Michael mckee is at the meeting and has a special guest. Michael we are here with raghuram rajan, a former central bank or of india and that at the sure university of chicago booth school. For, in 2005,s warning that policymakers were not seen the dangers of rising asset prices. Point 5000. Ver are you concerned is over 25000 and i you concerned about this . With price inflation, you have to ask why and there are support for it, growth is strong for the first time across the board. Europe is coming back very strongly. Going the way it goes, a country with a labor force declining at 1 per year. For it to grow at 1. 5 is great and the u. S. Is doing reasonably well. On the yield side, there is some optimism. The concerns are with two factors, the monetary side and the financial side. Monetary side, when do we see inflation . If you have strong growth, you have the economy that levels the unemployment not seen for a long time, when do we see Wage Inflation and that translate into goods inflation . That is the question on the monetary side, when that happens you will find Interest Rates ticking up more strongly because that will have an effect on as a prices. The financial side, how much debt have we built up in these years . On the retail and government and corporate side . Covenant light loans are at an alltime high. The question is at that point, when Interest Rates pickup and liquidity seems less available than it is now, do we see a substantial reaction on the financial side . Michael when does this not becoming a talking point among academics and something that policymakers need to address . Group o you do to a address it . The best thing to do at this point is steady removal of monetary accommodation as the economies look strong. Lets not try to push it to the last limit. As you remove monetary combinations, you signal that the financial side needs to adapt and you give them time to adapt. See,uildup of leverage you implicit leverage in positions and the explicit leverage of to bringt will start up, signal accommodation will be taken off. Because a steady way you could affect asset prices considerably if it comes as a shock. You do not think the argument to let rates stay where they are because we see no inflation is worthwhile . Raghuram Central Banks are forwardlooking. They have to ask if it will stay the way it has been going forward. One thing is changing his earlier you had slack in the world. Today, with unemployment coming down across the world, the sense has to be there is less slack. The comparative pressures as a result have kept wage growth down and it may not show up as much going forward. Wage growth will possibly pick up, already see inflation in some countries, canada picking up more strongly. The second aspect of this is Central Banks are thinking about Financial Sector risks. Mine, front off mine is inflation but if Financial Sector risk is building up, we should not surprise the world with an Inflation Report which shows we are way behind the curve. That would suggest, so long as there is an uncertainty, steady, slow removal of accommodation make sense. Michael when you talk about debt and risk, people talk about emerging markets and say there is a concern that they will not be able to withstand a stone removal sudden removal of cash if things go pearshaped in the advanced economies, is that a major concern . A 1997 or tequila crisis situation . Aghuram many of them are in better position than they were four years ago or five years ago. They have reformed. Some focused on inflation targeting, brought inflation down. To that extent, they are in a better position but not immune. There is a huge amount of capital towards the emerging markets and some studies suggest a substantial portion of it is as the result of easing Monetary Policy in the advanced countries which pushes capital that here asked policy reverses, there should be there could be summarized as and the hope is with stronger growth bear as better and better policy, they are in better position. The tequila crisis, etc. Are situations where governments were not prepared. They are in a better position. Michael with debt concerns you talked about, and the idea we are seeing synchronized Global Growth picking up, do we need debt fueled stimulus such as in the u. S. Tax plan . Raghuram i do not think we do. Analysis of the tax plan suggest we will get strong growth next year. You have to ask, with levels of unemployment where they are, what you really need is a redistribution of growth to work the jobs that people need. And are not able to fill right now because jobs that are available are not jobs that suit their skills. Amountas to be a certain of redistribution and some happens naturally with stronger growth. Unemployment,l of is there more space in the labor market as we get stronger growth . If we dont, you will get stronger growth from the fiscal side but the fed having to move faster in offsetting that from the monetary side. We have to wait and see what happens. That is a danger looking forward. Michael from your experience as the government of the central bank of industry, is the fed