Freely u. N. Trade more and u. N. Falls against the dollar. An interesting shift in the market. David they dont have to worry out it like they did. Breaking news. Continental is in talks with advisers saying it is going to explore a possible holding structure. This could be the biggest overhaul ever for this very large Auto Component maker. Tos appears to be an attempt break it up so the individual parts of the company could trade separately. They be some of the tire manufacturer could rise on the news and it is tied perhaps to the move to Autonomous Vehicles and the electric vehicles. Ag will be exploring a holding structure. Alix those are the super fancy tires. David they are very nice tires. Time for the morning brief. At 10 00 this morning Minneapolis Federal reserve chair Neel Kashkari ways in from minnesota. President trump meets with bipartisan members of the senate on immigration issues. At 1 00 tonight states auctions 24 billion in threeyear notes. Alix heres emma chandra. There was an early agreement as north and south korea begin their first highlevel talks. Kim jonguns regime has agreed to send a delegation to the Olympic Games and south korea. We just had headlines across the north has agreed to hold military dialogue with the south. Lawyers for President Trump are now said to be discussing how he would handle an interview with special counsel Robert Mueller. Mueller has raised the likelihood that he will seek to question the president in the Russian Election meddling probe. The post says the president lawyers are considering how to set limits on any interviews. Behind to beatom georgia 2620 three in overtime to win the national championships. A freshman through a 41 yard touchdown pass for the win. Now won five National Titles in nine seasons. Global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. Im emma chandra. This is bloomberg. David that was a championship worth watching. This is a true freshman. This is a kid thats just out of high School Coming in the second half and he throws that pass in the end zone. This is like friday night lights. It is like fiction. Alix what kind of pressure he must have been under. Expectations are going to be high for this guy. David he is from hawaii. It was an overtime game. Just a brilliant game. Despite the fact that we want to talk about alabama and georgia we have to talk about the daybreak first take now. First, markets pushing ever higher on the evil of earnings. Secondly have to talk about whats going on with Prime Minister mays Cabinet Reshuffle which didnt seem to go that well so far. Computer topic is the and electronic show starting out in las vegas today. Alix joining us is Gina Martin Adams and martin mckee michael mckee. This is citigroups global revisions index and you can see that we have seen more positive revisions versus negative in the most since they started compiling the data 18 years ago. Is this reflected in the markets . I think it is starting to be reflected in the markets. Just the effect of moving the effective Corporate Tax rate from 26 to 21 for the current year we should at about eight dollars in earnings per share to the estimates. What we have seen since november is estimates for this years earnings have gone up about three dollars so that gives you five more dollars on 2018 estimates. Firstquarter earnings season is going to be an absolute mess because you got all these charges affiliated with new wellnational tax rules as in combination with other adjustments to expectations for 2018 earnings so its going to be a volatile season. When you really get down to brass tacks we still have estimates likely to go higher simply as a result of this reduction in taxes. David at what point are we getting out over our skis . To be moree going profits flowing to companies from the tax bill. When we say were going to talk about markets we only talk about stocks. Alix untrue. Markets arent really moving and if the economy is going to pick up you would expect that to happen. The dollar has not strengthened a lot and a lot of people were expecting that to happen so while equities have sort of a are wondering was going to happen to the other markets. Alix yesterday all the talk was the s p yield is below the two year yield. Its dramatic. You dont want to buy stocks. In reality thats usually how it is. At least for nearly two decades now. You still have tremendous value in the equity market and only focusing on the dividend yield misses a broader picture. David the 10year is of at 2. 5. Are wondering was going to happen to the other markets. At what point does that migration start to get your attention . Going to have to be sustained for a little while. We have seen it trade in this range for a while. The projections are by the end of the year we might be at 2. 8. The projections are by the end of the year we might beuntil yoe upward like that or a change in inflation that starts to drive Inflation Expectations higher for longer youve got to wonder whether the fixed income market is going to see the strength that the equity markets are seeing. Ways its a lot more clarity in our second story. Sterling down by 135. Howterally dont understand the leader of your country can call you into their office and you say no, im not leaving my post. Actually cant imagine what that conversation is like. Tremendous dysfunction. Alix what is your response to that . The conservatives dont really have somebody else that everybody can agree would be a good leader for the country at this point. And the liberals dont exist anymore so that leaves labor with Jeremy Corbyn and nobody really wants that. Theres no good choices for anybody so they are sort of stuck with theresa may. David i wonder about the staff work. Normally you dont have the top unlessgo into a meeting you know what the outcome is going to be. If i was theresa may i would be saying guys where were you . You have to wonder if this leads to more and more of the tories backing away from brexit. The idea that there would be a revote was a nonstarter first oh for so long. It may at some point turn Public Opinion towards a revote. Its a long way away you have to wonder where this goes. Alix you are not in. Its really interesting this is filtering through to whats happening in the global story in the equity markets because u. S. Stocks have been on fire. Emergingmarket stocks have been on fire. Storydeveloped stocks have beenn fire. The one outlier is europe and this dysfunction in the u. K. Is creating a lot of friction in the european continent as a result. European stocks have but up against highs and