Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20171205

Teleconference releasing results of the Fourth Quarter ceo outlook survey. Finally today, the International Olympic committee will meet in switzerland to decide on russias per dissipation in the 2018 games and south korea. Their decision is expected at 1 30 p. M. Alix that will be interesting. David there is a drug thing going on. Alix i would like to be a fly on that wall. Top stories this morning with first take, Deutsche Bank, tax reform and brexit. Joining us is the editor in chief of Bloomberg News and our chief content officer. Marty, what is Robert Mueller trying to ascertain with a subpoena . We do not at the question of the relationship between Donald Trumps businesses and Deutsche Bank has been subject of inquiry ever since he became a president ial candidate. Totsche bank has refused comment on the relationship, but now he has turned over documents to Robert Mueller and the thought is it is the relationship between donald trump and russia and whether those loans had any connectivity to the russian investigation. Alix can i ask a really dumb lawyer question well, literally, do they have to comply . They are based in germany, why . They of an operation in the United States. Alix they are getting in trouble at the operations here . We have such highly qualified anchors. [laughter] there is always a danger in trying to read what is going on in the prosecution, because we do not know and of this subpoena is from several weeks ago. It is like looking through a curtain, you see little bits of movements and he does this with one person, moves in with Deutsche Bank, things are getting closer to the kushners and the fundamental question of whether there was obstruction of justice and what would be the reason for someone to have something on donald trump. David one thing we know is that when Robert Mueller put together his staff he got people that are very sophisticated on criminal wrongdoing with financial transactions. Marty organized crime, prosecutors that know how to follow the money. It is also interesting that donald trump in december and interview the New York Times made it very clear that if Robert Mueller ever ventured into his personal businesses, that would be over the line. It will be interesting to see donald trump, he has not tweeted yet this morning. David another third rail we saw delivered with tech and the tax bill. Nobody saw this coming. It seems up scare, but boy look what happened with tech stocks. John you have it with brexit as well, people think they have a deal and they have not looked at the details. Basically we all, it looked like one of those tiny things, now it is beginning to derail things. This is a bunch of things. Something they can sort of fix or patch. They can find the money elsewhere if they look. Alix is it easier than fixing the irish border . Marty i would say so. [laughter] unless they will draw the line in the sea somewhere. It is true that this is the sausage making factory this time around. They threw in a provision of the last minute and nobody thought about what the implications are and at the implications are. Asould suspect in conference will figure out a way to fix it. Alix come inside the bloomberg. Yellow line is s p five new financials, tech sector in purple, and the s p is holding up even though tech is rolling over, because financials are supporting it. Speaks to the disadvantage of tech over the last 24 hours, and two, what winds up happening, as long as there is a rotation markets seem to stabilize, not something we wouldve thought a few weeks ago. Texas hold off, everything would end up selling off. John although they are worried about tech stocks, most people toect this particular jinx get sorted and it must be something within the capacity of all that sausage banking that marty described. They can deal with it. David but they have to find the money. Donald trump may assist suggested how they might find it. Marty everybody was shaking their head the other day when he suggested that a 22 over tax rate might be something that we would see, when everyone around him had said it was a redline. 20 , cannot go over that. The two percentage point difference would create tremendous amounts of wiggle room to take care of this and conference. Alix never underestimate the president , have we not learned anything in the past year . We ask the quest, what will be harder to fix, the irish border or tax reform and irish border seems to be the winner. Involved in an complex negotiation the has been going on for some time and we have made a lot of progress over the last weeks. We have made tremendous steps forward. We are very close, but we are not there yet, as the Prime Minister said yesterday, we will have to do for the consultation and further discussion today and she expects to come back to brussels later in the week. Alix so calm, after all that drama yesterday. Can you explain what happened . John what is actually happening likef congress is sausage making mrs. Hammond trying to play this is hammond trying to play poker at different tables all once. If you are going to make britain separate, you need a border and the irish do not want their border inside ireland and is not something to do with money, it is blood, all the history of the killing on both sides and the fact the border was crucial to that. You speak with irish politicians, they go straight to the core of it. The Northern Ireland protestants do not want to Northern Ireland to be treated differently and that is what they have always stood for. Again, he is also playing poker with the other conservatives who want to succeed theresa may. You have the labour party coming into the picture, the Scottish National party looking at it like a special deal for ireland, so there should be a special deal for scotland. You even have the mayor of london, why not london . David they cannot afford to she will lose the government. John it is incredibly complicated. Alix they are having a really good conversation over lunch and to get a phone call from the dop, what would that be like for President Trump . He is hammering out a trade deal and it is almost finished and who follows him out, paul ryan . Who is actually running the government . Marty is there any possibility that brexit is not happen . John i think at the very end it there is a possibility. Most outsiders, most Business People say, i told you so. This was always complicated and you are always wrong. But there will be plenty of people in the parts of britain that voted for brexit who will say, this is the whole resume we reason get out whole we have to get out, everybody is trying to get money out of us. You read the eurosceptic press and it is like you are living in a different world. David is there any resolution . There is a border somewhere. John even in my youth, even in youth,s youth martys the irish border has always been the toughest because it is binary. You either have a border or you dont, and you cannot fiddle it. You either have a system and they have try to do the equivalent of sweeping it under the carpet by saying we can come up with technology that will measure goods that go across and to be fair you do find it some irish politicians that will look at it, but there is a line and either means something or doesnt. It goes to the core of all the big issues. Alix quick question on theresa may, i wonder if anybody takes her seriously anymore. John in a strange way you have to because nobody will replace her. Alix it is by default. Nobody else wants the job. John everybody that wants the job wants the job, but not quite now. [laughter] alix we will see how this goes. John the next 24 hours, nobody wants this job. They want to inherit it after it has been agreed order falls apart. David looks like catching a falling knife right now. Marty, thank you for being with us. Coming up, making green meghan green, her thoughts on how the tax reform plan will affect Economic Growth. Live from new york, this is bloomberg. This is bloomberg daybreak. Im emma chandra with your Bloomberg Business flash. Any takeover in the Movie Theater business. Regal entertainment being bought at 3. 6 billion. The deal allows city world to expand into the biggest movie market. Regal is controlled by billionaire the deal between cvs and aetna could be a gold mine for wall street. ,hanks, including Barclays Goldman Sachs and bank of america should share could share as much as 600 my dollars in fees. Sensitive Million Dollars in fees. Richard howard betting on a recovery increase, starting to funds that will bet on great assets. Since 2013, the jerseybased shunted 10s have billion. That is your Bloomberg Business flash. David coming closer to overhauling the tax cut, the question remains whether it will material effect Economic Growth. I spoke with Larry Summers yesterday who said it will not, but i asked, what might lead to strong growth despite his expectations . Larry i think the most likely answer would be that we cannot predict how quickly technological change flows into the economy and what happens to productivity and if growth turns out to be 3 or 3. 5 over the next 10 years, i think all probably be due to the Way Technology created a rush of productivity, like it did in the 1990s, frankly not due to tax policy. That is the most likely happy scenario. The alternative is somehow ive missed this, missed the boat, and it will create so much optimism and good feeling and businesses that they are going to engage in a big surge of hiring and a big surge of investing. David we welcome nowmegan , chief economist at john hancock financial services. You said you are skeptical there will be additional growth because of this, sort of like Larry Summers said, as we come closer to the package do you say the same . Megan my view is the same. We could get better growth next year. Companies could pull investment forward, but that is not mean it would be sustainable. We might get a boost briefly. Im sympathetic to his argument that maybe animal spirits are anything. [laughter] i think unless the hard data starts to back up the confidence data, the confidence will peter out. We still see this between hard data and a soft data with soft data looking great. It is possible that off of the backs of tax reform in the soft data will pull the hard data up, but i do not buy into that argument. That would be one way in which i am wrong. Ofid mike the consensus most is with Larry Summers and megan, but there are conservatives that have written a letter that they think it will triggerm more growth than we think. Ke those who do not feel like there will be growth look at the letter and they look at the studies they said they were relying on and have found that have relied on bad studies and of their does not seem to be back up for the idea you can get the 3 or 4 growth. The consensus between most is 3 10 percent additional growth may be in the first two years, then you go the other way and perhaps by 2025 you start is see contraction because most of the stimulus programs, the tax cuts for individuals go away. Alix i brought this up in the last segment, it goes with what we are talking about, rotation with adding tech in the financials, yellow line is financials, and then we have tech. On the kindke sense of tax reform and Growth Outlook you are looking at . Megan financials have not done well in the past 24 hours, but if you look at the effective tax rate for different interest ises industries, it producing goods, retail and that has an couple of high tax rate, and telecoms as well. They will do better from the as other rate, industries would not get the same boost. I think financials and a semi conductors should get a boost. Alix what did you make of the Market Reaction yesterday . Mike a lot of it was based on the idea that the amt would go away, you talked about that, it is a major concern and i think not really a concern because it will go away, you can have all of businesses disliking the main provision, you cannot raise taxes on business and have tax reform succeed. You will see this Going Forward because of the different provisions, once we really know what is going on. Tech for example, if you cannot yourprofits overseas, intellectual property overseas and game the system and all the avoidance strategies that they do, it will be a hit to your profits, not that apple, not that you will notice. That is a reason why investors will be discriminated among the different sectors Going Forward. David looking out over the longterm, is there an effect on the increase deficit, if you are borrowing 1. 