the central banker to the world . Raghuram the fed sets the tempo across the world. There is no market that is immune to the dollar. , itpendent of the dollar has a big effect and the fed influences the dollar. Many of our graduate students are presenting papers showing how dependent countries are on the Exchange Rate visavis the dollar, which is determined some extent by fed action. We are in an integrated world. The fed has been very measured. Very clear on where it is going. Michael you are speaking here on banking and will make a unique argument, that maybe people are being too tough on banks. Raghuram i think we needed to get tougher. During the financial crisis and after that. I do think regulation tends to be following the cycle. They get excessively weak and good times and excessively tough and bad times and we put a lot of regulations on the banks, and it is about time we look at them and decide, is it enough . Is is fred well enough across the system . There are specifics is its fred well enough across the system . I want to talk about some banking. And the question is how much is enough . I would prefer a level Playing Field across the Financial Sector, do not over regulate one side and lead the other side under regulated because all the risks transferred to the under regulated side. We may be in some danger of doing that. You set any beach or at the central bank and looked at banking regulations and look at the overall global economy, any advice for jay powell as he takes over . Raghuram i cannot get any advice. I think he has a tremendous amount of experience in various facets of policymaking. It is an interesting world. I am sure the fed will continue its sound activity. Michael anything a central banker needs to know . Raghuram nothing i do not think he are ready knows. I have nothing to contribute to what he knows. Thankl raghuram rajan, you for joining us in philadelphia and we will send it back to you in new york. Vonnie thank you for that fascinating interview from philadelphia. Mark have a look at what is happening to european equities, trading 20 minutes until the finish of the friday session. Gmm is the function and stocks are rising, gaining for a third day in a row. 600 rising by 18 this year. Currency, the Jpmorgan Asian dollar index that tracks 10 regional currencies. Longterm trend channel, a technical indication it will rally further and this signals a solid bullish break. Ning point occurred that is asian fx lets talk about the boj, the pace of the bank of japan quantitative easing is slowing down further. Money supply in december rising by the least versus a year earlier since january of 2013. The change year on year is the white line and the deceleration is likely to continue in the near future, according to a senior economist. A former boj official. Since the boj shifted its policy towards yield curve control, as they pass as long as the design yield curve is maintained, the asset purchase it self is not being pursued so much. Inruly global hit, slap lady closing in on a palladium with little changed today, just shy of the alltime 1125 in january of 2001 and the metal surged by 56 last year among the Top Performing commodities, investors grappling with the possibility of a shortage as demand from the car industry grows. Particularly in china. Lets check in on the u. S. Similar to europe, we have the bulls out in the u. S. , major averages higher for a fourth day in a row with more record highs than the three major averages. The nasdaq and the s p 500, the best weekly gains and more than one year, since december of 2016. A lot of enthusiasm from investors with tax reform perhaps, earnings, earnings season coming up. With these record highs, lets look at a chart we looked at quite a bit last year because the trend continues. Dow, s p 500, and the nasdaq and in white these are the times when the three major averages have been put in simultaneous record highs, happened a lot over the last year and not an exception in 2018. Gains, some of the strength for stocks, look at the tech winners and big internet winners, upgrades on the street giving a bullish there went. Bullish tailwind. Chips may not outperform for xilinx but they should be a winner. Cisco a higher. Amazon cited as a top ranked take by citi. Lets hop back into the bloomberg, the picture we had last year is similar, this is g btv 4311. And blue, the nasdaq 100, invite white are the stocks and both with an uptrend, 2018 not an exception. Stocks not reaching the highest last year and it has not taken out its alltime high in 2000 with Goldman Sachs thinking the sector may be a little bit sluggish this year. Something to watch, considering the broader markets keep going and going. Everybody looking for a slowdown point. Vonnie broken records. Thank you. Lets get to the first word news with courtney donohoe. The u. S. Economy did not create as many jobs as expect the last month, employers created 148,000 positions in december, jobless rate at 4. 1 , the lowest since 2000. Wages rose 2. 5 from one year ago. We spoke with the chief Economic Advisor for President Trump. At the economy continues to grow and the labor force titans, Unemployment Rate is still 4. 