really failed to accelerate beyond those peaks. In a world anomaly in which Global Equity markets have done extremely well. David lets talk about tech and autos. On display right now in las vegas. What are we expecting . Collects we are really interested in whats happening with tech and consumer stocks. They are dual leading the market right now. Youre seeing a lot of cyclical recovery being embedded in expectations in both tech and auto stocks. Chart is fascinating and it shows the extent to which around the world people are getting much more comfortable with Autonomous Vehicles. The yellow is where they were last year. Across the board people saying its ok. As a legaldont have framework for dealing with this. What happens with liability and how safe it will be when there are a lot of these things on the streets. It will probably be a slower rollout than advocates would expect. What i find interesting about ces is the emphasis on what they are saying is gadgets this year as opposed to software. To the extent that any of those gadgets can increase productivity now that you have an incentive for companies to spend more money in this tax code to try to raise productivity is there anything out there that people can glom its goingould say to help the economy . Alix i am so happy i am not there. I went once. The worst expense of my life. Its really warm there. Alix i went paris to new york to vegas in like 12 hours. I got off the plane and i burst into tears. It was terrible. Thank you for not sending me. David thank you to Gina Martin Adams and mike mckee who will be staying with us. Alix target up by 3 in free market. Sales for the holiday up by 3. 4 . The company also boosting its fourthquarter adjusted earnings guidance. 2019 comp sales. Solid numbers coming out of target especially when it comes to their holiday sales. This is bloomberg. This is bloomberg daybreak. Im emma chandra. Samsung electronics came up short in the latest quarter. The south korean giant reported lowerthanexpected profits. Samsung lost momentum in memory chips and was hurt by the stronger korean won. The Company Plans to release its latest smartphone. British sports car maker aston martin is taking a 6. 8 billion dollar valuation in a potential ipo later this year. Set the company on par with ferrari. They saw little more than 5000 cars last year. It is famous for its connection to the james bond movies. The richest person in the world has only gotten richer in the last few days first few days of the new year. Neton founder jeff bezoss worth is now more than 105 billion. Shares of amazon have risen 57 in the last year. Thats your Bloomberg Business flash. Alix thats a nice net worth. Big week for fed speak. The outlook for the feds ability to hit its 2 inflation target and do their models to work. Here is what some members had to say. I think the 2 target is quite important as has been beneficial. If anything keeping it too low and to stable. To mess withnt that. The cost of hitting a more effective lower bound should cause us to at least have a reassessment and think about what the implications of that are. We might like the bank of canada choose not to do anything but we certainly should be having the discussions. My main concern is that Inflation Expectations risks becoming anchored a low 2 . If this happened it would be increasingly difficult for the fed to hit our 2 target. Alix joining us is cameron cries and michael mckee. I want to get your take on what inflation targeting actually means. Two meetings over the weekend. One the American Economics Association in philadelphia and in washington yesterday the brookings institution. They were talking about what the fed does in terms of its policy of framework going forward. They said they have this 2 target there are a lot of Different Things they could do and one of them thats getting a lot of publicity is inflation targeting. I brought a chart that roughly explains it. The white line is inflation. Index. Its the number index not the percent change on a year to year basis. Itdropped below the track was on. The fed would say we want to target the level it was on they woulddrop and keep rates low enough long enough to do that. There are many variations of how you could do this. You could do it as a nominal gdp target. You could do it as a simple inflation target. A range of cpi forecasts may be from 1. 5 to 3 and that would be acceptable. There is a growing agreement that this inflation target of 2 has failed. It has kept inflation low but it has kept it too low and it doesnt get inflation back up to the target. . Avid why is it too low 2 is not written in the statute. I thought it was to avoid deflation. Are they still worried about that . 2 has beenthat sort of handed down and etched in stone from the monetary mount sinai is frankly absurd. Ago there were economic studies that suggested 2 was a pretty good sort of number to target for inflation. At this point underlying inflation across the world was higher than 2 so it was seen as an appropriate anchor and ive got a lot of sympathy for what rosengren said. That if you have inflation that you have to do qe, maybe your problem is your target. Anduse of globalization technology theres this massive disinflationary force not only in the note states around the world. Banks all over the place are having trouble meeting their target. Maybe you need to look at 2 and say perhaps we should have a range which is what rosengren suggested. It gives you a lot more of a margin of error. Of i think makes a lot sense. Alix is there an argument to be made that if you have a target that might help elevate Inflation Expectations it doesnt actually inflate affect inflation . They actually raise inflation targets. , lets makemake 2 it three and a half percent. Thats like saying im 59 in half and i cant play in the nba son going to target being eight feet tall. Maybe i will be seven feet tall. The real world doesnt actually work that way. The problems that they have is that when the inflation rate low they cant raise Interest Rates significantly higher and when the next downturn comes in its going to be much harder for them to stimulate the economy. Have cut ratesey by 500 basis points. Five Percentage Points each time there has been a recession in order to bring the economy back. Right now they are at one and a half percent. Larry summers made a presentation yesterday. That means the recovery is delayed long enough that the economy growth is cut by 1 trillion over a decade and that is a real loss to every citizen. David how much of this is what i would think