5 trillion, is that big enough to make a difference . Megan it is, the debt to gdp ratio will be over 100 in a decade and that a significant. There is no magic number where you can say too much, where the u. S. Benefits from having the global reserve currency. I do think that there are is uncertainty. Puente we will have to pay for this and we are not sure how it will be but it will probably come in the form of tax hikes at some point. Alix weaver the European Union in finance ministers are looking to see if it violates wto, and china is worried that they will bring money back. You guys are laughing, are you not taking it seriously . You it is so complicated, are looking at me like i am a tax accountant. I looked it up because i knew that you are going to ask me. Themse a provision allows to do taxable income at 37 , plus the intangible income, that is what it comes down to, the accountants will sort this out. David i have never done that to you. [laughter] alix you used shorter words. Mike they physically has to do with the taxes that will be imposed on u. S. Us of the layers u. S. Subsidiaries that bring money back into the u. S. And whether they are partially or entirely foreignowned and whether that is discriminatory, and it is something the lawyers will have to sort out and a promise not to do that again. [laughter] david that is why countries do not like us being competitive on tax rates. Mike that is basically true. David mike mckee, thank you for being here. Megan will stay with us. We will dig into another big question surrounding the tax overhaul push, what will it mean for the u. S. Housing market . We will discuss that next. Live from new york, this is bloomberg. We are watching dutch brothers, down despite the fact that has had a solid quarter. Fullyear deliveries coming in around 8700 and it was strong across the board in terms of revenue as well, but how much of an overhang is the tax reform going to be on housing and the Home Builders, particularly luxury Home Builders like toll brothers. With us is making great. Megan greene. What will be the impact . That is a great question, but something we are not focused on. Alix as far as general housing . Megan sorry i did not understand the question. David so precise. [laughter] megan if you reduce the deduction for most homeowners, how will it be more expensive for people . People will not be willing to put as much into housing. It will be a drag on the Housing Market generally. That is probably a little bit high, but that would be a drag on the Housing Market and it is not the same across different states. Iso come out i think also, think businesses will not be affected as much, so you could wouldthe spectators have more of a hand in it. And finally if you consider that the tax bill will add about one showing dollars to the deficit, at some point the rates will have to go up and it will have a direct impact on mortgages. That will make them harder to serve. You could argue this is a drag on housing. Alix that is what i thought. I spoke with gary last month and i said, what will it do for housing and he was adamant it would do nothing. Gary people buy houses because they have a good job and they feel good about their job and their future prospects and they feel good about the economy, and they feel like things are going to continue to go better and better in the economic cycle. The ability to deduct interest is a component that allows you to buy a bigger house, but it is not what drives you to buy a house. Alix so by a smaller house . Megan he is using the animal spirit argument, people will feel better and therefore more money, but i do not feel that way i. I do not buy that. David if he is right, we never should have had the deduction to begin with. The premise of the deduction is going way back, encouraging homeownership. He said it had nothing to do with homeownership. How could that be right . Megan i disagree with it. People will consider the houses are more expensive, so they will not get involved. They would rather rent. David is it mainly because people will not take deductions, they will take the standard deduction and not itemize at all . Megan that is a piece of it. Dependent on what we get from the tax bill. Alix and what does it mean for banks . They have big Mortgage Loan books too. How would filter back to them . Megan it will hither lending with mortgages, but rates will probably have to go up giving how much it will add to the deficit and it makes mortgages harder to service. You could see that rise of the Balance Sheets. David what about home depot and people fixing their houses . Alix that is better right . Megan no. Alix but arent you going to fix up what you have . Megan you are not going to do anything. Alix you are sticking with us. The u. K. Government pushed into issues crucialr point in brexit negotiations and the pound taking another hit. We will have the latest on those talks, next. This is bloomberg. Alix this is bloomberg daybreak. Im alix steel. It is a pause that we saw yesterday, Dow Jones Futures up by 22 points and the s p up by 1 10 of 1 . Interesting session yesterday were the dow ended up about 58 points, despite the fact we had a monster rally into the open and now we are kind of ride around that level. European stocks have a modest risk, down 3 10 of 1 and the euro dollar goes nowhere. But the pound, check out the cable, down by 4 10 of 1 . Pause in the brexit talks, sterling takes the hit. 10 year yield goes nowhere, oil goes nowhere, despite the fact that upgraded the forecast target message to two dollars next year target, 62 next year. Copper down 2 credit we talk about Global Growth 2 . We talk about Global Growth, but there is worry about china and copper is taking a hit. David that is an interesting one to follow. Alix i got you excited. David ok, time not to get headlines. Emma chandra is your the first word news. Emma u. S. Special counsel Robert Mueller has subpoenaed Deutsche Bank for records on the relationship of President Trump and his family. That is according to a person briefed on the matter. The president owes Deutsche Bank about three hedge a Million Dollars related to his time in real estate development. The Republican National committee thrown Financial Support behind Alabama Senate candidate roy moore. It comes after President Trump endorsed him for the special action next week. Several women have accused him of sexual misconduct. Russia is cracking down on u. S. News media base there. They have t declared Radio Liberty and others to be Foreign Agents and they could be banned from covering russian it wasent, coming after required that rt register as a Foreign Agent under u. S. Law. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im emma chandra. This is bloomberg. David thank you so much. 24 hours ago, many thought we could be on the brink of a breakthrough in brexit talks, but then the u. K. Prime minister theresa may and Jeanclaude Juncker emerged from their lunch to say it was not to be, at least for now. We welcome our colleague who has been covering the story from brussels. I want to hear about what went wrong. Help us along. We will put this up on the screen, three main sticking points to go forward. Talk to us about what went off the rails . Seemedso what has really to take this off the rails, 24 hours ago i was standing in front of the camera while they shook hands about the going to the lunch meeting and they had such high hopes ahead of the meeting that there could be breakthroughs to allow the u. K. To move the talks from divorce to trade at the eu summit in december. The lunch began and a couple hours in what happened is theresa may made a call to the dups arlene foster, the north irish party. Not long after that, they gave a joint statement, a very short 1, 2 minutes, no questions, in which they say we have not been able to reach an agreement today. They did not give explanation on what happened, but it has emerged since that the remain sticking points, two of them, the court ofund justice and the bigger one, the irish border. A lot of development on that today as well. David give us a sense of the timeline and how quickly they need to move. We know that december 14 there is a meeting of the european leaders. They have to be out by march 2019, and in between they have to come up with a trade deal and move on to ratification. How badly pressed are they on the time . Nejra very pressed. Essentially she has days to score a very big circle, which i will tell you about, but in terms of the december 14 summit, that is generally seen as the cutoff point by which they are has to be some sort of agreement there has to be some sort of agreement to move from divorce to trade in order to have enough time to get a trade agreement and avoid the u. K. Crashing out of the eu on march 20 9, 2019. You know very march 20 9, 2019. You know very well how long these talks to want. Has been emerging from various sides today that theresa may sort of faces three options. If she decides what the republic of ireland wants to do, avoid a hard border, it means Northern Ireland might have different rules in terms of having access to the Single Market and Customs Union. Northern ireland says no to that. In that case, it becomes a question of whether the whole of the u. K. Remains as part of a Single Market union, that is a soft brexit. But those heart of hard brexiteers say no. Is either to have the hard border, Northern Ireland with different terms, or to have a softer brexit were the whole of the u. K. Has access to the Customs Union and Single Market and a none of the options are easy. David i do not envy theresa may right now. Thank you so much. Alix ok, joining us, Richard Jones is in berlin. And still with us ismegan greene. What we saw in the currency market is interesting. But first, you saw a sterling pop. Perhaps we might get a breakthrough, then a drop again announcing as the talks continue to drag on. I thought we were not paying attention to this tick by tech. Tick. S priced tick by what is priced in . Richard there was a deal that was cobbled together to allow them to move on to trade talks, that would be a positive for the pound, that is why we saw the initial rally. But it looks like it is going to be challenging to resolve and that is what is behind the fall we have seen in the past with four hours. The thing to remember 24 hours. The thing to remand become even if we do get an agreement on the first order issues, once we get into the second round and a trade negotiations, these things are lengthy, timeconsuming come a very difficult to put together, so i think the more difficult part of the negotiations lie ahead, even if they did come up with a sort of solution to the three shortterm issues, or the first issues that they want to deal