said, if we do have the unity breaking up, there is no in between. Either it breaks up or it continues. Either the negotiation process is going to suffer dramatically or the European Union, the remaining 27 are actually benefiting from that. Pricing it as a risk is externally difficult. Francine mr. Monti we only have 30 seconds left, but what is the biggest risk out ther . Geopolitics . Mario clearly geopolitics. Francine and it is shifting, right . Mario i see a Systemic Risk there because politicians respond more and more exclusively to their domestic electors and more and more in the short term. The decisions they make up more and more longterm effects also throughout the world. Francine mr. Monti, thank you so much. Course,ning us, is of max kettner. 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. Talks disintegrate in germany. Taxing ties. Republican senator Susan Collins says the tax bill needs work, while the white house director says it could be ok to drop the mandate of the repeal. Reports that Prime Minister may prepared to offer billions more to the eu ahead of the summit. This is bloomberg surveillance and im Francine Lacqua in london and tom keene is in new york. For me, it is left, right and center what is going on in germany. The euro is creeping back up. We dont exactly know what is coming next. Tom i thought it was stunning last night at 8 00 p. M. , new york time. Im also looking at the spread market. Its amazing globally how curves continue to flatten this morning. Francine of get straight to the bloomberg first word news with taylor riggs. Taylor the longestserving leader could be in doubt. Over immigration to walk out of the deal. Angela merkel will stay on as acting chair person. Mugabe could now face immediate impeachment hearings. Last week military leaders took control of zimbabwe and the ruling party fired mugabe, and ordered him to step down. Charles manson has died. In 1969, his followers killed actor sharon tate and six others in los angeles. He hopes the deaths would lead to a race war. He was serving a life sentence in california and died at a hospital in bakersfield. He was 82. President trump says he should have left the three ucla festival players in a chinese jail. Left the three ucla basketball players in a chinese jail. The three were arrested for shoplifting. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im taylor riggs. This is bloomberg. Tom very good, taylor. Equities, bonds, currencies, commodities. I know i mentioned the curve flattening there it is, 62 basis points. The difference in yield between the twos and 10s is. 26 percentage points. The screen, the vix showing equity markets at 11. 88. Ill call this a calmness off of friday. Theres the three month 30 year spread to impress francine. Francine im so impressed. Weouple analysts noted, should watch out for the next month with the turkish lira as well. Here is what i am looking out for. Investors are now judging the failure of Angela Merkels Coalition Talks unlikely to harm the outlook of the eurozone economy. Sterling is strengthening after reports that the u. K. Could make concessions to smooth the brexit talks. Tom how do you look at bitcoin . This is how i look at it. I can tell you, this is a chart ive never seen. This is a chart youve never seen. The curvature of this long chart is unparalleled. The duration here of the movement of the second derivative, the acceleration of strength, up to 18,000 for bitcoin. We had a bit of a redux of that in 2012. But this is hugely unusual, what and to takeadratic, a phrase from 2012, flying a flag emblazoned with tulips. Francine that is quite telling. This is the spread for 10 year yields, treasuries versus german bunds. This goes back to the flattening yield curve. You can see it has not moved on the back of no Coalition Talks. The euro is erasing the losses it sustained. The new term comes as reports suggest free democrats with support a minority government. Merkel decided to stay on as acting chancellor to work on what comes next. It is a day of deep reflection. I will do Everything Possible as transitional chancellor to ensure this country will be well led through these difficult weeks. Francine lets get to bloombergs matt miller in berlin. Thanks for joining us on surveillance. What happened . Why did the talks actually breakdown . Matt if you ask some of the people in the cdu, and we just spoke to a member of the governing council of Angela Merkels party or if you ask the members of the green, you will say that the svp never wanted to join the coalition anyway. They wanted to show their voting base. They would not budge, as far as policy was concerned, and the plant to walk out, even before last night. Would say, we wanted to change the way germany works, as far as taxation and Business Friendliness and we could not go into government with Angela Merkel again remember they were in government with her from 3, and after that, they lost the election so poorly they were not even in the parliament. They got burned once and did not want to get burned again. Francine matt, where does this leave the formation of the next German Government . Matt that is the question everybody is grappling with today, special an especially currencies. There will be a speech or a statement in about three hours from now. Hes expected to ask, according to a german news site, hell ask the parties to come back and try this again, maybe to attempt anew to build a coalition. On the other hand, you could see Angela Merkel go to Martin Schulz and the fdp to try to rebuild a grand coalition from the last government, or you could see new elections, but that would take weeks, maybe months and some people say it could take as long as april. Tom i did Rosetta Stone matt fullr, german 101, disclosure, i went down in flames. Is the word migration or immigrants or immigration in this debate . Is migration part of this discussion . Matt yeah, absolutely. Its really the key to this discussion. The problem is, Angela Merkels sister party, the csu, lost so badly to the right wing that they are trying to flank them to the right and put a cap on the number of migrants allowed to enter germany and to not allow temporary refugees to bring their family over from syria or wherever they may have come from. The greens pushed so hard to bring the family members over, even for temporary refugees that it caused stumbling blocks and got the fdp on the board of the csu as well. Everybody is trying to win votes back from the afd. And to do them, they have to make the refugee policy a cornerstone during his Coalition Talks. Francine matt miller, thank you. Back here on set, blackrocks global chief investment strategist. Thank you, richard, for joining us. Quite a momentous day. I dont know why these Coalition Talks breaking down, whether the impact growth in germany, or whether it actually impacts brexit . Richard first of all, great to be here and thank you for inviting me back on. We are going to go through a period of uncertainty. There are three potential scenarios. We have a minority government, grand coalition, or we go back to the polls. If we go back to the polls, there is very little evidence that we get a different result. We are entering a time where we will have some and certainty and that will be a drag for german markets, but investors have learned that actually, politics only have a very shortterm temporary impact on markets, in less it has a macro implication. You see investors buy the dips over brexit, very quickly over the u. S. Election results, over the italian reform. The key question is, will Political Uncertainty lead to a slowdown in the economy . ,he evidence so far is absolutely not. The european economy has been robust this year. We have seen no evidence of that faltering said the german election. When you look at, where is growth most robust in europe, the answer is, italy and germany. So far, you are seeing that Political