of as real inflation as opposed to just expectations and is the fed no expectations has become a critical component of how you figure inflation going forward. The fed targets Inflation Expectations really because they want the markets to believe that inflation is going up. But how you do that, this inflation targeting idea. The range would give markets and some reassurance that they are ok. The idea is to bring expectations up in the markets first and then over the longer when weyou and me and do our salary negotiations with our bosses and that sort of thing. Look athave to take a dollaryen. At one point it was the only currency that was up against the dollar. What does that signal in the market . The thing about the boj is they have been conducting this program. Gram qqe if you look at the rate of change on the Balance Sheet the growth rate has been decelerating fairly steadily for a year or two. They have been pulling back a. Ittle bit from qe clearly theres an element of goinging that things are pretty darn well in japan and they dont need to necessarily put the pedal to the metal. I think its probably premature to be they are going moving towards an exit strategy anytime soon because japan more than any other country has a long and inglorious history of disinflation deflation and they want to make sure they have one this one. One won , the big day up for the british prime mister as she debuts her new cabinet but it didnt turn out quite the way she planned. Thats next. Live from new york and london, this is bloomberg. David it has been a chaotic new year for theresa may as she attempts to reshuffle her cabinet. Some senior ministers appear to be disobeying her orders. Joining us now is, ross thomas emma ross thomas. I thought these people served at the pleasure of the Prime Minister. Jeremy hunt went into her office. She planned to move him. He stood his ground and he came out in the same position. Another minister, she refused and ended up quitting the government. The criticism that has emerged is that she is not a strongly her and that has implications for brexit of course. This year is going to be incredibly tricky when it comes to securing a transition deal. Lots of squaring of circles and clever footwork and concessions from the ukip it from the u. K. David how much of the problem is she seems to be trying to take one from column a and one from column b . She has maintained pretty much the brexit balance within her cabinet. It is more a question of the leadership of the Prime Minister. This has happened before in 2009. There was an attempted reshuffle that didnt quite work out because the Prime Minister didnt have the authority to pull it off. David is it going to be finished today . There are a few more lowerlevel appointments and its at this level but she appears to be trying to address getting a few more women and minority ministers into the cabinet. Some people had expected yesterday but it didnt quite work out that way. David thank you. She is our brexit editor. Alix coming up, and innovative startup think they can turn a profit and decrease food waste. The waltons of family agree. We will discuss. This is bloomberg. Alix this is bloomberg daybreak americas. Record highs and seem to continue to be the theme in the u. S. As futures are up by another one point. A record high close yesterday. European stocks being pushed higher after unemployment data crushed in europe as well. Germany, i became an strong as well. Ip up strong as well. Bigr asset classes, the story, the dollar as well as 2. 5 on the 10year, breaching that level. Eurodollar still weaker despite the good data. G10 currencies up against the dollar, the yen, after that doj pared back long and purchases and 210 spreads are steeper. Ahead of the three year auction later today, selling in the back end. Crude, under real up over 62. Even iran says we dont want oil above 60. David who wouldve thought too high a price for oil . What is making headlines outside the Business World . Emma chandra is here with first world news. Emma progress in the first highlevel negotiations between the two koreas in years. Agreed to hold discussions on military issues with the south. Kim jongun team will send a delegation to south korea. For the next months winter 11. The Trump Administration regulators have rejected a plan to bail out the coal industry. Andosing subsidizing coal Nuclear Plants as a way to keep power dependable. No,latory commissions said it has asked great operators for their ideas. Arealoyment in the euro has fallen to the lowest level since 2009. The jobless rate fell. In line with estimates. One more sign that the euro area economy has gotten stronger. Last years Economic Growth was the fastest in a decade. 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. Alix thank you so much. The waltons family is the powerhouse behind walmart. Family members are making a new investment in foodmaven. A new startup creating a market to sell food from restaurants and Grocery Stores they dont want. Cofounder and ceo, patrick bultema. Great to see you. Patrick great to be here. Alix this is a sizable investment. Over 8 million. Walk me through what your company is about and what the attraction was for bigname investors . Patrick the u. S. Food system is good at producing food. Farmers grow incredible volume and variety. The system is good about pushing food to every corner of the planet so we always have everything all the time. The problem is we are not good at using all that food. That is what foodmaven is focusing on. 40 of everything u. S. Agriculture produces is thrown away. We are capturing lost food and selling back to institutional kitchens and restaurants. Alix what is your margin . Patrick a shared inventory model, we take a share of transaction. 