1 , 17 year lows and we will see real wage pressure. The economy for the year treated a little more than 2 million jobs, slightly less than 2016. Michael wolff says he spoke to President Trump behind the scenes book on the white house. He told nbc that his recordings and notes to back up what he wrote. President said he never spoke to Michael Wolff for the book and it is full of lies. Environmental activists are vowing to fight the trump and demonstration over plans to increase offshore drilling. The immigration had proposed opening more than 90 of the u. S. Coast to new oil expiration. The Obama Administration gave up Atlantic Drilling rights after protests. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. I am courtney donohoe. This is bloomberg. Mark coming up, heading to the close of trade in europe, four days into the new year and the biggest winner on the stoxx 600 include 2017 alsorans like alta is. This is bloomberg. Vonnie live from new york city, i am vonnie quinn. Mark live from london, i am mark barton counting down to the european close in 12 minutes. Euro hawks have reason to pause with inflation slowing in december 2 1. 4 with the euro slipping. We find richard jones, fx and rate strategists. Food for thought for the hawks on the ecb, todays inflation data . Yes, we have had encouraging data from europe this year. We have had some strong german Employment Data. Same thing in spain. Board. Tmis across the what would give the hawks room for pause, we have not seen strong growth tight data type data and macroeconomics data feeding into inflation and until we get a pickup and the ecb believes we will get it this year, the hawks will be kept in check until we see that traction in the inflation. Both headline reading and core reading. Time, theretion of was some inflation positive content within the pmi this week, wasnt there . A lot of anecdotal stuff pointing to a job market that will start to produce the type of wage gains that will be commensurate with rising inflation. It has been a long time coming. A lot of people are growing impatient. The ecb believes we will get the wage gains to push the inflation in the right direction where they can proceed to normalize policy. Given this in terms of what it means for the market, there is reason to believe the euro will do well this year. But not a slamdunk trade. Not the same gains this year we got last year, i think it is because of uncertainty. Until inflation picks up, the euro will rise but not as strongly as last year. 6onnie trading at 120. 3 relative to the u. S. Dollar on the euro, what does this handle mean for the ecb, as opposed to a 118 . Much of a difference . I do not think it is, i do not think the level of the euro is the problem for the ecb. When a job owned against euro strength, it was because it moved sharply higher and a short space and time. The level is not problematic. It is the pace of gains that is what caused the ecb any concern. Them. Vel will not concern if it goes up quickly in a short time, we will get pushed back. Vonnie what are companies and economists saying in europe about any implications the new u. S. Tax bill may have on the european economy . I think it is very early. We do not know how it will affect the u. S. Economy, much less the european economy. I think this is one we will have to watch closely in the coming months because it is not certain. Vonnie richard, thank you. Mark thank you, richard jones, bloomberg fx strategist. Vonnie coming up, hedge funds rebounding after years of mediocre returns. The Hedge Fund Industry on the come back, the winners and losers next. This is bloomberg. Vonnie live from bloomberg World Headquarters in new york, i am vonnie quinn vonnie live mark live from london i am mark barton. European close is minutes away in time for the business flash. Deutsche bank will take 1. 8 billion charge in the fourth quarter, they say the new u. S. Tax corporate overhaul, it is to account for the decreased value of its deferred tax assets in the u. S. A tax credit that Deutsche Bank can use to lower future tax payments. The u. S. Trade deficit is at the highest level in almost six years, it rose 3. 2 to 50. 5 billion and exports climbed to an alltime high, more than offset by imports, mostly of consumer goods and industrial supplies. A new chief executive at neiman marcus, the Luxury Department store chain has named a former ralph lauren executive to succeed karen katz who retires next month. It is way down by billions of debt weighted down by billions of debt. Look at where european markets are trading into the close, three minutes away from the end of the friday session with stocks rising, gaining for a third consecutive day. This is bloomberg. Live from london, this is the european close. Stocks finishing the day in european trading. , Industry Groups down, basic resources and banks have had a great run with basic , healths up led by auto care, and utilities with stocks up for a third day in the fourday trading week. 18 rally for this benchmark, that happens, the best outperformance versus u. S. Shares in 13 years. Autos have had a good day, j. P. Morgan expects fullyear 2018 to be an auto bull market, supported by global boiling growth, relatively stable Pricing Power as well. Stoxx 600 finishing positive and lets get to euro zone inflation, the hawks on the ecb, headline inflation slowing to 1. 