Uncertainty is not causing industry to slow down its intentions on hiring or investments. Tom richard, im looking at where we are as we enter the holiday week here in america. It might be a time to reform our view for 2018. Are you and your Blackrock Team because of the politics going into 2018 a confident call on allocation, or does the politics leave you with uncertainty . Richard there is increasing confidence in the Macro Economy, tom. We rarely been in a economy where the global Macro Economy has been so stable. We are seeing robust moves in the u. S. , europe and in asia simultaneously. The breath of that growth is increasing and there are even prospects now we could get fiscal stimulus in the u. S. , potentially in europe and asia to support that growth. The confidence behind growth has as really been as high or as sustainable. That creates a good backdrop for risk assets. Its clear there are risks. Its clear also that the markets have priced in a a lot of the good news. Equities have made significant progress this year. The right thing to do is to focus on where you are still being paid to take the risk. That still points to areas like europe, like emerging markets, like japan, where valuations are still readable to us. With ushard turnill from blackrock. Ive got John Chambers, and he will take all of the credit for cisco. Hes an active chairman. How a bigers, on corporation reorganizes. This is really interesting. Taylor this is bloomberg surveillance and im taylor riggs. The big takeover in the chip making business, marbella technology, has agreed to purchase cavian for 6 billion nin cash and stocks. Cavium makes network processors. Alibaba is making another bet on brickandmortar retails. They have agreed to take a 2. 9 billion stake in the operator of walmartstyle hyper markets. 6 . Aba is requirin acquiring the stock is now up 700 this year. That is after plunging 29 in november. Professional investors have started to get on board. Bitcoin futures trading will be offered next month. That is the Bloomberg Business flash. Francine thank you so much. At least a few bond traders believe that Goldman Sachs has the pulse of the federal reserve. Goldman sachs unveiled its traces for 2018, including positioning for four fed hikes next year. Richard, i had so much pushback from other traders saying, i believe the markets, i believe the markets. Richard we have been saying for some time, the fed will do what its policy is, which is to get a rate hike by the end of this year and to get up to three more during the course of 2018. The economic environment is one is sustained across the u. S. Its a broad trend. You see this most clearly in the labor market, where there are a number of indicators of wage pressure picking up. You start to see it in the core cpi figures, which have been surprisingly low on this year. Weve been pointed to some modest pick up back to 2 . We think thats an environment in which the fed will be very committed. Tom lets dazzle this morning, richard, with the spread. This is an odd chart. We normally look at the yield curve like this, but heres the trump election. Heres a low point during the summer of last year. Weve rolled over and rolled over with acceleration, ricahrd. Richard. Does the speeding up of curve fl attening mean anything to a pro like you . Richard at one end of the curve, the market has started to adjust to the reality that the fed is normalizing Interest Rates. We think that has got more to go. Thatrms of the two spot of equation, that has more to do with the fact that the market is pricing in the reality that the fed will raise rates four times. By curve has been anchored domestic and international factors. Domestically we have think hopes about fiscal stimulus decline this year. Right nwo, theres so little in stimulus for fiscal that if you get a package coming through that has better than a next chance of that year, you could see Market Reaction to that. But the ecb is continuing to ease quantitatively. The they got japan chose no sign of letting up, and that is holding the long end down. That is where we are getting the flattening. Tom bring up this chart again, it is too important. You see the curve of the curve. Can you dismiss any analysis of economic slowdown or true economic contractions . Richard so, the factors driving what ittening are pointed out, the markets driving the short end and the long end being anchored down by hopes of fiscal expansion. We have seen Central Banks outside of the u. S. Extend qe. None of those things point to an economic curve down. None of the economic signals point to contraction. They pointed to sustained above trend growth. Now, our view is the yield curve is an important signal. Tis very important it is very important, in terms of the profitability of banks. It has significant applications, if it continues to flatten going forward, but it does not point to any material slowdown in u. S. Or Global Growth. Tom a wonderful brief there on the yield curve flattening with mr. Turnill. Twitter flow and over the weekend, the proposed tax bill passed in the senate. This is bloomberg. Francine bloomberg surveillance with tom and francine. The worlds secondbiggest economy is opening firms to foreign ownership. Foreign companies will not be able to take control of Insurance Companies and as asset managers. The opportunity might seem tempting, but developed world buyers should be aware, its a trap. Joining us now is jpmorgans vice chairman for asian pacific. Thank you for joining us. What are the main pitfalls investors should be aware of when they get into china . Well, there are lots of them, but actually, the environment today looks healthier than before because the macro environment today is looking strong. More importantly, we see Economic Growth becoming developed on a more sustainable basis. I say that because corporate Earnings Growth is very strong this year. Inf act, probably the strongest since the financial crisis. Secondly, and most importantly, the growth is driven by consumption, rather than government fiscal spending. Because of those two reasons, we think chinas Economic Growth will be much more sustainable going forward. Growthy, quality of should be paid attention to. Francine what is your take on shadow banking . Japanese equities had quite a rise because they were looking at ways to curb shadow banking . This was a hefty proposal. Jing the leadership has been focusing on two things. One is derisking and deleveraging and the second is opening up to foreign investors. This is a sensible, two prongued strategy. On one hand, you remove some of the regular activities, such as shadow banking. They are also deleveraging because the leverage ratio in the economy is coming down for the First Time Since 2009. Secondly, they are opening up, banking, securities and insurance to foreign competition. I think this is a sensible, twopronged strategy. Francine richard, is this the biggest risk, or biggest opportunity . Richard actually, i would like to ask a question because at blackrock we have been focusing on improving quality from growth. Its a huge opportunity, not just in china, but globally. Jing correct. Richard as that quality of growth improves, china moves deflationporter of to the rest of the world to an exporter of inflation for the rest of the world. Francine this is a great tease. You did my job perfectly. Richard turnhill and jing ulrich stay with us. Pick up the latest edition of Bloomberg Business. We talk china next. Bloomberg surveillance from london, Francine Lacqua, im tom keene in new york. Withe watching germany serious coalition issues for chancellor merkel. Above all, this thanksgiving weekend america, it is about tax reform and tax cuts. Heres taylor riggs. Taylor a second republican senator has expressed reservations about the senate tax bill. Susan collins says the measure passed by the Senate Finance committee needs work. She says the provision to end