65 Gross Margins on our business. Alix still burning cash . Patrick early days in the startup. We are in colorado and ready to roll out to every major metro area in the United States. Alix what happens if you cant sell . Patrick if we think we have more volume, we roll that too charitable donation. We dramatically increase the amount of food. It is crazy to think anyone in the United States does not have enough to eat when we are throwing away hundreds of billions of dollars. Because we have created a system and economic incentive we increase the amount of food to donation. Zero landfill policy, a third of what is going to landfills now is food waste. Where able to decrease that. Alix what is the tie with the Walton Family . Family, members of the do you expect there to be a tie to walmart at some point . Patrick not directly to walmart. We work directly with suppliers. It is helpful to have this connection, this relationship with the family. They reached out to us, actually, when they found out what we were doing. It was improving the food system and the positive social impact was what motivated them. Alix walter rob was the former ceo of whole foods, joined the board last year. What was the appeal for him and how many more heavy hitters are you going to try this year . Patrick walter, i reached out. He was attracted by what we were doing. I have not seen anyone else adjusting this problem. He investors as well as joined the board of directors. Alix how easy was it to appeal to him . To raise that money . Patrick nontrivial. Walter told me when he stepped out of whole foods he had 42 things that pursued him. We were humbled. Alix how about the latest fundraising . Patrick again, the family reached out to us. We feel very blessed to have this level of support. There is a growing recognition that we have got to do better. It doesnt make sense to be throwing away the magnitude of food we are losing every year. Alix when you look at the broader business landscape are there other inefficiencies in Different Industries you feel have the same kind of issue . Patrick there are. Farm toa lot of talk to table, the reality is there is no system for it. Part of the logistics and big data capabilities we are creating, we are capturing local food that otherwise are struggling to find a way to market. Alix are there other Business Models you feel inefficiencies in . Werick what we will see, are applying Information Technology and innovation to transform fundamental structures of society. We see that in transportation. Uber is essentially a shared inventory, being enabled by technology to transform the way we think about riding. Alix what me through your projections . Walk me through your projections . Patrick we believe over the next few years, we will continue to consume capital. We have been flattered by the amount of capital interested in being a part of what we are doing. Alix your revenue . Patrick we are not reporting revenues. Alix do you have a target . Patrick each service area we can do 20 million. Alix great to catch up with you. David thank you. It is not just food. Tech is transforming every business there is. Pharma is no exception. At the jpm Health Care Conference in san francisco, we sat down with john hannegan, about what tech could be doing to the industry. , we haved like to see been automating the supply chain for pharmaceuticals and medical supplies for a long time. 185 years. When you think about the role we play, our customers have a ,omplete array of products whether a Physician Office or longterm care facility or a walmart pharmacy. They are looking at what is available. Placing orders. Orders are priced specifically. Morning, 100 of what they ordered showed up usually delivered by our drivers. That a remarkable machine has been created over 185 years that does a lot of the same things amazon has been china to do with consumers in terms of automating, web presence. What might amazon do that you could support . . R see a role for we are in the distribution business. They are as well. Exactly. It is difficult to see where that intersection might occur. Manufactures use us. Our job is to make sure we continue to expand the proposition we deliver to our customers, including data, analytics, online experience, fulfillment responsibility. They look like a foe . Analytics, online i dont knol be but we have to continue to evolve so we can be there. Clearly, this is a complex business. Different than shipping koolaid. To that point, google is also looking at health care. I dont know about wholesale Drug Distribution but they are looking at health care. Would you put data assets and analytics up against those of amazon and google . When . I dont know what their capabilities are. They are significant enterprises and have made investments. We know the Health Care Space and our expertise makes a difference. When we have come up against competitors outside of health care, usually our intimate knowledge makes a difference. Anid that was part of out of thenterview jpmorgan Health Care Conference in san francisco. You can watch much more on bloomberg. Com. Lets talk about cars. Companies aretech telling us electric vehicles and self driving cars are around the corner. As much become just about automobiles as electronics. What we will see coming up. What do we expect to hear . Ford will have an announcement in five hours. What are we expecting . Ford will talk about work with cities. Jim hackett, the ceo says they want to take back the streets. They would like cities to be redesigned around people instead of cars as we move into the autonomous age. Project, it will take years to roll out. Everyone at ces want to show they are on the cusp of driverless cars. They are showing with the vehicles in las vegas. David with gm, wall street likes the story. It helps the stock price. Is there danger of over predicting and disappointing. Like tesla . Absolutely. The over promises is a constant risk in autonomy. There are still many technological and ethical challenges to solve with driverless cars. The Regulatory Environment is still lagging. You want a car with no Steering Wheel . The government may have another idea. There are many pitfalls. Nothing is guaranteed. David the question i hear most often around the country is, when do we get to a Tipping Point . How far out is this . We keep hearing it is coming. A significant amount in urban areas . You will start seeing the first signs this year. Formernix, waymo, the Google Self Driving Car Program will have chrysler driverless minivans taking around regular people. That will grow next year. And have driverless robot cars, taxis driving around major cities. Tesla is around the corner. In the next few years you will see lots of Autonomous Cars on the road. Intoctions have it grow one million by 2025. Alix ces and the relationship with alexa and google, what is the opportunity for ai at home to spread to the vehicle . You have seen alexa showing ford products, bmw, and there was a new chinese electric car shown on sunday with alexa in the dashboard. Between see a marriage the two things that have made ces run. Consumer electronics and automotive stuff. There will be more of a marriage of that as Autonomous Cars and electric cars roll out. David keith, thank you so much. Coming up, we talk autos. Be able to buy james bonds car but you may be able to buy a share in the company