with. Alix take a look at volatility on currency, take a look at the bloomberg. This is one week historical volatility and volatility. What is your prediction Going Forward . Reactions toge good news, how does that play out . We use theven if last 24 hours as a template for that, it looks like volatility, we could have a spike in the near term because it seems that depending upon the headline we have a lot of risk, and in the short term, between now and the 14th of december, the next meeting for the European Finance ministers and heads of government, i think between now and then we could have a lot of backandforth with the pound and heightened volatility and we have to see what comes about on the deadline. David lets assume for the moment, against the facts, then they do come up with a way to get forward to trade talks, how much better will that make you feel about investments in the u. K. . Not significantly better, although Economic Data has all of the Economic Data has turned over. So from economic fundamental perspective, brexit is bad for the u. K. Economically. Even if they make this deal by the end of the year, first of all the one i have any trade deals by march of 2019, they will have to talk about a transitional deal, so there will be uncertainties for a long time and it would not make me feel better. David is the problem really limited to the u. K. , does it affect the rest of europe at all or are they in me and are imm une . Megan where it really hurts the European Union, in terms of its structure whereby the euro, it is not an optimal currency area, but would make it such the biggest proponent was really the u. K. , so the u. K. Leaving is off of the table. Anytime there is a crisis in europe it will be a big one. Alix and input costs increasing the most in 2011, that happened today. And how long until we really see and feel that . Megan we are already starting to feel that. U. K. Inflation has been jumping up. I was in london last week and for the First Time Since brexit you start to hear people talk about a potential prices. It is hard to guess exactly what would trigger that, it might be Employment Data turning over actually, but there is a risk you will have a sterling crisis and it that the central bank will have to hike aggressively, so that would be a speculators dream. Onid you are in expert foreign exchange, richard, so at this point, you look at the euro and the pound, how much is driven by politics and how much is driven by centralbank policy, and how much by the underlying strength of the currency of the economies . Richard i think about this year politics has been the big driver and i think that will probably continue into 2018. I think that the general macroeconomic backdrop is looking much more favorable in the eu than it is in the u. K. , so i think that is probably the secondbiggest driver. I do not think Central Bank Policy this year has been a big driver for eurosterling. I do not think it will be and to 2018. Ivanka will be politics and economic in that order. I think it will be politics and economic in that order. Alix sterling crisis, you think . Richard i would not rule it out. With the way it has unfolded so far has not been as good as a lot of people were hoping. I think we have avoided a lot of the sort of serious damage, but that is yet to come. I would not rule it out completely. I do not think it is anybodys base case right now, but not something to roll out. Alix on the opposite side of the spectrum, 50 chance you will have sterling 15 chance you will have a be above 150 by the end of 2018. This is versus the downside. How aggressive will the calls the . Calls be richard . Probably is pound undervalued, but we know why. We know that the reason is it is sold off so sharply. And it is this kind of shock that i think its difficult for investors to digest. I think it takes a long time to work itself out of the system. That is probably, the 150 call is in outlier, very aggressive, but you can see on the longer term fundamentals why people are saying sterling is undervalued on a fundamental basis. David to wrap this up, if you look at the u. K. Versus europe, do you say you want to stay out of the u. K. Because of the uncertainty and go into europe . Where do you see opportunities right now given the difficulty in the u. K. . Megan currency is an opportunity given the longterm value of the sterling, and most people are not calling for that, but generally i would say that there is less risk in europe, although we have italian elections coming up. And economic fundamentals look better in europe than in the u k at the moment. David Richard Jones and making greene, think of for being here. Find out how robots can replace her head fund manager replacer hedge fund manager, coming up. You can tune into our colleagues tom keene and a Jonathan Ferro over on bloomberg surveillance. You can hear them in new york, the bay area, all across the United States on sirius xm radio. Live from new york, this is bloomberg. This is bloomberg daybreak. Im emma chandra in the Hewlett Packard enterprise greenroom. Ron williams, the former ceo of aetna, coming up. This is bloomberg. We now turn to wall street beat, where we cover three things wall street will be talking about today and number one, banks in the crosshairs again, how machines could be taking your job, and incredible shrinking hedge funds. Joining us is jason kelly, the executive editor and a prayer chief at bloomberg. These are all on the bloomberg. Alix pointed this out, this is something. This story about the banks and hedge funds is troubling. That this is blowing up big time on the bloomberg, because it really goes to what the customer is care about, how banks and hedge funds interact. There could of been the fcc investigating and there could of been inflated bond prices. We are not talking about the sort of folks you have never heard of, the names that are checked in this story on the bank side, jpmorgan and citigroup, and on the hedge fund side these are big names. David this is an investigation, so we do not know it actually happened. If it did happen, this is corruption, to say if you inflate my asset value so i can report to investors i am worth more than i am, i will give you my business. jason this is jason this is part of a longterm investigation. They been covering this well over the last couple years. Tradedlves very thinly securities in the mortgage space and there is room to that behavior. Alix what is the counter for that . This is the reason why it may have done that or this is ok . Is there a counter . David it is hard to know the value was, and it is a fair estimation. Alix it comes from an actual participant, therefore it is not a higher price, just it is interesting. I wonder how easy it is to do that, to manipulate these prices . Jason it is relatively easy because they are so similarly traded, these are securities that could go maybe days, weeks or months without being traded, so there is no way to really check the market. It is this corner of the Securities Market that is really difficult. David if you are off eventually to the high side at some point it would be a pattern. Sooner or later you have to sell the bond. Alix you would market that. Other top story, this is one of my favorites, the terminator to get over how you invest. Jokes aside, this is luke ellis who sees a slow take over a coming, nonetheless devoting about 13 billion to federal hedge funds using machine learning. Jason there were numbers that jumped out during the whole thing, this is part of the future of investment series that we are really digging into. All of these different elements where investing goes on wall street. 90,000 jobs lost, potentially, to machines. David out of a total of . Jason 300,000. David that is a big haircut. Jason it is definitely worth reading. It talks about how humans, their jobs will change and their interactions with machines will change. I should not laugh, but there is one quote, he says it is very depressing for humans. Which i sort of chuckled at. [laughter] alix i feel like we talk about the backoffice a lot and automation, but this is not that. These are asset managers, analysts. David although, i think just a few of these so far, they have not done so well. They actually have not done as well as some of the human funds have done. Jason that is exactly right. The comparison in the story but turning david the orange line is the a. I. Alix berkshire is the red. You wind up having the blue is the s p 500. So that is interesting, if you wind up not being able to match a good performance, what is the point . Or maybe that is the environment and everybody is having a hard time. Jason everybody is having a hard time. It is hard to track how the money is flowing into the steps of funds. One thing that are reporting 2010, thisis since is the area where Artificial Intelligence is most prevalent, it is 6 david and the public machines as they are getting smarter all the time. They are learning all the time. The number might go up. Jason exactly right. What has to happen, this is not just limited to wall street as we report on automation across all industries, it changes the way you have to train yourself. David maybe it is not as big as we thought it was. Jason before we get to that. I do know the answer to your question from yesterday. What comes after trillions. I thought it might be gazillions. It is quite trillions. David quad trillions. Ok. [laughter] alix i dig it. Jason learning. David none of those numbers applied to hedge funds. Jason what is so interesting about the chart, there are a number of estimates, three chilean is a number that estimates,ses of 3 trillion is a number that everybody uses. But and it all comes down to definition. David they did not lose the money, their defining a differently. Alix one thing, we did see consolidation in this case. Did that play a role . It does play something of a role, but i do not think hedge funds lost two thirds of their value. It is interesting. Alix fair. [laughter] the machines have not completely taken over. We will see what happens. Alix jason kelly, always good to have you. , watch check out tv us online and interact with us directly under terminal. This is bloomberg. David so this is a story that crossed bloomberg the bloomberg yesterday, the former Trump Campaign manager Paul Manafort under indictment, and they have said you are under house arrest and he went into ask to be relieved of house arrest and it heard that the judge said, i do not want you to try this case in the press, do not be talking to the press. What he did according to the prosecution, he decided to write an oped, directly contrary to the judge, but even better, he asked a russian friend of his in russia to help, right it and the prosecution says he is tied to russian intelligence. He is trying to persuade the world he is not in cahoots with the russians said he goes to a russian to help write the piece. Alix you cannot make that appeared so make that up. You are his lawyer, so what do you say . David he was doing it as recently as november 30. At some point this is a problem when you are a lawyer, you cannot control the client. Alix what is he trying to get out of that . He is not being tried in the court of Public Opinion. At the end of the day that is not the issue. David i do not know what was in his mind it but i think he cannot help himself. That has been his nature and he thinks, if i can get the court of public behind Public Opinion behind me it will help me. Alix this is supposed to be an intelligent sky guy, who is he . David the court to do not to write it. For all the people in the world, you pick a russian intelligence guy to help you