obamacares individual mandate should not be in the bill. Senator ron johnson has already said he cannot support the bill. The special counsel in the russia investigation has told the Justice Department to turn over a wide array of documents. Saysxico, the government the latest u. S. Proposal on rewriting nafta is unworkable. According to persons familiar with the matter, mexico believes change in rules would the carrious damage to industry. The British Government is preparing to make a better financial operatively the European Union offer to leave the European Union. The eu is demanding 71 billion. Theresa may has committed about 26 billion so far. Global news powered by more than 2700 journalists and analysts, im taylor riggs, this is bloomberg. Francine taylor, thank you. Lets get back to china. Ulrichl right with us with us. Richard, you had a question. One of the trends we have been discussing at blackrock is as it shifts from funds and quality of growth, taking up excess capacity in some important sectors, my question is to what extent do you think this leads to china driving inflationary pressures in the rest of the world as opposed to be an exporter of deflation . Many years, china was a deflationary pressure on the rest of the world because of low cost manufacturing. These days, we are seeing chinese consumers earning more and spending more, so prices for goods and services are going up. At this point, we dont see china putting a huge amount of pressure on global inflation yet. There is an abundance of food, and abundance of services. Our is interesting to watch asset prices. You can see asset prices appreciating quite strongly. That in itself leads to some inflationary pressure. The leadership is acutely aware of it. They have been clamping down on asset price appreciation, especially in the property sector. During the property congress, president xi says property is for living in, not for speculation. That comment actually generated a huge amount of applause in the audience. Francine how do you deal and how much do you worry about debt . They try to do a couple of regulatory reforms in moving some of the debt into equities, but what is the smoothest and most effective way to do it . Jing i think growth has a lot of benefits. Earnings growth has been very strong this year. Etf has grown about 18 this year. Economic growth has surpassed expectations. We are beginning to see some deleveraging taking place. In the first nine months of this year, for the first time in many years, corporate leverage ratio cuts have come down. It is still very high, around 150 . In the overall economy, the leverage ratio has come down. Therefore, in the next five years, i think under president see second term, we will more emphasis on reform. Tom go ahead, richard. Please. Richard thank you very much, tom. What we have done it blackrock suggests that one of the key signals in the volatility regime away from low volatility to hire volatility is leverage and banking leverage. When we look globally, one of the things that gives us confidence we will remain in this low volatility regime is the low level of Financial Leverage we see outside of china since the Global Financial crisis. The one exception to that is china. There is some evidence of that stabilizing or growing less rapidly. How quickly do you think we could start to see that come down . Jing in the financial sector, the chinese banks have grown their acidbase asset base. They have gone from Smaller Banks to some of the Largest Global banks in the world by increasing the leverage ratio, by increasing their asset base. The leadership is focusing on Capital Market reforms. If they rely more on Capital Market fundraising from equities to bonds, therefore, naturally, i think the leverage ratio will come down gradually. Tom jing, one thing that is so important here and this goes back to your studies at stanford and the courage of the east Asian Program at stanford a million years ago, you are one of the great optimists on china. Please explain to our global audience, what is the the leadership versus previous chinese leaderships . What is different this time around . Jing i think what is different is severalfold. Chinas influence on the rest of the world is much higher today compared to any time during past leaderships. Number two, china is much more assertive compared to before because of its economic might and political influence. Thirdly, i think china is becoming much more of a stakeholder in the global system then anytime in the past. You can see china participating much more actively in multilateral institutions like g20. China is really not just strengthening its domestic power , but also projecting its power globally and regionally. Tom you just saw the trip of the president across all of asia. How does the chinese leadership respond to a zero sum, nero st president li trump . It is interesting. President trump at a recent decent trip to china. Deals being signed. Tom come on. He trashed on past american president s, including georgia walker bush. I get the financial end of it and it are you do that at jpmorgan, but politically, does china just wait out this guy . There are three more years to go, i suppose. China is not stopping any of these policies in the meantime, while i do say they are waiting out for the next president. What china is doing is championing globalization. You hear that very clearly from president xi. He did emphasize globalization as important. There are some obstacles. He said we have to make globalization more balanced and more inclusive. This is a message that should perhaps be enunciated by a u. S. President , but in this day and age, china has somehow become the champion of globalization, not the United States. Francine if you look at president xi, it is very clear that one of his priorities is containing risk, but if you arent International Investor and you want to go into the chinese market, what is the pitfall you need to watch out for . Jing as with all things in china, policies are in place, but the important thing is how you navigate the rather complex policy environment. For Financial Investors in china , they need to have their focus on the longterm. The policies have changed, but the devil is always in the details. It may not change for the next year or two. Investors need to have a very longterm horizon when it comes to investing in china and the need to also look at relationships, not just at a central level, they need to look at relationships with provincial, municipal authorities and the localities are important. Francine thank you both for joining us. Jing ulrich. Richard from blackrock stays with us. Breaking news out of germany. The chancellor will meet the president. I imagine this is because they need to talk about coalition building, with the next plan is. We saw a beautiful bloomberg story looking at the proposals that could be part of Angela Merkels next move. There will then be a statement from the president of germany at 2 30 p. M. , berlin time, today. Tom very good. The headlines coming out fast and furious from germany. Your briefing in the morning. Bloomberg surveillance on television. Captive in your car coasttocoast. Look for that. Bloomberg daybreak. Stay with us. This is bloomberg. Tom good morning, everyone. Bloomberg surveillance, from london, from new york. Economics, investment, we do a lot of international relations. Right now, your Technology Interview of the morning. The idea that cisco has moved from 15 to 35 in a Straight Line is due to the courage John Chambers had to reorganize cisco. Mr. Chambers goes back to the days of wayne laboratories and joins us now from paris. Wonderful to catch up with you again. I want to talk right away about what you are focused on, which is startup initiatives. Sayschristensen at harvard Big Companies cant do startups. As professor christiansen right . I think hes right the majority of Big Companies have trouble