that makes it. Alix cant i buy the car . David if you can afford it. 400,000 . I cant. Colleagues from 7 00 to 9 00 in the morning. This is on bloomberg surveillance which can be heard in new york, boston, the bay area, all across the United States on sirius xm. This is bloomberg. Emma this is bloomberg daybreak. Im emma chandra in the hewlettpackard greenroom. Coryg up, we speak with gardner, a republican from colorado. This is bloomberg. We turn now to wall street beat. Letter up, steve cohens Asset Management, 90 billion with a leverage ratio of eight to one. Pe crushing the competition in the u. S. , 70 billion in assets. Revving up for an ipo. Targeting 5 billion pounds. I had to do it. David jason, tell us about steve . This surprised me. I thought we would take down the leverage. Eight to one is a lot of turn. Oh david westin. People learn lessons . This is an interesting theme in hedge funds. Everyone is looking at steve cohen. This leverage number, gleaned we are starting to get more transparency when it comes to that. This is an interesting look. The numbers are staggering. 3. 6 to oneious life, was the tip of leverage and now coming into this year, looking at eight to one. More than double almost. One thing that should be noted is that this was mostly, really entirely when he was investing his own money. David it may be different . Now that there is outside capital he could be less risky. David paying a lot of money to leverage . Alix that make sense but it speaks to, the hedge funds that did well in 2017, a lot of them were leveraged. If you need the returns and you want to charge the fees, you have to lever. Leverage is what makes wall street go round. Speaking of which, private equity. Alix lets talk about that. Partners group holding, never heard of them. If they have 70 billion in Asset Management in switzerland and doing amazingly well. The one thing that jumped out at me, someone said they had been consistently humble. That is something you dont hear about private equity. David from former goldman people. That is quite a combination. Aum a u. N. Has grown has grown. The performance is interesting. This is one of the ways we look at private equity firms, especially the bulge bracket. One of the consistent stories in the United States, the names we all know, the three of which, have not done great. Stephen schwarzman laments to anyone who will listen about blackstone share price and here you have Partners Group which has done exceedingly well. Stock price has increased more than tenfold since 2005. That is pretty good. Alix he didnt do under the radar deals . They stayed under the radar but the deals they did were substantial. The interesting things to know, they have been in the business of secondary deals. This is down a level in private equity, in the sense of, getting into the weeds. Buying other private equity firmsstakes. David they have not done well in the United States of our. More european money. Alix they have to make bigger bets. Firmsstakes. David exactly right. It gets more competitive as you do bigger deals and as they come into north america in a meaningful way they will be competing. David lets get to the real story. James bond . Specter fridayd night. That is the original car. Aston martin taking a page from ferrari. What jumped out at me was, this is a theme you are familiar with, david. Luxury suvs is what they are targeting. David they are bringing a big suv out. Alix im surprised it is happening now. David it is ferrari. Ferrari was so successful. Jeep oned their new this program. It is part of a whole lifestyle. A whole luxury brand lifestyle. That was implicit in your conversation a few minutes ago with keith. Ces, i was reading this morning about the car five at ces. It is all about not just driving around but what your car is about. David i will make enemies in my hometown of detroit. Grown, it has taken something out of the International Auto show in detroit. If you talk to people behind the scenes they will admit it. Announcing their cars at ces because they are mainly computers now. Alix we talk about tesla, the real question is, when is ford going to become a tech company . We will all be driving aston martin soon. Alix i will sign up. David great to have you here, jason. Coming up, what caught my eye. The president is meeting with senators to discuss immigration. A look at his priorities. Watchcheck out tv , us online, click on charts and interact with us record. This is bloomberg. David ok this is what i will be watching. President trump will be meeting with a Bipartisan Group of lawmakers on immigration. It seems to be the biggest barrier to keeping the government running 10 days from now. Democrats and republicans getting together to say, cant we all reason together . Alix what is the directive from the democrats . You want to negotiate . David the main priorities are, they have to secure dreamers. People who came to the country illegally as children. Everyone agrees we should do something to protect them. Does this amount to amnesty . The democrats have to come away saying, yes we have protected them and no, you did not get a wall. Alix they have to agree with President Trump and not at the same time . David there are republicans who are more moderate. I talked to scott taylor about this, a former navy seal, republican congressman from virginia beach. Military guy, served in mexico. There has to be protection on the border but we have to let in,ers indreamers i will take on scott taylor again. It doesnt have to be a physical wall. You need something there. Maybe im negotiating for both sides, we have given you more money to protect the border, it is not a physical wall but it is effectively a wall. Alix so you wind up getting a pass . David i am making it up. Only the government keeping going. Coming up, we speak with cory gardner, a senator from colorado, a republican. He will be at the meeting talking immigration. We will talk about that and marijuana. Live from new york, this is bloomberg. Alix risk on. The 10 year yields hitting a ninemonth high. Prepping for new records as the fed debates the target. Not so fast. U. K. Prime minister theresa mays attempt to reshuffle the cabinet as senior administers refused to leave. In lasain all on display vegas. The global stage for innovation. David welcome to bloomberg daybreak on this tuesday, january 9. Alix shaping up for a strong risk on day. Futures up two points. Adding onto a monster rally over the last five trading days closing again at record. Eurodollar weaker despite solid data in germany. Dollar broadly stronger today. 