4 . Core inflation, the underlying rate failing to accelerate,. 9 . Highlighting the challenge on the ecb, strong Economic Data with a look at the pmi data this week and governing councilmembers have warned about the risks of postponing the end r too the closing qe fo long. With inflation below the ecb target of 2 , giving the ecb something to consider. This is eurodollar come on track for a third weekly gain but down today in the wake of the jobs report, the best run since november 24th after falling for three consecutive weeks. Yesterdays close was 120. 68. Bias towards a weaker dollar over the next six months is evidence in the options market, when demand for euro calls, exceeds the appetite for euro push, risks to that stance, u. S. Economic strength could spurred the fed to boost its face of tightening. Emt head of currency strategy sees scope for dollar gains in the coming months thanks to fed rate hikes and the benefits to households and corporations for the tax overhaul. That is the euro against the dollar. 3963, theyes, g btv are rising for an 11th consecutive day as measured by the msci emergingmarket currency index. Best run since december 2004. The winning run may have gone too far, indicators measuring the pace of gains suggest, the rsi has risen toward 85, an important level, reached only twice in the last decade and that, coupled with a high moving average convert divergence is a warning signal for shortterm losses, according to robert bank in london. Vonnie trading around the jobs report but for the most part in the asset classes, back to where we were before the jobs with the dollar index above 92 to below 92, selling on the jobs data which is mixed. Above 92 now just barely. The Canadian Dollar is a different story, very strong Employment Data out of canada and the Canadian Dollar was on a tear. 124. 01 to the u. S. Dollar with nymex crude down after putting in gains this week. The 48 basis points after and limited a. Employment data. Poor bond trading after the Employment Data. Global macro movers, more currencies, the renminbi is trading below 6. 50, the Canadian Dollar again. I want to point out that some of the commodities are selling off, having put in a massive first week in january. Mark . Is anmark mobius, he emerging market specialist and is to retire from frank went to templetonfranklin investments. Big news for emerging markets watchers. Been an investor in emerging markets and commentator. Us. Ave his bio in front of a long career. He loves his motorcycle trips beard big motorcycle trips. He goes across asia in his motorbike. He has been in the business for it goes back to 1980s, he has been in the business it seems for forever and is an outspoken, in the best possible way, a big supporter of the emergingmarket space and a day commentator on the emergingmarket space. Vonnie a bull, one of the last , and ralliedd us 20 in the emerging markets and from the 2007 peak, he invested in vietnam, the most Dynamic Market in asia he said, and he said the u. S. Dollar was waning in importance earlier last month at the bloomberg your ahead asia conference. Year ahead asia conference. Mark last year was good for hedge funds, three trading dollar industry coming back, best returns in four years. Not everyone is a winner, Brevan HowardAsset Management losing 5. 4 last year, its worst annual performance since starting in 2003. Scorecard is our hedge fund correspondent. Happy new year. Specifics,et into what sort of the year was it for the Hedge Fund Industry in 2017 . Significantly better than the last three years. Hedge funds on average made about 8 . Nearly double what they made in 2016. A slow comeback, 8 is not great versus the results before the financial crisis. Some did really well. Mark lets talk about the ones that have not done so well, they do stand out, Brevan Howard, down 5. 4 . The worst annual performance in a wild. While. That was their story all year, they struggle to make money and seen and making changes to make a comeback. They started a fund run by himself and he is allowing some of his operators to run their own money pools. They are making an effort. 5. 4 is nott year, that bad. Chris with a couple of tough years, last year was nothing compared to the prior year. Inin 2015 he lost money and 2016 he lost almost 50 . Intop of that, more than 20 2017. He is going through a tough time because his bullish bets, stock market is up, the risk assets are up and in that situation, he is struggling to make money. Vonnie the trouble with being a macro fund. It depends on what you benchmark yourself to, Brevan Howard performance different than crispin odie, talk about leverage and how much these funds are willing to be levered. Not a lot versus their past. It is also dominated by investors and they do not want to volatile returns and the hedge funds manager prevent themselves from taking a lot of risk, a lot of leverage and the drove out his investors in 2015 and he is running his from his own money and his partners money, and taking a lot of risks and leverage. The result is 54 last year and 50 in 2016. We see the difference. Vonnie when investors come back before we see a regular Market Correction with the major indexes . That is difficult to predict. Mark it is difficult to predict. Some of the gainers. 