reinventing themselves and to your point , whenwayne laboratories you dont reinvent yourself, a Great Company can fall from grace rapidly. All job creation for the next decade, whether in the u. S. , france, or india where i will be next week talking with government leaders, will be from small to Medium Business. How you do innovation and how strong is your small to Medium Business engine will determine the engine of job creation. Tom i guess cisco was never a conglomerate. I will not give you that idiocy. General electric is dealing with the massive headache about the believe in conglomerates. Are the conglomerates of an old ge a dinosaur . When you really look at organization structure, you can be successful with multiple different structures. You have to adjust leadership depending on what segment of the industry you are in. What we did pretty well in cisco is that we were in 18 major product areas, but they were all interrelated. Data security, routing, switching, mobility. If you are able to move quickly as a large company, multiple organizations the Small Companies today are moving so fast. The next google, amazon, facebook. You are finding them in paris, where im meeting with startups, they grew last year 30 , year over year in the number of startups. The u. S. In the first five years of this decade only grew 12 in total. Our country has fallen behind and i think the issue needs to be how do we really get a start up economy growing in the u. S. . How do we make it inclusive . India,es like france and which we used to view is very slow followers, are leading the way. Francine john, i know you are mentoring a lot of startups, but where are you actually investing . You think trend that will change and revolutionized the way we work . John i think there absolutely is, francine. Where im putting my time and energy is around certain areas. The internet of things is big. Im doing drunk capabilities to make it more productive, mining and construction drone capabilities to make it more productive, mining and construction. I think it is only a matter of time before the bad guys use drones with explosives. I hope im wrong and this. Very involved in social media. Very much involved in perhaps the next secure phone in the world that has the capability to vehicle to protect your phone call from any bad guys coming into it. That is at a very complex level. Very much involved in how you use the internet of things to do the next source of protein, which will be cricket farming to read tom, you and i will be having cricket dinners in the next 34 years. Tom this is what i hate about interviewing chambers. Francine, come on, crickets for breakfast . Francine high in protein, tom. John francine, you nailed it. The world is running out of proteins. You can grow crickets and insects much more effective. 1 7 the environmental impact. It is already starting to take the topsome of restaurants. We did a seven course cricket dinner in san francisco. Tom you are killing me. John they would not allow people to eat lobsters crawling on the bottom of the ocean and it was cruel and unusual punishment. We are seeing france moving at an incredible pace and the rest of the world, as well. Francine there are a million ways in which this could have gone and cricket dinners was not one of them. If we do get a significant tax change, does that help significantly with startups . John it really does. That iveof the areas been focused on 15 years and very unsuccessful. Im very optimistic tax policy will happen this year. For start up companies to complete on a global basis with a tax policy designed before microsoft went public makes no sense what so all whatsoever. An effective Corporate Tax system that encourages investment, getting rid of the red tape, etc. The question you are asking me is our current rate of startups, we did 95 Companies Public on the nasdaq last year and 35 on the new york stock exchange, we have to increase that three to five fold to create jobs over the next decade, which i think is very doable, but not without a change in plan. This is what will shock you, macron in frances leading all of europe in startups. We said that three years ago, everybody laughed. Startupsdoing more year over more Venture Capital investment than any of their counterparts. Francine john, it has been the case for quite some time, i follow france very closely, the problem is that they do not scale up. I think the only very big company that listed was one in france. Will that change . John i think it will change. This is where the government has to do have the courage to do the change in labor policy. Then to make tough decision in terms of tax policy, as well. They clearly get where this is going. Digital france i think is the future. Watch rut Narendra Modi is doing in india. He is using the same playbook. That economy will grow 10 yearoveryear for the next decade. The u. S. Could learn from both countries and both leaders. Francine all right, john, thank you so much. From crickets to investments, that is the Cisco Systems chairman in paris. We will be back with richard churnow from blackrock coming up next. In the meantime, if you are a bloomberg customer, this is what you do, you ask really tough questions to richard about the flattening of the yield curve or even something more obscure and you do that by looking onto tv and asking tom and i to ask him questions on your behalf. This is bloomberg. Francine this is bloomberg surveillance. Tom, we are keeping our eye on brussels, were the brexit commissioner is giving a news conference. He is basically saying that the no deal is not their scenario, but they must be ready for it. He says the eurozone needs a more complete Banking Union and that overall, the agreement on orderly withdrawal is key. He is basically trying to give a little bit of a helping hand to maybe some of the people that were in the u. K. ,f you look at what is going on the cabinet of theresa may will they will see whether increase their divorce bill. Lets get back to richard from blackrock. Richard, i dont know how you look at this, whether it has more to do with budget and whether that could put pound up or whether you just follow these brexit negotiations . Richard our view on brexit for some time is that a deal can be done. Our base case is that it is a hard brexit, but not a disorderly one. The discussion today around potential increase in the financial offer is encouraging. It is a step in the right direction. View has always been that the financial side of the question was the least problematic of the challenges getting in the way of getting a deal done. This step i think is a positive step in the right direction. There are significant further hurdles. The passive u. K. Interest rate is going to be by far the most interesting development. We are likely to see further Interest Rate hikes to read given that there is a lot of uncertainty priced into the pound, there is some hope you could see a left over the coming months lift over the coming months. Tom can you acquire shares in the United Kingdom this morning, can you be equally or overweight United Kingdom equities . Richard those are two different questions. I would not be bullish on the u. K. Economy right now. It is really notable that in the last year we have seen almost every major Global Economy exceed expectations, move into this environment of above trend on sustained Global Growth there has been one single exception to that and it has been the u. K. They have clearly disappointed in growth over time. I think it is difficult to become bullish on the u. K. Economy over this. I think the u. K. Stock market is a slightly different proposition given that it is very internationally focused, close to 80 of earnings come from overseas. Strong growth we are seeing overseas supports the u. K. That should be good news for the u. K. Our view is that if you are looking forward to invest today, invest for you are being paid the greatest opportunity. Tom richard, weve got to leave it there. Thank you so much. Richard turnill from blackrock. This is bloomberg. Is this a phone . 