10 year yield reaching 2. 5. Selling on the backend, buying on the front end. Rally, overievable 62 a barrel despite ministers in opec saying we do not like that level, it is too high. David who would have thought . Time for the morning brief. Minneapolis Federal Reserve president speaking at a q a session. Trump30 a. M. , president meets with lawmakers on immigration. At 1 p. M. , the u. S. Auctions threeyear notes. The meeting coming up on immigration with President Trump. He is meeting with 20 lawmakers of the parties to talk immigration and a possible joint approach to keep the governmentfunded. One of those at the meeting will be senator cory gardner. Thank you for joining us, senator. Sen. Gardner thank you for having me. David lets start on immigration. The way we are reporting from outside congress, this is one of the main Sticking Point in funding the government. What do you expect to be discussed today . Is there a bipartisan path forward . Sen. Gardner that is the only way we will address this issue. I hope it is addressed. We have a number of children in our communities, our daughter goes to school with many of them who are here in this country through no fault of their own. This is a situation most people need to be addressed. We will not hold these children responsible for the actions of their parents. We do not charge are threeyearolds for trespassing for walking across the lawn. This is not a partisan ax. This has to be bipartisan. David the president has said he wants congress to address this. At the same time, he has been explicit in saying he wants a wall in connection. Happen . Is a needs to sen. Gardner you have a number of people who have demands. No one is going to get 100 their way. The bottom line is not trying to prevent the democrats or the president from winning. The bottom line is to provide and present a solution for these children. If that means Additional Border dollars, then we add Additional Border security dollars. There is reasonable compromise. Most important, these kids who were brought here, can win as well. David does that suggest there might be a compromise that didnt require a physical wall but did increase the dollars appropriated for security . Various things, technology. Is that a way this can be bridged . Sen. Gardner i think so. If you talk to the president he is not talking a concrete wall everywhere. A barrier of some kind, personnel, electronic enforcement. We can provide that. Let Law Enforcement work out what they need but we shouldnt be opposed to something just because the president wants it, just because democrats say it is key. What we should be doing is looking for ways to support security efforts, security dollars that can lead to a solution. David expand beyond this to the general agenda for republicans this year. There was a big win for the republicans at the end of last year with the tax overhaul. What other priorities this year . Sen. Gardner i was driving to the airport yesterday and heard advertisements talking about use your tax relief dollars to buy a new car. A lot of americans are going to wake up day after day this year and realize, they are taking home more money and that is a good thing. We will build on successes of the taxcut. Continue to grow the economy. Not all parts of the economy are as strong as denver. We will build on that success, focus on an infrastructure bill, bringing additional dollars to infrastructure addressing reforms. It continues to unwind the regulatory state. Continue to make progress on a probusiness, proeconomy outlook and policy. If we do that we will see a lot of people succeed in ways they have not in the past 15 years. David when we talk about infrastructure, democrats and republicans agree. Dont necessarily agree on how to go about it. Is it possible to agree on a bill that does not break the budget . Sen. Gardner the big question. 200 billion infrastructure plan, if so, how is it funded . Administration officials talk about partnerships with private sector, with local governments, communities. At the bottom of it, we have to figure out how to pay for without bankrupting the hardpressed economy, the treasury. We have to focus on things like permit reform. If you are talking to a county commissioner in colorado, they will tell you, they will turn down a federal dollar in order to take a local or state dollar. They can make that local or state dollar go so much further in terms of building that road than the federal dollar. It makes no sense. Major metropolitan areas are trying to trade federal dollars are state dollars with their department of transportation to get away from federal entanglement and overhead, something is wrong. We have to cut out the middleman. We have to make these dollars go further. David you referred to permitting issues. That is clearly an issue. Anyone in the Construction Industry agrees. A lot of those problems are local. You have been outspoken in the change in the department of Justice Policy about enforcing federal laws on marijuana. In part, it should be left up to the state, you say. On they preempt infrastructure but not marijuana . Sen. Gardner we are talking apples and oranges. I am talking about a states rights on marijuana. We are talking about federal permits that are creating problems stateside. The federal government has said we can override. I would like a states rights decision to prevail. I opposed the legalization of marijuana. The voters spoke. The states were intended to be laboratories of democracy. Colorado is in the heart of the laboratory. We should put something for that allows that experimentation without running into the federal government. David is your objection to the change by attorney general jeff sessions, is it a legal objection . Is there any question in your mind, does the federal government have a right to have a federal statute on marijuana . Sen. Gardner there is the 10th amendment that allows states, things to be in the hand of the state. And the clause which says the federal government does not have the ability to regulate int rastate commerce. There is a constitutional framework at stake. It is something i feel personal about. I was told prior to then senator sessions confirmation, this was not on the agenda. Even though he does not like marijuana, he doesnt have the room on the broadband to get this done. I took him at his word and here we are making this a very serious announcement. No dialogue to congress. That was a mistake. I look forward to meeting with him to find a way forward. To allow states writes to prevail. David could