write it. [laughter] alix it is not funny but it is funny. It is more scary. David he is not going to get relieved from house arrest, the judge said no thank you. Alix you are no longer able to do that. Great story. Coming up, we will talk about more really great stories. Richard sarnoff, on where the private equity giant kkr is investing in media and you know that david will be all over fox and disneys potential merger. This is how we are shaping up. Calm after the risk on rally that faded into the close yesterday. S p futures up by 2 10 of a percent. Eurodollar is a weaker. A little bit of selling in the market. And crude oil is softer, down 5 10 of 1 . And we are looking at what is happening with sterling. Cable done 5 10 of 1 and continuing to get hits. Over brexit uncertainty. And copper, down 2 . This is bloomberg. Is this a phone . Or a little internet machine . [ phone rings ] 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. Choose by the gig or unlimited. And ask how to get a 200 prepaid card when you buy any new samsung device with Xfinity Mobile. A new kind of network designed to save you money. Click, call or visit today. May says brexit talks are very close to an agreement. Any lastminute change to the senate bill, Deutsche Bank is in the hot seat. Robert mueller issued a subpoena to the bank, looking into its loan to President Trump. David welcome to bloomberg daybreak and we are skeptical about theresa may. Alix every three seconds, we are close. We are close. Here is a check on cross assets. We gave up a lot of that rally yesterday. Now we are in a positive environment. Eurodollar is a little weaker. We have some selling in the bond market, but nothing crazy. That is spread right around a tenure low. Crude is softer. We want to check in with once happening in sterling off the news we are talking about. The rate is down. 5 . Its been a very jumpy ride for the currency over the last 24 hours. David nejra its time now for your learning brief. Senate Banking Committee will vote on the fed governors nominee. J. P. Morgan chase Ceo Jamie Dimon releases the Fourth Quarter ceo Economic Outlook survey. Finally, the International Olympic Committee Meets in switzerland to decide on russias participation in the 2018 winter games. This is expected at 1 30 p. M. Now we will return to tax overhaul. Last week when we were talking about it, it was getting a bill through the senate. Now its about reconciling that bill with what the house passed early. We have our colleague. Where are we . What is being done . Several members of the Freedom Caucus that use their votes to hold up the idea of going to conference to get a tougher spending deal, they were able to have a negotiation on the house floor. They decided to change their votes. There are more bumps along the road. They have a number of differences between the bills. The senate has an issue they found out is in their bill, dealing with the alternative minimum tax for corporations. That would make moot a number of the tax breaks they wanted to offer to tech firms for intellectual property. They are going to have to work out a lot of the language. This bill was passed very quickly a mirrored details that need to be worked on where it they need to make sure that they can, to compromise and not lose any votes. There is a ways to go before we get a bill on me president s desk. Everybody speaking optimistically. They need to confront this and make sure they are all on board with the final package. David there is a lot of optimistic talk. We heard Mitch Mcconnell say they will get through conference. This kerfuffle yesterday, does that raising questions about whether people might not vote for the bill when it comes back to them . Toluse the thing that Republican Leadership has going for them is right now, you have the house and senate that of already voted in past some version of tax reform. That eases some of the pressure so that when the minor changes are made, some more significant changes may need to be made, you have a cushion of republicans who voted on this in the past. There is some momentum to get something done. They havent had much success previously. Think they have a pretty good shot at making sure they keep the votes they already had. They still have enough of a cushion to get something done by the end of the year. That doesnt mean its going to be easy. Most of the big hurdles behind them. They still have a few hurdles to go. David thank you so much for the reporting. Alix the big issue has to do with alternative minimum tax. Some industries wont be able to the doctor expenses despite the fact that there rate will be 20 . Tech and utilities would get hit very hard i this. Look at what the market did. The yellow down is what financial did very the white line is the semis. The purple line is the tech sector. Tech gets really hurt. Joining us is david lafferty. He is the chief market strategist. Its good to see you. The rotation, how much of that is based on emt . David if you believe in momentum is a factor, that has been one of many factors driving the tech sector this year. Its been a juggernaut. Its hard to explain it in any other fashion than to look at what was happening in terms of the snafu and them leaving it out of the bill. Its hard to explain it any other way. The sector has been leading the market and dragged back so quickly. Alix even though it was supporting the market, i found it interesting. Nothing really happened to the s p. It was modestly weaker. We would have expected a big selloff. Is that a rotation . David i think we have to be careful with rotation. We find it to be an attractive sector, but investors have to remember the tech sector is dominant. Its almost one quarter of the s p. Its very hard for the market to do anything attack isnt at least claim along. What we saw yesterday with financials picked up the slack. Its heart of the long run for the market to make significant gains. David i wonder if there is a larger point here. If its right, that undercuts the republican argument that if we give you more money, you will put it into capital investment. The way this is drafted, they are not going to be worse off than they were before. Indicate that corporations are not going to put it into r d . David it may. It undermines part of the entire rationale for it in the first place, that it would prompt growth. If you think about the corporate r d election, a lot of this is about innovation and productivity. The labor force is an growing. If you believe that this tax bill is progrowth, you rely on the product to the element of it. That, are going to lose how exactly is the growth going to manifest itself . David we talked to Larry Summers yesterday. He is skeptical about the growth. If you were wrong and there is growth, where would it come from . This is what he had to say. Summers the most likely answer would be we cant predict how quickly technological change flows into the economy and what happens to productivity. 3. 5 ,wth turns out to be it will probably be due to the way in which technology created a rush of productivity like it did in the 90s. That is not due to tax policy. Thats the most likely scenario. The alternative scenario is somehow i have missed the boat and this is going to create so much optimism and so much good feeling and businesses that they are going to engage in a big surge of hiring and a big surge of investing. David is it possible he missed it and there will be animal spirits in the sea suite . David most of the things we see our between. 2 and. 4 . Thats with thin the rounding area. It might be mildly positive. I think you have to be constrained again, because of it doesnt unlock productivity and it doesnt unlock labor force growth, the supply the site argument is where is the growth coming from . Butight come at the margin, its not going to be significant. The market is already beginning to price it in. We havent seen the reform being priced in until about a week ago. Once the senate bill started to look like it was coming together, now the market is starting to price it in. Upx i just want to wrap what it means for the fed. You have jpmorgan and goldman sachs, they are on four rate hikes. Pulled a rate hike for next year. They now see four of them. Growth,nly look at. 2 what do you think about the rate hike call . David anything post crisis, the fed his always been more dovish than what the market is priced in. The market has been pricing in to rate hikes. The consensus is maybe three. I am in the neighborhood of about three. I dont worry about it. I think they are going to watch the data. I dont think they are going to do anything whether it passes or not. They are going to wait and see how the data evolves. That is because of the tax reform area alix its a kerfuffle. It david now you are going to make fun of me. Thank you very much for being with us today. The man who built the partnership between aetna and cbs will weigh in on the deal that could reshape the Health Care Industry. This is bloomberg, live from new york. Emma sin a world has agreed to 3. 6egal entertainment for billion. Allows them to expand into the worlds biggest movie market area that blockbuster deal between cvs and aetna could be a gold mine for wall street. Banks including barclays and bank of america could share 600 million in fees. The takeover is a loan. Painvery communications is 70 million to take a stake in the channel. Your Bloomberg Business flash. David Health Care Industry looks to be going into another transformation. Cvs will buy aetna. It turns out the two companies had been working together since 2010, when aetna provided wermacy benefits or it welcome now the man with he was the ceo. W2s chairman of our enterprises. He comes to us today from florida. Welcome. Go back to 2010. Did you see this coming . Some relationship might be in your future . Ronald when we made the decision to partner with cvs, we were focused on the pharmacy benefits business. We had our own pbm. As large as we were at that time, we didnt have the scale we needed. , we ultimatelys selected cvs to partner with area they had a more health care oriented focus. Think the foundation was laid. I did not see this level of transformation occurring at this pace. David did you think theyre always had to be an acquisition . Maybe buying some practices . Ronald when you look at health care, you have to focus on where we spend most of the money, that is in chronic care. 80 of our dollars go there. When you look at how health care is local and how there is an opportunity to support the primary care physician, the pharmacy and the local Community Important gap one that needs to be filled. Is going from institutions and to outpatients and into the home. Close to the home, there is always a cvs pharmacy. Alix when the word amazon gets honored in an industry, it transforms rapidly. What does it look like in five years . Ronald a couple of points i would make, health care is an area that moves slowly and then suddenly moves quickly. In health care, you can have months of change occur over a decade. All of a sudden, you have this kind of event, it could be amazon, it could be decades of change positioned to occur in a short amount of time. If i were looking at this as an outsider, i would Start Building models to try to work with the primary care physicians in those communities and have different models i worked on over an 18 month time span. I would take the best opportunity and replicate and scale those up. David how much do the physicians need to be integrated into these enterprises . Getting to the next level and staying there . Do they need to follow united health, they have done direct deals with doctors track