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. 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. Tom this monday, thanksgiving is upon us. Bird is not big enough. Speaking of turkeys, Senate Republican leadership must sell their tax bill proposal to the great unwashed. The curve continues to flatten. There is no recession insight. , the news flow. This monday, mrs. Merkel struggles to form a coalition. Good morning, everyone. We are live from our World Headquarters in new york. Im tom keene. With me in london having no ideas what if i canslyons is, Francine Lacqua vikingslions is, Francine Lacqua. This offer is, passporting. Passportinge eu system is for banks and Financial Services companies to be up to trade without special regulation. The passports are the foundation of the eu Single Market if you are a traitor, you needed to do ader, you need to need it to do business. Following with a lot of interest all of the tweets by Lloyd Blankfein and a lot of his counterparts. A lot of these banks are already preparing to have a headquarters in germany or france or anywhere in the eurozone. When brexit happens, if brexit happens, once it happens, they can still trade with the eu passports. This is a huge headache. Tom the story continues this morning. On a monday briefing, your first word news. Heres taylor riggs. Taylor the future of europes longestserving leader could be in doubt. Germanys chancellor failed in her attempt to form a coalition government. Merkel said she will stay on as acting chancellor. Germany could end up having to hold another election. There was a stunning turn of events in zimbabwe. President Robert Yougov a may face mugabe may face immediate impeachment hearings. Last week, military leaders to control of zimbabwe and the ruling party fired mugabe and ordered him to step down. Charles manson has died. His followers killed actress sharon tate and six others in los angeles. Manson was serving a life sentence and died at a hospital in bakersfield. President trump says he should have left those three ucla basketball players and a chinese jail. He expressed his anger in a tweet after the father of one of them minimize to the president s role in getting them freed. Global news 24 hours per day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. Taylor, thank you. Looking at curve flattening this morning. A little bit off on the equities. Oil with a little bit of a lightness. Next screen, please. Vix. On the that is the threemonth 30year spread, the entire yield curve. Lira weaker. Weaker turkish lira with some real fragility there versus other currencies. Francine investors judging the failure of the german chancellors coalition talk unlikely to harm the outlook for the economy. Sterling was up a touch after reports that the u. K. May make concessions to smooth brexit negotiations. It has kind of wobble d a bit. Im looking at chinese equities reversing earlier losses because we looked at plans to curb shadow banking. Tom we now need to go to washington with the american debate of the thanksgiving week and it is not about the two turkeys and scott at the willard hotel. The turkeys get a pardon for a global audience. What does the white house do this week to advance the senate story and yet not get in the way . The white house is hoping to work with Senate Leaders behind closed doors. Theyre going to try to merge these various plans together. They need to get together. That is what they are going to be doing behind closed doors to roll out a unified version. Tom the president did not part in the senator from arizona this weekend, i believe he went off after jeff flake again. Who else has he insulted in the last 48 hours that could be a fragile vote for the senate . Toluse yes, the president continues to distract from this effort. He has now taken on arizona senator jeff lake, who was a crucial flake, who is a crucial vote. The president has already said he is going to be a no vote. He also needs to worry about senator mccain, senator collins, senator murkowski, who have various objections to the bill. There are a number of people that the president needs to add to his coalition and with his twitter ranting, he is taking away from the coalition. That is something that the white house is having to deal with. There is a very tight margin in the senate, you can only lose two votes, and they have six senators they need to convince to vote for the bill. Francine i imagine this is all private negotiations behind closed doors. When will they take place . Some negotiations are expected to begin early this week. They are using every day, even when they are not here in washington, to have some of those behind the scenes negotiations, so that once they get back after thanksgiving, they can vote as early as november 27 and that week after thanksgiving is going to be a crucial week where we can find out whether the senate has enough votes. Tom unreal. A briefing this monday with toluse. What i noticed over the weekend is lots of individual analysis on ittybitty parts of the senate proposal. Should we focus on those ittybitty parts or the sum of those ittybitty parts or is this just a larger macro debate . I think the big macro debate here is how much do tax cuts for corporates help the economy when you take the money away from households, particularly those tom theyve got to pay for the damn thing thats the theme of the weekend, right . Tovisit the right time stimulate the economy by blowing up the deficit . That is what we have been focusing on. You cannot follow any of those details because they are prone to be changed repeatedly before we end up with a final deal. I think there are much more important macro questions and i dont think that the tax plan, as we see it right now, checks a lot of positive boxes. Francine harm come you talk about macro questions. Is it just what the fed does next . I think it is even bigger than this. We have an Unemployment Rate close to 4 . We are arguably at full employment. The output gap has closed. The senate plan, because they have to meet the rule now, it looks for big tax cuts, so we are heading for another fiscal cliff at a time where we dont even know if the economy may need more stimulus and not a tightening. The other big question is are Corporate Tax cuts really that important . I understand that the statutory at the very high and same time you close loopholes, so maybe you can make this whole time thing on the Corporate Tax side. Contrary to what we are hearing, the average tax rate paid by u. S. Corporatess is not that thes off international perspective. And bringse loopholes the tax rate down, you can achieve a much lower Corporate Tax rate, but without the need to take money away from other households. Francine is this something is anyone thinking about this really . Harm we do. [laughter] harm i know many economists do. I guess your question is referring to congress. No, it seems like we have seen the big six plan, where we have senate, house, and administration together, and then they were hiring out these cornerstones of the tax cut and so i think, unfortunately, that all of the points ive just mentioned, nobody thinks in those terms. They will go ahead with the plan that is similar to the one we have seen right now. They just have to finetune it, if you want, to meet the requirements in the senate, including the bird rule, the deficit rule, and getting enough votes. Tom you are not talking about the turkey, right . Harm no, the other. Tom questioning whether the turkey should be pardoned, we did not get to that with toluse. Later in the hour, a timely question with Jeffrey Sachs of columbia university. He wrote a remarkably forward book a number of years ago for republicans and for democrats. We will talk to Jeffrey Sachs about the 1 in the nations education. This is bloomberg. Taylor this is bloomberg surveillance. Lets get the Bloomberg Business flash. If a takeover in the chipmaking business. Takeover in the chipmaking business. Marvell specializes in chips that control hard drives. Makes network processors. Alibaba is making another bet on brickandmortar retail. They have agreed to take a 2. 