they overrule the attorney general . Looking at medical marijuana over the past several years, california has succeeded in the house in terms of adding a writer on medical marijuana. The possibility of expanding legislation, the amendment to other areas of states that have legalized marijuana for recreational purposes. This is a discussion we continue to have and a broader context we have to discuss this in terms of, longterm. Not just a year by year appropriations bill but something we can do to protect states rights. David thank you for your time, senator. Alix lets get an update on headlines outside the Business World. Emma more progress in the first highlevel negotiations between the two koreas. After 11 hours, north korea and south korea agree to hold further dialogue. Will send as regime delegation to south korea for the winter olympics. Lawyers for President Trump are said to be discussing how he would handle an interview with special counsel Robert Mueller. According to the washington post, Robert Mueller has raised likelihood he will question the president in the russia probe. Lawyers arets discussing limits. A u. S. Military satellite launched by space x has not been spotted in orbit. That has created a mystery about the classified payload. A u. S. Official and two congressional aides say the second stage failed and the satellite fell into the ocean. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im am a jongun, this is bloomberg. Im emma chandra, this is bloomberg. Alix if your models arent working, what do you do . Nathan sheets worked at the fed for many years, he will help us break it down. This is bloomberg. Emma this is bloomberg daybreak. Shares of target are higher in premarket trading. The discount retailer raised inrthquarter guidance, november, sales were reported as better than expected. They expect higher earnings thanks in part to the new tax reform law. Samsung electronics came up short in the latest quarter. The south korean giant reported lower than expected profits. Lost momentum in memory chips and it was her by the stronger korean won. Fitbit is considering a smart watch for kids. The line of gadgets for children has been under discussion for months. Meett is struggling to demand. That is your Bloomberg Business flash. David thanks, emma. We heard yesterday from fed members about what they should be doing in the face of puzzling numbers on inflation. They are searching for new approaches. I think the 2 target is important and has been beneficial in keeping inflation low and stable. Toohing, to stable stable. Prolonged area, be, we could like the bank of canada choose not to do anything. We should be having those discussions. Concern, Inflation Expectations, risk becoming anchored below 2 . If this happens, it would be increasingly difficult for the fed to hit the 2 target. Sheets,e have nathan pgim fixed income, chief economist. He also spent 18 years at the Federal Reserve. Welcome. Nathan good to be here. David what is going on with inflation and how should the fed be reacting to it . Nathan this is truly an extraordinary period. We have a low Unemployment Rate near 4 . The output gap as measured is closed. At the same time we are looking at inflation well below target. Is, do you believe models that rely on slack as a leading indicator of where inflation is going or gu look at the actual data . The fed in policies has tried to split the difference. Towardved gradually higher rates but have taken their time and paid attention to what is going on in the data. David if you are on the fed what would you be voting for . Nathan i think the strategy that the yellen said has articulated, that i suspect jay powell and his colleagues to continue is very reasonable. On the one hand, inflation was thew target, and possibility that with slack limited, inflation could kick up. On the other hand, you dont want to move too quickly. They move gradually toward monetary normalization. I think that is the right path. Alix what is interesting, if inflation look at breakevens and market expectation it has been creeping up. Take a look at the bloomberg. 2, 5, and 10year breakevens. Etfs, the most inflow last week since 2016. Is the market starting to reprice . Nathan i think this is an important point. Or six weeks month we have seen market indications of inflation, move up meaningfully. Toward that 2 fed objective. Theink it is signaling economy is doing better and probably also, reflects the impact of the tax bill. People thinkts that will have on the economy. Alix the 210 spreads around 53 basis points, steeper today. How do you understand that . If Inflation Expectations are telling you about potential growth, how do you understand the yield curve . Performanceink the and evolution of the yield curve is the number one issue in markets today. One thing it is clearly telling us, the markets are expecting ae fed to continue on tightening trajectory. At the very back end of the yield curve, i think it is telling us, the economy is solid but not spectacular. Even with the recent increase in the breakevens, inflation is likely to stay contained. Alix in terms of the makeup of the fed, best guess for vice chair . Nathan i think alix you are not going to answer . David tough question. Nathan let me say, i think jay is wellpositioned to lead the fed. Having a phd economist to complement that would be constructive. Ishink the list, largely including those who have that kind of background. David nathan sheets will be staying with us. Alix breaking news concerning michael novinger at. He is starting a Merchant Bank. Questions of course. Overseen by the fcc. Busy trying to make his own cryptocurrency . A goldman ofarting crypto at the end of the day and will be taking Galaxy Digital public as well. Galaxy and others will form a blockchain and Digital Asset in the crypto i dont know. Earlier he said he was going to raise a fund in bitcoin. I think this may be a Merchant Bank to invest in companies in blockchain rather than the currency itself. Alix that would make sense. David i think that may be. We will follow the story as it develops. China pot central bank is changing its tact. This is bloomberg. Central bank, the yuan trading more freely. The dollar being lower. Now as capital outflows ease and china opens the markets, the fx market has loosened. You can see the response as the dollar rises. Nathan sheets of pgim fixed income joins us as well with tremendous knowledge of all things international. Where is china . Nathan i would characterize it as two steps forward and 1. 