to sins . Ronald i would say that they probably are informed at cvs by what united has done. I dont think they are following the taillights area they are figuring out how they can have value in the Delivery System. They understand the patient is really that physicians patient. Their job is to help that patient who has a chronic condition. When you look at medication compliance, half of the prescriptions written, a big percentage of the patients, of every 100 restrictions written, only 20 patients are compliant with the medication as prescribed. There is a huge savings to be generated by helping patients improve their compliance. I think there is a role for cvs and aetna in this new model to support the physicians. Where do yourd, think amazon is most likely to enter the Health Care Market . Ronald if you think about the logistics of health care, the logistics are a place where amazon excels, in shipping and mailing. Health care is different. Forcomplications, the need the data, the records, the lab results, the medication results, there is an integration that has to happen with data analytics. They dont have the data and they dont have a position in the Delivery System today. Alix for now. Its a great pleasure to talk to you. Thank you very much. Optimistic on a deal, the u. K. Prime minister says brexit is very close. I am skeptical. We will bring you the latest from russells in london. This is bloomberg. Alix theresa may says brexit talks are very close to an agreement. Is that really true . Nejra cehic has been following the story. I want to start with you. What could that mean . Jra we are hearing this mainly from london. The eus ready to restart these negotiations. She could be making her way back to brussels as early as wednesday evening after that meeting. This,lemma she faces is the republic of ireland doesnt want the hard border between it and Northern Ireland did they have had an invisible border because Northern Ireland is part of the Single Market and the Customs Union. She cant have the hard border there. In order to have the invisible border, there is a question if Northern Ireland has a different Regulatory Environment than the rest of the u. K. , where it has access to the Single Market. They said no to that. That was not an option. Then you have people coming out saying what we need is a softer brexit where the u. K. Stays in the Single Market and the Customs Union. This is something theresa mays spokesman said no, the u. K. Is leaving the Single Market in the Customs Union. Takes,r choice she someone is not going to be pleased. Alix we heard from the irish minister. She said we are going to see talks return monday. Where did they leave off yesterday . Off yesterday, a lunch that was supposed to be a breakthrough moment. Theresa may had a phone call. She depends on the party for votes. They have to come up with the answer to an impossible question. She either has a no deal brags it or ends up with a border on the island of ireland, or she tears apart the united kingdom, or she changes her policy. None of those options are appealing. David davis is making it clear that they are leaving the Customs Union and the Single Market. There will not be any border in the irish see. David how much more difficult is this because they were out over their skis . Office saying they were close to a breakthrough. Now, if she turns this around, does that look like she is caving in . Whats interesting is david davis said it was never the u. K. That was optimistic about the lunch meeting. It was coming from the eu side. That optimism that we got saying that a breakthrough was imminent, that was not coming from the u. K. They said this was a staging post. We dont see this as a deadline. In terms of that, the u. K. Would never necessarily signal they were going to get a deal or breakthrough at the meeting monday. Does it look like she is going to cave in to the dup . She made that call to foster and the talks broke down, they are incredibly important here. They are propping up her government in london. Alix who is pulling the strings . Thank you both very much your it sterling is taking it on the chin. Us on whatnoff joins is driving m a or hopeful m a, including talks between disney and fox. This is bloomberg. Alix a little bit of a risk on steel trying to claw its way into the market. Dow jones is up 75 points to european stocks are down. 1 . The eurodollar is moving lower as the dollar clause its way higher against the euro as well. The big mover for me today has to come. Thes weaker by. 4 as brexit deal or no deal permeates the fx movement. There is a little bit of selling in the bond market, but not much. Crude is also off lows the session. Copper continues its downtrend. Its getting hit on china worries, Global Growth. Now lets get an update on whats happening outside the business world. Emma chandra is here. Emma Robert Mueller has subpoenaed deutsche break for records on its relationship with donald trump and his family. Bankamily owes deutsche 300 million related to his role as a real estate developer. The rnc has given Financial Support behind roy moore. That comes after the president endorsed him for the special election. Several women have called accused him of sexual misconduct. A brush fire has killed 150 buildings and forced people to flee their homes in california. It has spread to then tara. It is being fanned by winds reaching 50 miles per hour. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. David now to the deal that could reshape the media landscape. This that has renewed talks about by the major part of 21st century fox. Comcast is also looking at the same asset. The Murdoch Family would prefer disney be the buyer. Joining us now is richard sarnoff. He is the man responsible for evaluating and executing media investments. Its good to have you here. You are a student of the media sector. Explain to us what the motivation is. It looks like the shareholders like the idea. Richard i think what is behind this transaction and certain others is the notion in the 21st century of what constitutes leadership in the Media Business . You have a landscape in which new entrance with higher market are changing the nature of thinking around what appropriate scale is. Disney is looking at the stock asked gets, foxs looking at its own business. Do i have the scale to be a leadership competitor in the next days of the Media Business . Maybe aer is reconfiguration is necessary. Maybe i need more content scale or distribution scale where it scale. When you look at the new amazon,s like google or they are competing at a different level, they have direct connectivity to the consumer that the Traditional Companies dont. Generation, the best way to compete is to aggregate scale across content. You can link those as comcast and universal did. You have scale and distribution and that will create a leadership position. Today, you might need a third later, which is direct conductivity with the consumer to be at scale in the business here in when you look at disney and you look at fox and disney is perhaps looking at its own capability in the future of directly connecting with the that is some of the things animating the deal. David bob iger has said we want to go after the consumer. Lets put up a chart of tracing this netflix stock against disney stock. You can see from this chart, they are headed in the opposite direction. Chart isi think that very much on the mind of disney and other players in the Media Business. Is asrger theme here how tors are deciding experience their media in different ways, whether thats directly or over the top or through their personal devices like phones or pads, that is a sea change among Media Companies. Blue line there at the top is the netflix stock and the white line is the disney stock. You can see the contrast. Lets go to some of your investments. Talk to me about ufc nyu invested in that. We invested in us or that can actually thrive regardless of the distribution modality. Today, it ist ufc operated by endeavor, our partner and one of the best operators in the world. Connect with its audience through broadcast and through over the top. View the largest Paper Company in the world today. Of capability connecting with fans and at live events allows you to gear the business the way the audience wants to go. David its a powerful brand with the people who are fans. In this new world, is it big enough on its own . Do you have to pair up with other content providers into a Larger Service . Defines as a sport, it asked martial arts, it is big enough to stand alone. If you are a fan, thats where you go to see the best match ups and the best cards. If you look at it on a wider basis, one of the reasons endeavor is the right operator is the way that asset gets to the audience the best because they do have conductivity across the landscape, they are one of the biggest purveyor of sports rights across the world. From an International Expansion point of view, they are the best lawyer to get you to the audience. David we dont know the media property, web m. D. How you put this into what we been talking about. Richard web m. D. Has two major businesses. One is consumers understanding to go there for health information. The second is for professionals for their information, more specific and more professional. Side, it is very much like an overthetop information service. Consumers come to this information directly over the web or through search and find the information they need to see for themselves of their loved ones on what kinds of conditions they may have and Treatment Options they may have. Just to connect that with the original point, that provides advertisers with an ability to connect ridley with their Consumer Base rather than a fully targeted asus rather than blasting out a message on the side of a box. Cbs aswe think of abc or over the top. Are there a lot of companies with content they want to get to their consumers who are becoming Media Companies and they need to go over the top . Richard any company that has consumers in their orbit is thinking about how to directly connect with the consumers. Thats why companies have social media and websites. Ecommerce has taught a lot of companies in the arena how do we connect directly with these consumers with a message that will resonate with them . When you look at the most successful 21stcentury companies, they create that messaging by themselves without aid mediated through retail channels another intermediaries. I think that is a wide theme. We always have conductivity in our pockets at all times. We have a new dynamic for companies outside the Media Business. David it really is a brave new world in many respects. Thank you very much. Alix thats really good stuff. Thank you so much. How can the tax bill kill jobs and run miners. Outspoken andvery he will be joining us, why the current tax bill is a mockery. Tune in to our colleagues tom keene and jon ferro. If youre missing your british fix, go there. We have pimm fox. Its all across the u. S. On serious xm. This is bloomberg. Emma coming up, Mike Weinberg joins us on tax reform. This is bloomberg. Your business flash. In 2018, they will set a record. Thats according to the Industry Trade group. Airlines are meeting more demand for cargo space. Regulators are investigating whether banks helped hedge funds inflate returns. The sec wants to know if they crossed the line to win business by offering hedge funds bogus price quotes. Jpmorgan and citigroup are being looked at. The banks and the sec arent commenting. Starbucks is predicting china will surpass the u. S. As its biggest market within a decade. They will open its biggest cafe ever, 35,000 