9 billion stake in the countrys biggest operator of walmartstyle markets. Of thee acquiring 36 company. Bitcoin has gone over 8,000 for the first time. The cryptocurrency is now at more than 700 this year after 29 earlier in november. Professional investors have also started to get on board. Cme group will offer Bitcoin Futures trading next month. Francine thank you so much, taylor. The euro has erased the losses after breaks down breakdowns in talks of germanys government. Its a day of deep reflection on how to move forward in germany and i will do Everything Possible as transitional chancellor to ensure that the country will be led during these difficult weeks. Francine harm is to with us to discuss. You also look at the linkage between the eurozone and the u. S. When you look at Coalition Talks disintegrating, what is the fallout or the impact on this . Harm i think the reaction was probably right. There were some concerns on the euro, but it has mostly been priced out because the German Economy overall is extremely stable. The political situation overall in germany is pretty stable because the new government, whichever that will be, will continue on a similar path as the previous one. From that perspective, germany and europe are not looking that in any way. I think where it may have an impact, this drive forward that we have been looking at between merkel and macron, the germanfranco cooperation, where we felt like it was the right time to go ahead with some deeper eurozone integration, that is shelved for the time being and that is a bit unfortunate. The fact that we dont have a government yet, does it hurt the periphery before it hurts germany. Harm the good thing about the timing, if there is one, is that the eurozone recovery has now gained a lot of momentum. I dont think that is being derailed by what is going on. I think additional projects have been shelved. I dont think it really hurt anybody right now. The modernization may take a bit more time than we had hoped. Tom you grew up in hamburg, 296 miles from dresden, where the right really did well in the election. I know you have taken boon this debatefar apart in this is hamburg from dresden or hamburg from munich . How polarized are the people . Harm it is still much less more polarized than anything you experience in this country, if i may say so. For germans, i would say it was a negative wakeup call. The right wing voters. I just want to clarify, they are still not as far right as what we have seen in germanys history. For the postwar period, it is one of the more rightwing parties that we have had. It was a wakeup call and a negative development. Role in that the liberals and the ftp in the csu has taken a tougher stance on immigration and refugees because they were worried tom does that play in hamburg . Harm not as much. Hamburg is a traditional port city, it is an open city. It used to be all social democrats. We had a couple of christian democratic mayors, but it has usually been more on the leftist side. Tom thank you so much. Some special perspective. The chief u. S. Economist for unicredit. Coming up, he has been on fire writing about his wheelhouse kumal which is international markets, international dynamics, and the International Reality of our tax cuts. Must watch, mustlisten, paul krugman in the 3 00 our. This is bloomberg. Bloomberg surveillance with tom and francine from london and new york. Lets talk about brexit, the commission, and speaking in brussels this morning, the European Unions brexit negotiator. The legal consequence of brexit, the legal consequence, is that the u. K. Financial Service Providers lose their eu passport. Francine joining us on set, and next guest. I dont know if this is a huge deal because no one was expecting it or if he was just being very frank. Thats right. It is probably the most explicit claim. None of the banks have been expecting this. They have been making contingency plans. No one really expected to keep passporting because it is only possible because of the Single Market. As soon as theresa may said we are leaving the Single Market, it basically became clear that g would go. The u. K. Would like a Free Trade Agreement to include Financial Services. That we does it mean can no longer speak about a soft or hard brexit . So we need to change your language . Part passporting is only that possible as possible as part of a Single Market. It is a question of whether you get equivalents or there is a sort of third option that is kicking around, which is mutual recognition, which is a bit better than equivalence. Equivalence is very fragile. At the whim of one side, it can be reneged. Tom as an outsider, im absolutely baffled by the news flow from london, to an extent from brussels, but particularly from london. A race on a calendar to the end of the year or is this sparring that continues into january . Emma so the u. K. Government would say that they are aiming for a deal in december. Tusk is the head of the u. K. Council. He said on friday that if the u. K. Wanted a breakthrough by middecember, they basically had to come up with a better offer on the bill by early december. Tom will they . Emma there is a mini Cabinet Meeting today. The core ministers who have the responsibility for brexit are meeting this afternoon. Yesterday a big hint that they are going to present a better offer in time for the eu summit. The question remains, will it be big enough . They are reporting that the offer will be 40 billion. That is probably not enough from the eus point of view. Tom i love how you bring all this in. As we look at brexit, what is our team working on right now . What is the angle on this monday that the Bloomberg Brexit team is working on . Emma one of the interesting things that came out of the barniers was the issue of ireland. He has said that Northern Ireland would require a specific solution. For a long time, the irish issue was parked and in the u. K. There was a view that the it would get sorted out once the future relationship was clear, that it would be easier to sort out the irish issue. Northern ireland, the border and theNorthern Ireland republic is going to be the only land border between the u. K. And the eu. The party propping up theresa borderagainst having the between the irish island and the u. K. , asmovement on the bill there has been a bit of movement, the irish issue is becoming more of an obstacle. Creating a border inside the u. K. Is not feasible is what we have heard about. That is the big question. Nobody knows. The Irish Government is in a bit of a dilemma. They have interests on both sides. Francine thank you so much. Our brexit editor. Pick up the latest issue of Bloomberg Businessweek. We feature a look at why the u. S. Government flooded a houston neighborhood. Tom the capitol, the tower. The canadian embassy. Two or three buildings away is the willard hotel, where the two bykeys await to be pardoned the president. They are actually in a room at the willard. We are turkeyfree. What is that about . Maine Susan Collins of says the provision to end the individual mandate of obamacare should not be in the tax bill. Counsel in the russia investigation has told the Justice Department to turn over a wide array of documents. They want emails related to the firing of fbi director jamescomey james comey. In mexico, the government seized the latest u. S. Proposal on rewriting nafta as unworkable. Tightening rules for car manufacturing would cause serious damage to the industry. American automakers are also opposed. The British Government is preparing to make a better