80 to talk about the losers. Thats easy to talk about the losers. Stock pickers have done well as the stock market is booming with the s p 500 up 20 22 . Europe, forstmann European Fund up nearly 40 . Horseman European Fund up nearly 40 . Mark thank you. Great update on 2017 and the Hedge Fund Industry. Lets check in on the first word news with courtney donohoe. Is two koreas and they talked about reducing tensions in the runup to the Winter Olympics in south korea next month. Kim jonguns regime accepted a proposal to hold discussions on tuesday where they will discuss overall relations and north koreas offer to send a delegation to the x, the first formal talks olympics, the first formal talks in 2015. All caps as Michael Wolffs to his lies but he says he can back everything up. I have recordings and notes. Way comfortable with everything i have reported in this book. Today book went on sale and is already number one on amazon. British defense secretary is warning that the dangers from Islamic State are far from over, despite his defeat in iraq. He said that the fight enters a new phase, expressing his governments commitments to work with the u. S. Led coalition to hunt down remaining Islamic State fighters in syria and elsewhere. There will be a new german at the u. K. Financial industry watchdog, an attorney who works on the bank bailout will take over the Financial Conduct Authority on april 1, he will succeed the man leaving at the end of his fiveyear term. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. I am courtney donohoe. This is bloomberg. Vonnie coming up, white house Economic Advisor gary cohn defense tax legislation as states try to come up with a workaround. On bloomberg at tv , you can talk back that contact the guests and reach us on twitter. This is bloomberg. Live from london, i am mark barton. Vonnie i am vonnie quinn and this is the european goes on bloomberg markets. Analysts at citi have moved theyn to the topic, saying will gain on tax reform. Joining us to explain his taylor riggs. Taylor increasing the price i amt to 1400, every time here i talk about increasing price targets. The Topline Revenue is almost 200 billion per year and we have a chart that shows the Revenue Growth is still continuing, not only at doubledigit rates, but now 30 . A Large Company still managing to grow, one of the things the analyst cited. Also, margins look better and Free Cash Flow looks better. Rounding out the top five of the internet sector was priceline, expedia, facebook, with priceline and expedia, they said some of the recent underperformance has been a little bit undone and with priceline, it may be related to slowdown in growth from their core business, hotels but looking to offset some of that with vacations. A pretty good picture on the top side. Vonnie analyst talked about a Better Business climate following tax reform. Taylor yes, the retail sector, look at the year end in the line of the consumer. , bigger maybtv 5499 be better, looking at amazon market cap and how it is still outpacing some of its other peers in the retail sector. Maybe bigger is better. With amazon you go market cap and grow the market share, worry about margins later. Vonnie another great stock of the hour, thank you for joining us. Jobs disappointment, the u. S. Economy adding 148,000 in december, a revision to the previous month and other factors are disappointing. Jonathan ferro spoke with gary cohn earlier, the white house Economic Advisor and asked him if we should get used to job numbers south of 200,000 per month . We should not get used to numbers below 200 k, we see a continuation of a trend that we have seen in the retail industry. That is something we have to get used to. Had we had a traditional , wetore retail christmas would have added the traditional 20,000 or 30,000 jobs in store retail versus losing them in retail for the month. We would have had the 200,000 number and that is the one number that i think people miss. You saw some members come back in the transportation sector and driving sector. You heard from logistics hirenies, they could not enough people and they had managers delivering and driving trucks because they could not put people on fast enough. We see the economy continuously growing and continuously adding jobs. Tax reform is now five days old. The input that will have on the economy is just starting to have an effect. The initial reaction of Corporate America to the taxcut , the tax cut is permanent but i am seeing companies to choose to pay a oneoff bonuses. Are you disappointed by that, they take a permanent tax cut and give a oneoff monist . Monist bonus . That is not true, some raise minimum wage, which is what we wanted to see. Those changes in the minimum wage workers. That is permanent changes to the wage system. As the economy continues to grow and as the labor force titans, remember, Unemployment Rate is still 4. 