square feet. Sales rose 8 in china in the most recent quarter compared with 2 globally. Alix the size of a football field . Do you live in their . Do you bring a bad . Congress is heading to committee. People are worried about the amt. Michael mckee is here. A tax that works the same way as individuals. You figure your taxes for an amt and under the regular schedule and you pay whichever one is more. 35 marginal tax rate. Now they go into it with 20 or both and they will end up in the amt because its going to be higher because it illuminates all of your deductions. That is particularly tough news for Tech Companies and utilities that use Interest Rate deductions. Tech companies have intellectual property deductions. Basically, this is bad news for all companies who thought they were going to get a tax break. It seems to be an error. Senators are talking about getting rid of it. Its a problem. Alix there could be an impact on Energy Companies as well. One of the most outspoken critics is bob murray. This is what he wrote the other day. Bob murray joins us now from chicago. Can you quantify how much money bob itse western mark will cost Murray Energy 60 million per year in additional taxes. Jobs. L eliminate 65,000 is u. S. Senates legislation a huge tax increase on all capital on highly leveraged businesses. They left the alternative and among tax in their plan, but they deleted the deduction for interest expenses. Like labor and any other cost. This is a mockery of tax reform. I suspect it will apply to many businesses that do not realize what this senate has done to them. Its not tax reform. Alix if you look at the relationship of Coal Production and coal jobs, what do you find historically . Bob it has come back and can tell us about that. There is more demand for coal as the Global Economy picks up. If you look at this chart i brought along, you probably know it im talking about. Coal jobs parallel Coal Production in the United States until 2016. Now, production is up and jobs are up, but not nearly as much. The argument is you are replacing coal workers with automation because its more efficient for you. This is some of the information you are talking about. Donald trump is it going to be able to bring back all the jobs because you dont need human beings to do as much anymore. Bob the automation has nothing to do with what happening in the coal industry. Thats a myth. Alix you are saying youve not replaced any workers with automation . Apply to coal. T the technology we gained is in the 1970s. It is way behind us. Nothing is happening in coal today that has anything to do with automation. When President Trump called on tax reform, he never intended we have a tax increase in these vital industries. But we do. They are going to eliminate 65,000 american jobs in my company. He is bringing back and getting rid of the illegal clean power plant. That is 30,000 jobs. That is a modest increase. It statistics from the department of energy says you are digging more coal, but s created as an the past. Bob that is not correct. What they said was additional jobs in energy, not in coal. Mike these are specific coal mining jobs. Bob what we have is about 30,000 jobs. It overshadows everything. Nothing in this tax bill becomes applicable. Increase of leaving in the amt and taking away our Interest Deduction overrides anything good in the bill. The house bill does not have this nonsense and it. I encourage everybody to contact their citizens and their congressman. Alix how many people did you hire . Bob i have hired about 1000 people. We went from about 8400 jobs to about 5500 jobs. Jobs innt for 65,000 america. This mockery of tax reform eliminates them all. Im not going to fire them at all. It just happened. I may have enough cash flow to exist. Alix how Many Companies do you think will go bankrupt . Bob there 52 bankrupt Coal Companies in 2016. Only four of us were not bankrupt. Alix why are you not crying wolf . They already went through bankruptcy and they are better positioned. It hasnt happened. Bob they dont close the coal mine when they go bankrupt did they are relieved of their debt obligations. They are relieved of their personal obligations. It makes it very hard to compete. I did not want to go through bankruptcy. I am pride of the jobs i create. Unfortunately, the Senate Legislation will force us there. Alix bob murray from Murray Energy, Michael Mckee thank you very much. We are looking at the wrong kind of inflation. Details on why the uptick may not be beneficial. How that matters is the fed board reshuffles. Check out tv and watch us online. Interact with us directly. Go to tv on your terminal. This is bloomberg. Now thank you for helping me out. Its time for my chart of the day. You can look at the a cyclical factors. The measure represents 58 of core pce. That is bouncing back. You have a pricing, repair costs procyclicalsus the inflation. The issue is the fed has no control over the a cyclical inflation measures. This is not the kind of fed can control. David its things like cell phone prices. These are one offs. They are targeting 2 . It doesnt have much of an effect. Tox it is falling due pharmaceuticals and housing. They cant help that. The other issue is what happens to inflation targeting. Marvin good friend has a great article about it being linked to the historical narrative. This lies in the mistakes of past fed policy. Its like the fed is underselling price stability. Alix jay powell is being voted on today. What does he do about this . Alix raise the target all you want. If inflation is going to be in repair costs for cars, its not doing any good. This does it for bloomberg daybreak. Federated we have the investors. The open is up next. This is where we are, a little bit of a risk with the Dow Jones Futures up 56 points. In other assets, its all about the cable rate as the brexit uncertainty continues. Oil is a little softer. This is bloomberg. Jonathan from new york city, im Jonathan Ferro. 30 minutes until the start of trading. This is the countdown to the open. Jonathan coming up, tax plan confusion. Republicans unwittingly pass a bill that could mean higher than intended taxes for tech firms. Chipmakers lower and bank stocks higher. Fed chair nominee jay powell awaits confirmation. Deutsche bank says the central bank could hike four times next year. You a feel of the market cross asset. Futures are firmer after yesterdays marginal pullback. We drift lower from alltime highs and firm up by. 1 on futures. Treasury yields grinding higher by a single basis point at 238 on the u. S. 10 year. Days after the Senate Passes tax overhaul bill, confusion remains. Could the gop have unwittingly passed a bill that means higher than intended taxes for tech firms . The bill preserves the 20 alternative minimum tax that could kill republican promises of Business Growth and more hiring. There is no agreement about what could mean for the overall economy either. The president wants to see Economic Growth. He wants to see it pop right away and its already coming. Claims that this bill is likely to pay for itself than increased growth are other than crazy stuff. You will see people refine their models on Economic Growth and on the job situation for employment Going Forward. Those are things that could hurt the potential but i still think they are probably going to get a tax cut through. What we have now is really a positive reaction to the tax cut. Its a big deal. The Corporate Tax cut is a very very good thing. Jonathan joining me around the table, Jonathan Golub and stephen auth. Great to have you with me on the program. Lets talk about it. What is meant to be the most efficient machine on the planet has suddenly woken up and realized tax cuts are coming. Am i really meant to believe thats whats happening . What happened until up until the probably lastminute everyone was focused on are we going to get something, whats going to be in it. Whats it going to look like. It the question is what does mean for every single country separately and theres this massive readjustment on asset values happening. Jonathan what does it mean . The market is making a very crude initial attempt to figure out who are the very big winners which would be companies that are mostly domestically oriented transport and retailers and companies that are more global in nature that are able to lower their tax rate or shield it abroad like Tech Companies. Its literally just rotating from those Companies Like tech. The massive rotation was taking place beneath the s p 500 yesterday. The high tax stocks and the low tax stocks. Its starting to pick up. Does this have some longevity . We do. Smallcap value stocks because we thought the tax bill would be going through. The market has been a rotational market for the last 18 months and people forget that financials had a big run right after the president was elected then we took a rest. Its very natural that tech stocks are a little stretch. We still like them. Google and facebook are trading. I didnt think this correction lasts forever on the tech. The big beneficiaries of the tax bill if you factor in the better growth, the steeper yield curve and lower tax financials, the cyclicals. Jonathan im trying to get a handle on whether this is a switch from high to low tax or from growth to value. Is the former or the latter or is it a mix of the things . Theres a few trends going on here. Theresy our view is going to be a shift of value in at least the first half of next year. You have had the economys put 3 quarters. People have thought it couldnt happen. We have heard that all year long. Now we have a 3 quarter in q4 and the tax bill just listening to the commentary, people just have the run framework on this tax bill. Jonathan what did they get wrong . Kis teensy an idea eynesian idea, we try to figure out how many dollars each person got. Jonathan what should we be doing . This is a supply driven tax bill. Its improving the longterm aftertax returns on investment. It is going to change the productivity profile of the economy. And improve corporate investment. The returns on investment have just gone up. Its not about how much stimulus we get next year from a dollar perspective. Maybe from a an investment perspective. Jonathan do you believe Jonathan Golub that we move towards Capital Spending and thats field by this tax bill . Steve is right. I didnt think it was good policy. I still question that. I didnt think it would get through. I am pulling back to your third line of defense. On the other hand do i think that the big win here is on average companies are going to adjust up Something Like 10 . Yes. Do i think that will dwarf the Economic Impact of 20 or 30 or 40 basements, whatever the Economic Growth. Companies have been able to borrow at really low cost to capital. Im a little bit skeptical. Not that there wont be any response but thats going to be a big overwhelming response. 150 in earnings. I think thats where you are heading for next year. Hits in 18, we have 146 is the consensus view. That goes to about 160. This is the moment for much of wall street right now. Have beenong people fighting about, they just assume its a fact. The market is expensive. It has just been assumed fact. They are looking at valuation on the market relative to the recessions earnings number. 