financial offer to leave the European Union. Prime minister theresa mays cabinet will consider brexit at a meeting today. Eu is demanding 71 billion. May has committed so far to 26 billion. Global news 24 hours per day, im taylor riggs, this is bloomberg. Harmwith us this morning, barnhills. Joining us now, Jeffrey Sachs joins us from columbia university. All sorts of thoughts on where this nation is. Of going to go back a number years to his book the price of civilization. This is a quote from early in the book. Does is beyond reach. The social responsibility of the rich. And yet, you did not see this 2017 moment coming, did you . Jeffrey well, this war of the rich on the poor is really astounding on top of a huge budget deficit, unprecedented inequality in america, largest wealth soaring at the top, they want more and more and more. Tom if you were sitting with republican senators today on the fence with what will happen, collins, mccain, flake, the others, mr. Corker of tennessee, what would you advise them about the longerterm picture versus immediate political needs of their Republican Party . Jeffrey patriots should oppose this. Tom why . Jeffrey because our budget deficit is already huge and populismd this is pure. An unusual kind of populism, populism by the super rich, but it is pure populism. We cannot afford tax cuts. The idea that it has somehow gotten into our heads in recent weeks that 1. 5 trillion, that we can give away, is unbelievable in any serious country. Unfortunately, we are not seriously governed right now. Governance is flaky in this country. How you start out with the idea that we can make a gift of 1. 5 trillion to the super rich for the heck of it is really shocking. Ive never seen anything like being part of an watching policy in this country for three and a half decades. Francine but professor, isnt this what donald trump campaigned on and is in this part of the reason why he got elected . . Effrey who the heck knows but what difference does it make . Why should we run our country into the ground . Why should we be destroying fiscal balance . Why should we be heading to 100 of gdp in debt and as the Congressional Budget Office has shown, heading to 150 of gdp in debt on our current policies over the next few decades . What does it have to do with anything to have this horrible kind of policy . Francine then why have elections . Why have elections if we think that this was one of the policies, whether you agree with that or not, and if this is what the people voted for . Jeffrey we did not vote on this. The public does not even want this. Look at the opinion surveys. Candidates. Two we dont vote on a package of tax measures. We did not vote on the obamacare repeal. Get over it. This is not about the election. This is about horrible policies and why are we aiming to ruin the United States of america this way . Why are the rich so greedy that they dont care about fiscal policy anymore . Tom i saw you at every columbia Football Game this year. Harm wants to get in here. Heres the columbia football powerhouse. You are in a course right now and theres that kid out there, Michael Murphy of tampa, playing for columbia football and hes an econ major. Is this fiscal policy and legislation in any of the textbooks that you studied . Can these kids in economics today see normal economics in this tax debate . Jeffrey well, you would find it in the chapter on hugo chavez and other populist tom have you link chavez to the upper 1 in america . Jeffrey because they both ran completely a responsible fiscal policies. They both went to budget deficits that are completely unaffordable, they both would run they would run this country into the ground the same way the chavez ran venezuela into the ground. Harm knows this in germany. Would germany ever pursue a policy like this . Harm to that question, im finding myself sometimes being accused to be on the very left side. Tom we know that. , i was part ofy the conservative side studying economics. It was a very similar view of the economy and how the world was working and i put in a totally different political party. Jeffrey with they ever go with a policy like this . Never. Nobody would of seriousness. This is populism of the rich. Harm can i answer to francines point . In what trump has been elected but he isows why, running on make America Great again, they talk about gdp growth and an additional 5 million jobs. 25 million jobs. That is my understanding of the core of the campaign, accelerate growth, make a better job market. I completely agree with jeff that this is not the red politics to do so. Im still is supplysider, but i think it should come from better productivity growth and there are better ways to do it and we start with better education. , who in the Trump Administration can push back against what President Trump is trying to do . Is there a revolt in the Republican Party and if not, why not . Jeffrey look, the Republican Party has been funded by david and charles koch, by Robert Mercer tom im going to cut in. This is critical. You are correct, they have been funded by them. What they have been funded by is he won in wisconsin, he won in michigan, how does he win in wisconsin and michigan with these tax cuts . The effect of these tax cuts on the people of wisconsin and michigan . Jeffrey they will be devastating. Tom bizarre. Jeffrey everything is bizarre. They have run on legislation that is absolutely opposed by their own constituents. You go to any opinion survey, the public wants more taxes on corporations, it wants more taxes on the rich to read you get is the opposite because our politics is so corrupt right now. Everybody knows it, not enough people say it. Our politics is broken and corrupt. It is because Billionaires Fund the Republican Party and the congressmen even say it if you read the newspapers day by day. They say, we have to deliver for our donors, our donors will desert us. They dont say we have to deliver for the american people. They say we have to deliver for our donors. So lets wake up and the grownups about what is going on right now. Against the interests of the american people, for the interests of a few billionaires pushing this process, and we have to say no because i dont want this country wrecked. Francine im a little bit removed to it because im in london, but i keep reading that President Trump still has his base supporting him. Jeffrey 36 is his base. 59 are against this guy. Hes got a base, but he does not have a governing majority. Tom what is the response of the Democratic Party . Clearly support the Democratic Party. The east coast and west coast progressives have to give it up and get a new kind of Democratic Party candidate to provide a push back to what you are talking about . Do you seek a new Democratic Party . Jeffrey absolutely. And maybe is the whole system had not been rigged last year, Bernie Sanders would not would have won the nomination. Tom could he have gotten elected across this nation . Jeffrey compared to trump, absolutely. Tom ok. We are going to come back with this spirited conversation. Jeffrey sachs and the liberal economist from germany, harm barnhills. [laughter] tom the same kind of fiery conversation on bloomberg daybreak on radio. Coasttocoast. Stay with us. This is bloomberg. Taylor this is bloomberg surveillance. Lets get the Bloomberg Business flash. It is an upbeat presentation from volkswagen today. The automaker raised revenue profit targets for 2019. Vw plans to meet its target of a 30 dividend payout ratio within five years. The company is trying to bounce back after spending billions to resolve the fake emissions test scandal. Spotify has decided to list shares on the new york stock exchange. That is according to a swedish newspaper. Nasdaq had offered spotify a listing in new york with a secondary listing in stockholm. It has taken nine years, two president ial elections, and multiple lawsuits and protests, but