1 , a 17 year low. We will see real wage pressure. I have been saying for the last year, the one disappointing number month after month, wage 2. 2 . Of 2. 5 , cpi of real wage growth at 3 10 of 1 , not good enough. We are committed to get real wage growth in the country and we do believe you will see it over the course of the next year or two. To use of for the following, new york and california are looking to shield residents from the loss of state and local tax reductions, if they can, something your administration would support . I have read the articles of what they are trying to do. I understand what they are trying to do for their cities and states, and their taxpayers. We at the federal government have to collect revenue and we will have to evaluate what decisions they make in terms of what it does for overall collections at the federal level. What would happen if they did that . What input you in a trouble spot and think about raising revenue elsewhere . We will deal with it when we have to, hopefully we will grow the economy fast enough that the tax revenues will exceed expectations based on economic growth, that is the ultimate answer, the answer we are looking for. We are looking for capital reinvestment and businesses to return to america. Looking for people to spend money and hire people so we can tax a broader economy. The right answer for every american to grow jobs and grow incomes at every level and tax more of the economy at a lower rate. That would be beautiful if growth phase for this, jack lew earlier thinks that the United States runs the risk of going broke which is a dramatic statement. What do you say back to him . I say that they had their chance to run the economy and when they ran it during the Obama Administration i think they added billions trillions upon trillions of dollars in debt. We have 20 trillion of debt. Judge as on what we do, we are optimistic about what we can do. Vonnie gary cohn, the White House National economic director counsel. Mark time for the Bloomberg Business flash, the biggest stories in the news right now. Emergingmarket investor mark mobius is calling it quits, he will retire at the end of the month. He is 81 years old and has been with frank when doubled in for more than 30 frank when doubled in 430 years. For 30 years. His messi has something in he is the worlds best Soccer Player five times. Coming up, the battle of the charts, the commodity come back. This is bloomberg. Time for our global battle of the charts of a look at the most telling charts of the day and what they mean for investors. Nor did in our efforts yesterday thankk you, mark barton, you President Donald Trump we will not be forwarded th warted today. Passive versus active. This chart tells a different tale, in the white bars is the s p 500 sector dispersion. The best performance sector versus worse each year. 2017, the spread is at its highest since 2009. What else, the average correlation between stocks is the blue line, it falls. Year meanss for this a favorable backdrop for active management as we see dispersion rise and correlations come down. 713. Lly chart it g btv 3 vonnie a laudable effort, kevin kelly. Beat that. Mark after 14 consecutive games through wednesday, the best run ,ecord, two days of declines ending on wednesday on it out swinging Global Growth, the cold snap in the u. S. , 62 , the bloomberg commodity index, below the high in july 2008. Goldman sachs optimistic there will be further advances and the rsi is falling below 70 today. The last time it was below 70 was in november. , it is a rallyth in commodities is the rally in commodities over . Go every say i will every day i say i will go simon cowell on the contenders but you always do well. The first time you have faced each other and i love your chart, mark, but i will award the battle of the charts ground to kevin kelly. Crown to kevin kelly. Coming up, austan goolsbee. This is bloomberg. I am Mark Crumpton with first word news, President Trump says Michael Wolffs behind the scene book on the white house is full of lies but Michael Wolff tells nbc he can back everything up. I have recordings and notes. Way certainly and in every comfortable with everything i have reported in this book. Sale today,goes on already number one on amazon. The Environmental Protection agency is touting cleanups in seven of the nations most polluted places as his signature accomplishment in the trump administrations efforts but records show the work was completed before donald trump took office. Records show the seven superfund sites delisted last year fall short of the average pace set under president barack obama and george w. Bush. Have agreed to talk about reducing tensions in the runup to the Winter Olympics in south korea next month. Regime accepted a proposal to hold discussions on tuesday, they will discuss overall discussions and north