115. The moment is we are here three weeks from the end of the year and we are talking about is the earnings number for next year 150 or 160 . Thats 16 to 17 time multiple on a market that we were told is trading mid 20s. Im not saying its cheap. But the market is not expensive and everyone thats been telling their clients that it is his literally now trying to back away from this position gently. I have been quite bullish on the market. [overlapping chatter] you have been consistently bullish on the market. Largely on your earnings which have been good. Youre upgrading it to 150, 160. It has to move up. The question which we dont know is lets say earnings were to go up 10 . I dont know what the number is. Say i give you 10 extra price . Lower qualitya benefit because its taxes and it gives you five . Is stephen auth right and you get 15 . The bears on the thing happening, they are falling to this islling back kind of a shortterm stimulus longterm no difference. Federatedferent at because we believe this actually makes the economy more productive and a higher growth trajectory over the next three to five years. And on that basis its not just a oneoff hit to earnings but it puts us on a more stable platform. It keeps the fed at. Because of productivity impacting inflation and youve got a Pretty Healthy environment for stocks. Are talking value stocks. I dont think there is a bear case on this. Is it bullish for the markets or is it really really bullish for the market . The question is does this set off another wave of spending . What we know is this will increase deficits. The congress is telling you this is jonathan if they are telling you, you know its going to increase the deficit. The labor market is already tight. When i look at market behavior the most important thing is that the recovery just keeps going. If this shortens the recovery by pulling the fed even six months earlier that may undo some of the benefit and thats perhaps theres no question on the basic math. The question is second order effects. Im skeptical. I would rather be skeptical and be right later. Jonathan steve feel so good because he has been right for most of the last 12 months. Look at him. Hes smiling. I have times when im wrong. Andthan Jonathan Golub stephen auth, sticking with us. Dish network naming the president and ceo. Just crossing the bloomberg. Premarket. N the thats the year today. We are just a little bit firmer in the premarket. Coming up, betting on a hawkish fed and higher rates, deutsche the fed couldwhy hike another five times by the end of 2018. Thats next. This is bloomberg. Jonathan im Jonathan Ferro. This is the countdown to the open live from new york city. 17 minutes away from the cash open. Futures a little bit firmer around five points. Time for our morning calls. A look at the notable movers on the back of analyst recommendations. Barclays upgrading shares of snap from overweight to equal weight. The analyst says that snap and facebook can coexist in 2018. Next up, mcdonalds upgraded to a buy. For thee reasons cited upgrade, the companies we franchise and transformation and technology. Finally some headlines over the last week, Deutsche Bank modifying its fed call for the next two years. The economists saying we still expect a rate hike this month but we now see four rate hikes next year instead of three followed by three hikes in 2019 instead of four. Joining us on the phone is a Deutsche Bank economist behind the call along with stephen auth and Jonathan Golub. Four hikes next year. What is underpinning it . Three reasons. The rising probability of tax reform after the feds confidence of continuing with gradual normalization. Two, the fomc becomes more hawkish next year. Regional president s rotating on the committee. Improvement in core pce inflation. The near term trend was 1. 9 in october. It is just sort of the 2 target. The fed knows that the Wireless Services component drops out of the 12 months yearoveryear. Inflation should be much closer to their target. We add it all up. For us it makes sense as long as the Growth Outlook looks fine. The labor markets keep going. Are above the consensus. The market and the Federal Reserve has to reconcile the differences. The market for a long time was the fed was going to be. Why is that going to change next year . The difference this time around is that the global Growth Outlook looks much better at least at the moment and we dont see many major issues either in china or europe at this point. Europe is growing close to 2 . Growths seeing positive and the trends look ok. I think the Global Growth momentum is going to be the difference this time around where as in the past the fed has been held back by whats going on in other countries. That could always change but at the moment we dont see too many issues on the global horizon. Jonathan if you sit down with a fixed income desk at Deutsche Bank and we are pushing 2. 5 on the policy rate at the Federal Reserve next year, where is the yield curve going to be . Of where thetes endpoint is havent really changed in close to six years as i like to remind people. The 10 year rate was around 233 years ago and it was around 236 years ago. I think the general trend of curve flattening probably continues for a bit and we will see how the fed reacts to that next year and whether that concerns them or not. Thats going to be a big question. Steve, are you comfortable going bullish into next year . If they are right i would be much more cautious on the market but i dont think they are right. Jonathan what . Why . I think they have the wrong framework. You cant say this bill is not going to stimulate that much and and sayn around later its going to cause the fed to panic. There is not a lot of extra spending unleashed by the bill. Four hikes is a lot more than the market expects. Thinking we get december, one or two hikes next year and the primary way of the fed tightening from here is q2. Reversing qe basically. Maybe they accelerate that path which actually would steepen the yield curve which would be good for the financials. This is a little contrary and to where the market is. The market is this idea that the yield curve is going to continue to flatten. Thats bad for the equity market. Jonathan lets play this out. Brett is on the phone. He says four next year. I say i disagree with you. I just dont see. What brett is depending on i would ask what hes depending on and he would say depending on inflation picking up. Jonathan are you depending on that . That is one of the key linchpins. The feds credibility is of course with inflation. These are valid points. One thing i would say is we have been in the sort of market where mucheluctant to price beyond the next six months in this environment and i dont exactly know why. I dont think thats going to change the Balance Sheet policy but there is a valid point about the steepening of the curve as we get more details out of the ecb and potentially some action further down the line with the boj. Certainly risks, very valid points. Next order to get four year the fed needs to move Market Participants along that path which means they need to basically start screaming fire right now that we have an inflation problem. It doesnt mean that jonathan pretty difficult to scream fire when theres hardly any smoke. Four theyfrom here to have to start basically getting the market convinced that this is happening right away which means they are going to knowingly smash the yield curve and assume that Equity Investors arent going to look at that as a sign to panic. And i think they are going to drive if they do whats being laid out here, they are knowingly telling the equity market that the party is over and i just dont think the fed would do that unless you have a real steepening of the yield curve and truly visible inflation which may happen but until we actually be that i think this kind of call would be startling. , is there going to be a communication problem to achieve the kind of hikes that you think theyre going to be up to deliver them . Lets look at what happened over the past year. The market had nothing priced in for beating this year. The fed surprised the market of it and stock markets kept going on going out. Going up. They dont see this as a tightening stance in the sense that its pushing back against growth. They see this as being a prudent move to get to neutral. And they are looking at financial conditions and factoring in the fact that financial conditions continue to ease even though they keep tightening and it is starting to at least bother them a little bit and make them a little concerned. Inflations less about picture and more about Financial Stability which they are taking into account. Jonathan brett brian of oftsche bank brett ryan Deutsche Bank, thank you. Stephen auth and Jonathan Golub will be sticking with us. We are talking about White Bitcoin will eventually top wait for it, 400 k. Eight minutes away from the opening bell with futures firmer in new york. This is bloomberg tv. Jonathan im Jonathan Ferro. This is the countdown to the open. To fight despite falling 20 last week, the price of Bitcoin Holding above 11 k today. Many wall street execs still remain skeptical. I could care less what bitcoin trades for, how it trades, why it trades. If you are stupid enough to buy it you will pay the price for it one day. I think its a scam for criminals around the world. This just shows you how demand how much demand there is for Money Laundering there is in the world. Based on everything i know im not guessing that it will work out. Yusko joining us, creek capital founder and cio. And when i have spoken to so far says, dont know anything about it but think there is some value in block chain and that is where the conversation begins and ends. For you . The problem is bitcoin is a block chain. It is a form of this revolutionary disruptive technology. All the bank people that you showed, they should be deathly afraid of this. This has the potential to as aace the need for banks trust institution. If you and i Exchange Currency or have commerce using bitcoin and it goes on the ledger on the block chain, we dont need a bank to confirm that that is a valid transaction. So it has the potential to disrupt banking as we know it. Jonathan how did we get to 400 k . Is just mass. It is gold equivalents. There are 21 million bitcoin total. There wont be trying one million because a few have been destroyed. Call it 20 million. 20 million. Gold today is about 8 trillion. That gives you 400 k. That doesnt include any use cases like currency. If you and i want to exchange a medium of currency. I am just talking about gold equivalents. The reason it is so interesting is think about gold. All of that in the world fits in two olympic size pool swimming pools. I cant afford a single piece of bitcoin let alone a bar of gold. Mark yusko of morgan creek is going to be sticking with us. This is bloomberg tv. Jonathan this is the countdown to the open. Im Jonathan Ferro. We are about 24 seconds away from the cache open in new york city. Futures a little bit firmer on the dow. A tiny bit firmer on the s p 500. Still softer on the nasdaq. May bee bit of weakness in store for the tech stocks. We will get to that aggressive location into financials in a moment. In the fx market the dollar getting a bid. Stronger against the euro and much stronger against the pound as brexit talks continue to break down. And treasury market in the treasury market some marginal curve flattening once again. Looking at treasuries. At 5737. Ter by. 2 around the table with me is Jonathan Golub at credit suisse. Is this still the most hated bull market ever . I think that is such a ridiculous statement. Jonathan you tell me why. We are at record highs and no one comes on this program saying the market is cheap. They say its expensive. No one says this is going to last long. They say we remain defensive and we keep grinding up to alltime highs. Thats because the quality of the host attract quality clients. You have smart people that come on the show. An intelligent person has to look at the market and say its expensive. You have to do that. It doesnt mean it cant get more expensive. Denominated in gold we are lower than 2000 and lower than 2007. In dollars you cant say its cheap. What you can say is that we are in a period where theres a booleans and there is if booleans and there is the booleans and their speculative fervor. There is speculative fervor. 