transcanada learns whether it will get the final permits needed to build the keystone oil pipeline. Regulators in nebraska will make it final decision on whether building the pipeline is in the states interests. That is your Bloomberg Business flash. Tom thanks so much. Harm with us from unicredit and Jeffrey Sachs with us from columbia university. Lets combine their abilities on europe. Mr. Sachs you were out front in a review and advising russian capitalism. Whatever anybody can say about andpe and brexit, europe United Kingdom, there is always the view to the east, whether it is world war i, there is always that view to russia. How does mr. Putin fit in in 2018 with the pressures of europe . What will be the newness of russia and europe in the coming months . Jeffrey all of the hopes of the early 1990s have been lost, unfortunately, because in that period, gorbachev had a vision that we would make a zone of peace and prosperity. Instead, we have war in ukraine, we have russia meddling in our elections and meddling all three europe, absolutely stirring the muck, there is no doubt about it. We are in hostility and we dont know what happened in our country on this. Tom harm, just off the king charles bridge in prod is the prague is the unicredit building. What does unicredit see for Eastern Europe here is the buffer between europe and russia . Harm despite the increased Political Tension in some countries not going in the right direction, i think particularly the European Union numbers should be doing pretty well. We see what is going on in germany, italy, france, growth is back and is strong and that is helping these countries, as well. We are pretty optimistic with that. Francine harm, are we underestimating Political Risk in europe . The italian elections. The circles back to germany. Harm it is tough to say no after what happened last night in germany. Who would have expected that . The signs have been growing that the agreement for the coalition had been getting tougher and tougher, but we thought that was just from a bargaining stance. As i said earlier, i think germany will still be having a stable government with pretty predictable policy outcomes. Italy has an election. We think there wont be many major additional reforms, but we have seen a couple of good reforms in italy, so it is good stability going on. When you compare it to last year where the French Election was the big elephant in the room and we had no idea if Marine Le Pen would win it, compared to that uncertainty, i think europe looks for a stable this year. , when you look at brexit and the possible underlying populism in brexit, is populism in the United States different to populism in the eu . Jeffrey there is actually a lot of similarities. They are both based on pretty strong ethnic divisions, on , whichmigrant sentiment was a very strong part of brexit, a very strong part of trumps support is antithe rest of the world. We see this in Eastern Europe right now, even places that hardly have any refugees are becoming more and more right wing. Er, the march of basically the skinheads and the neonazis in poland last week, really shocking what is happening. There is a general nastiness to politics in the u. S. And europe and we are sharing that. Tom are we so distant from Atlantic Charter to multilateral efforts . We have a bilateral president , ross navarro is clearly a antichina document, we have a zerosum, neil mercantilist president. Are we back to the 1920s . Jeffrey we dont have any memory in this country and trump is a throwback. Tom dead on. Jeffrey and horrible. Tom your writings have been about our collective memory. Jeffrey we dont have it and we are in a very dangerous world right now with a psychologically unstable president. Tom i cant say enough about Jeffrey Sachs the price of civilization. It is absolutely stunning on the idea of education. Im looking down here at one of my bloomberg terminal screens. What does that mean . Tv. Get briefed on your morning, you are unicredit come you did not read harm on sunday, you should do it right now. You can get it by looking at tv. Over on the side are different charts that you can steal. From london, from new york, everybody in that shot is a 1 er. This is bloomberg. Francine coming up shortly, it is bloomberg daybreak with david westin, jonathan ferro, and alix steel. We are really taking stock of the ipo market. We are talking to the best guest for that, robert santangelo. We will get his take on what it means for tax reform on the ipo market and, my favorite, what it means for the oil market. Tom alix steel, thank you so much. Single best chart. Many different inflations of the United Kingdom. Japan with their own model. Are you modeling a greater inflation worldwide . Harm this is been the puzzle of the Global Recovery we have seen over the last couple years, that inflation has been as low as it is. Some fundamental links have remained well, notably the phillips curve i think we talk about it every time im here i still believe it exists and the latest uptick in the cpi, the ppi, and all of that are certainly pointing in the right direction. Inflation is trending higher as the economy is getting tighter. Tom professor sachs, we just spoke to edmund phelps, one of our heroes here, we have a phillips curve, the theory of a phillips curve. Does the theory you learned ages ago still work . Francine you would expect jeffrey you would expect more inflation because every central bank has been so expansionary in the last several years. Is somenk that there inflation built into this that we have not seen yet. Francine tom needs to make his way to radio. Professor, do you think inflation is just flacking lacking and when we going to see it in wage growth . Jeffrey welcome, wage growth is another matter. Wages are held down in real terms by the technological change, which is definitely laborsaving, machineusing. Is the slow real wage growth understandable in a different way by all of the automation, artificial intelligence, and so on. I would not expect to see more price growth in commodities prices, in the overall price index. That is where i think the bigger puzzle has been. Francine does inflation need to come from china, professor . Jeffrey well, china is such a big part of the World Economy right now that if china is , that willidly definitely pull of commodities prices. It was the slowdown in chinese growth that was the end of the big commodity cycle a few years ago. Deal in thisa big story. But a reason to believe that we will see more inflation in the coming year or two. Francine harm . In thehina plays a role sense that globalization has been putting downward pressure on prices. 80 of the core cpi basket is services. When you look at core growth prices to a good extent , the walmartsna of this world have not invented china last year only. What the u. S. Really needs for core inflation to pick up his to see higher prices in Service Prices and that is mostly domestically based. Ands, rents, higher costs that will spill over to hire core inflation. Francine harm, thank you so much. Jeffrey sachs of columbia university. Both join tom on radio. Look out for an interview with the Nobel Laureate paul krugman at 3 30 in new york. This is bloomberg. Alix high drama in deutschland. It the former government fails, what it means for eu leadership and brexit. Philip hammond says the uks starting to break the logjam on brexit. We will have the chief negotiator issuing a warning for banks. For tax session days reform. David welcome to bloomberg daybreak. Happy thanksgiving week. Alix would you like to have 15 more working days in the year . David its a great idea. Alix features go nowhere. The eurodollar is interesting this morning, it is modestly lower by. 1 . The year 10 year goes nowhere. I want to look at what happening with the pound. The dax is turning positive after sinking to a t

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