2009 we got8, downdraft and that has kept people relatively light in equities. Its why people say its expensive even though it isnt. Waitingve the highest in equities in history. We have the lowest Cash Holdings in mutual funds since 2000. How do you say its unloved . It is unlovedl, based on what allocations are im not sure where you are getting your numbers from but flows in equities over the last five or six years have been basically constantly selling that sales of equity funds. Jonathan and i were just at a dinner last night with a bunch of investors. People are cautious. They have been cautious all the way up because they think even if they acknowledge that we get another pop in the going to go handbasket to use an old expression. Its that fear that keeps the market at a reasonable level. Markets dont move up because of sentiment. They move up because theres really two things that matter. Its the economic expansion going to continue for the next year or two or longer, yes. Our Companies Generating relativecash flows to bitcoin which doesnt create cash flows. Companies spinoff a boatload of cash, yes. If you look in the last 10 years while economy has been weaker, companies have generated twice the cash flow per dollar of that than they have 6 translates into what you called expensive and i would call justifiable above average valuation. We are about. 1 higher on the dow. Benchmarkss of the yesterday really masking what was happening beneath the surface. This aggressive rotation taking place. I want to cross to julie hyman. Julie it looks like the rotation we are seeing is moderating to some extent. Haved to the theme you been talking about, of course were heading into year and. Part of whats going on his people have made money on the out performers this year. They want to book those profits. Tax cuts ascourse everybody tries to game out which companies are going to benefit and which are not going to benefit perhaps as much or even are going to be hurt by it. We have been seeing in the early moments of the session today, we selling ineeing Technology Particularly in the chipmakers. A indeed down a little bit at the moment. Nvidia down a little bit at the moment. Its down about 8. 5 in that period of time. We have been seeing buying of the banks. Here cames listed into today at their highest since 2008. The S P Bank Index at its highest since 2007 so we are not seeing necessarily the trend continue today. It seems to be more of a stalling after all of this turmoil in the divergence in rotation we have been seeing over the past week or so. Jonathan great work. The years top performers down for a sixth time in seven sessions and coming off their interest decline in nearly two years. Materials all down at least 12 during the losing streak. The rotation from tech goes into banks and other sectors in as beneficiaries of the tax plan has many people wondering what to do now. You think this has got legs, dont you . Beevery single stock has to revalued by now because theres a new tax rate the gets applied to their earnings. We know that tech is a low tax rate sector. An alternative minimum tax for corporations is going to make it a little expensive. So there is an adjustment going on. Until the market inks they are done getting everything into fair value we are going to see rotation. People are not selling or buying the market. There are simply trying to realign their portfolios in order to figure out fair value. Jonathan it cant just be about technology and tax. These are the companies that have generated tremendous Earnings Growth for 2017 as well. Whats happening this week really had nothing to do with taxes and nothing to do with tax law. Its a Big Hedge Fund unwinding with big leverage. Jonathan was the source for that . Whats the source for that . There is a Big Hedge Fund that i want name to protect the innocent but they are having to unwind a very large textbook. They run a lot of leverage. There it is platform funds out there and they use a lot of managers and all individual managers run market neutral. The fund puts big leverage on top of it. When that turns and they got , long tech and short. The consumer in the media names. And thats going the wrong way. There are losing on both sides. They have to do you risk. Weve got the s p at 3000 for next year. You can certainly look at the financials. Got maybe 10 in earnings next year. Its trading at 106. That is not expensive. Yet in this correction facebook today is trading at 20 times next years earnings. These are big growth compounds. Facebook is growing at 50 . Techs going to push stocks a little lower. I think its going to end up being a great opportunity. We have been buying the financials all year. A great opportunity setting up to add to these tech positions. These are winners. I was only talking about this week. The challenge we have is earnings and multiples. Earnings today are where they were on an as reported basis. The actual earnings of the s p are the same as they were five years ago yet the market is 80 higher. First oft fair all you had oil prices adjust massively. If you take out the earnings in. He Energy Sector today we are talking about 150. Of the runup in the s p and everyone here has said its not going to happen. Talking about the last to 17. Ars in 12 the peak dollar price of oil. Do it over four years. What to 17. About 2014 . Im talking about 2012 to 2017. Oil prices are lower certainly take out onet sector. The flexing i would be 64 if i had four more inches. That would be like saying i would a 64 if i had four more inches. Jonathan for a lot of people out there thing am i too late, would you say to them . We look at the banks. We are still seeing expectations for higher Interest Rates. The higher Interest Rates will lead to better profitability for the sector and in the tax rate cuts are obviously important but the bigger impact for the banks is the expected growth coming from tax reform and that will lead to stronger loan growth on top of higher Interest Rates. Pushback is the demand might not be there on the consumer and business side. The supply might be ready to go but no one wants to borrow. Do you see that changing because at the moment in the data it looks a little softer. Youre right. The data certainly is softer specifically in commercial lending. When you look at the consumer side we are seeing mid singledigit growth. If real gdp is going to accelerate last next year Jonathan Mark yusko . How does gdp accelerate next year . Deficits and debt actually crowd out and lower Economic Growth so its likely Economic Growth goes lower. Nominal gdp growth is equal to working age population growth press plus productivity. And the cb i data says that loans are softening. Credit card to are rising. Student loan delinquent these are over one third today. How is that positive for banks . On the student loan side, that is us as taxpayers. The banks have nothing to do with student lending. The delinquencies on credit cards, we were at all time record lows to years ago and we are still at unusually low levels. The credit card delay currencies dont really concern us unless unemployment starts to rise. Look at the kennedy tax cuts and the reagan tax cuts both of those time periods within four quarters of the tax economy in those times accelerated and of course in the reagan cuts you remember all the deficits and the concerns about deficits crowding out borrowers and it didnt happen and it doesnt appear to be happening today. As more people have money to spend as well as corporates, traditionally using the history as a guide we would suggest we are going to see an accelerated gdp number when this kicks in. ,onathan Jonathan Golub Deutsche Bank was on this program 20 minutes ago talking about full rate hikes. We were talking about anticipating a flutter yield curve. What does that mean for full rate hikes next year . If you have four rate hikes that means you have an environment where growth is much stronger and the longer yield curve is coming out. I dont know what this means to gerard with the conditions you were to have for it would probably mean that we got much more economic flow. The yield curve is ripping the longer end of the curve and the market may be looking at this thing thinking things are almost too good. The fed is not doing four rate hikes next year unless theyre that good. I agree completely. Auth, great to have you with us. Jonathan golub, thank you. Mark yusko of morgan creek. And Gerard Cassidy joining us on the telephone. 13 minutes into the session. Lets get you some breaking news coming from cnbc. The disney fox deal could happen as soon as next week. We were largely anticipating that over the next couple of weeks. We will dig into that in just a moment. 13 and a half minutes into the session. Into the opening bell. The scores a little Something Like this on u. S. Equity markets. We are for across the board. From your, this is bloomberg. Jonathan 21st century fox would prefer to sell some of its assets to disney rather than comcast according to people familiar with the matter. The Murdoch Family thinks disneys a better strategic fit and percent fewer regulatory hurdles. We are joined by cfr a consumer cyclical analysis. Speaking on the same issue is who is driving this deal on the 21st century fox side . Is it murdoch at the top of one of the murdochs below . A mutual. Its i think initially. We believe disney may have initiated and we were actually surprised the murdochs were to sell. And provide a motivation for mitigateo out and potential threats from these two companies. I would argue this is a good time to call out for more to unfold. Jonathan thank you. 22 minutes into the session in the United States. Flat out on the s p 500 and the doubt. Next up, we will bring out tomorrow. This is bloomberg tv. A few minutes away 10 00 a. M. Eastern. Us, mark, it must be one of the biggest nonstories of the year so far. They all look pretty mainstream to me. He talk about hawks earlier in the year. I think the hikes are not doing anything to restrict liquidity. It would affect what we had in the couple of decades. I think what were trying to do is get back to neutral. For hundreds of years, the fed funds rate has been equal to nominal gdp. It was back around 3 . The problem with getting their is the yield we probably needed to do a little cleansing. Jonathan biggest challenge, what is it . Communicating with the market and dealing with inflation. Very few rate hikes. Ive really enjoyed your appearance on the show tonight. Thanks for joining us. That does it for us here on the open. Lets with through some of the scores for you. Equity markets trading through. 500, give flat p are for audiences worldwide, met is bloomberg tv. It is 10 00 a. M. In new york, 3 00 p. M. In london. I am vonnie quinn. Mark live from the city of london, i am mark barton. Welcome to bloomberg markets. Bonnie vonnie we start with breaking Economic Data from julie hyman. What was estimated and it is below 60. 1 reading for october. This is the november figure we are talking about today. Lower than estimated just for perspective, the prior reading was a 12 year high. See supply chains normalizing following hurricanes here. Fell fromelivery october cautious 58 reading and matched the highest since november of 2005