5 steps back. Into 2014, 2015, they had imsal of getting into the basket. That required reforms to the capital account, which they implemented. As you indicated, after that they experienced severe capital outflows and they put capital trols act on and forced put capital controls back on. It is more stable than before and they are starting to ease up again. Uneven for them toward capital account openness. Which is appropriate given that they have underlying Financial Development they need to do. David every currency is driven by trade balances and inflows and outflows. I will put up a chart on the terminal comparing chinas dealings with europe compared to the u. S. Emmanuel macron is saying we are open for business. There is more total trade in exports between china and the United States than with europe. China imports more from the eu. This is all imports from china. The thing donald trump is most upset about. Nathan there is certainly a problem with china. It is something the Obama Administration focused on. Something the Trump Administration continues to focus on. The chinese need to further open up their markets to international competition. We need to see more scope for u. S. Exports to china. As those barriers are broken down, also more eu exports to china. In addition, the chinese need to take further steps to level the Playing Field for foreign firms in their country. Alix can the market handle the changes . Process,his is a expected incrementally. Given that expectation i dont think it will be disruptive. 2015 and, we saw in 2016, when the chinese try to move faster than incrementally, it creates uncertainty. It leaves markets wondering, what are their objectives . Ie answer to your question, think the markets can but there is a risk. Alix nathan, staying with us. U. K. Dysfunction, up next. Alix this is bloomberg daybreak. One hour until the it looks like it will be another record high for the s p 500 and the dow. Features of by three. And solid data out of china. Excuse me come out of germany, and solid data for the employment of their paid despite the dysfunction we have seen. And it is a broader, stronger dollar story, except when it comes to the dollaryen, down as the boj pairs back from buying in the long end of the curve. Down by 3 10 of a percent. And nice steepening today, up at 53 basis points, the biggest selling happening. Buying cummington the front and. Threeyear auction later today. Watch the demand of the yields move bid and crude, 61. 92 despite the fact that opec says they do not want oil over 60 a barrel. What is the potential for correction . David you named it, dysfunction cabinet. It has been a chaotic year for theresa may as she attempts to reshuffle her cabinet. But some with different ideas on what should be done. Joining us is emma ross thomas. What is going on and how does it affect brexit . Emma a couple of ministers wanted to move, in one case they ended up keeping the same job, in the other case she ended up quitting. This is justine greening, she could become a thorn in the side of mays parliament. Narrativething is the coming out with a reshuffle is one of weakness, that theresa may has not been able to take authority on the cabinet, to be a vote to balance the divided cabinet. There will be big concessions that will probably have to be made to get the deal that britain wants. Hard decisions even to get the transition deal in march. They will need to make difficult decisions about the relationship they want with the eu and what they are willing to accept a good businesses what they want. To make those decisions and keep negotiations going, strong leadership and an ability to unite the cabinet will be crucial. Alix thank you. Emma ross thomas. ,till with us,nathan sheets help me understand the u. K. Nathan i think that the key as an investor is not to get too focused on the day to day negotiations and the ebb and flow of the Brexit Process. I think the broader narrative is that this will be a long, slow grind. And the new relationship between the u. K. And European Union will reveal itself slowly over the course of years. That at the end of the process, it is in europes interest and in uks interest for that to be as close and harmonious as possible. I cannot expect brexit will end up being disruptive for either economy. Alix if you take a look at the broader Global Economy, the bulls for the u. K. Will say it is ok because if the recovery is doing well, it will offset the weakness from the u. K. , so how do you see it . Nathan on the one hand, europe is doing well and the Global Economy is doing well. That is constructive and supportive for the u. K. Economy. On the flipside, the Brexit Process is creating uncertainty inside of great britain. And i think you are seeing the signature of that in the investment data. Investment in the u. K. Has softened. I think it is a question of how long it will take for the u. K. Corporate and for Foreign Investors to feel the confidence to put their money in. Alix we will talk about confidence. This is the g3 breakeven. Reallyowing japan with a big rating in terms of their break even for the 10 year. So has europe. The u. S. Is outpacing, but what is your expectation . Yesterday we talked about the first rate hike in december of this year. Nathan over the last year, the big supply system for the Global Economy was the strength of the euro and the strength of japan. I think the data that you are highlighting is consistent with that. I think that the boj is in the middle of a stealth exit with asset purchases. Given the size of the Balance Sheet and extent of the purchases, that is significant. The ecb is on a tapering campaign. I would be surprised if mario draghi got to the point of doing rate hikes this year. He has worked hard to rebuild and reestablish confidence in the euro area economy, and there is no hurry, so i expect it in 2019. David no hurry, but it seems clear with the direction is. It ise boj and the ecb, already on the way. You are focused on fixed income. Take us forward, what does it do for the investor when the Central Banks are reducing Balance Sheets or hike rates . Nathan where we stand now, a lot of it is priced in. The question is, how do the macro fundamentals evolve . If we get into a place in a year were inflation in the u. S. Is above 2 and we are seeing governor kuroda raising inflation above where it has been recently, and mario draghi is moving inflation toward 2 , we are likely to see an imprint of that on the back end of the curve. On the other hand, if it is subdued, if inflation is subdued, i think a year from not as likely to look like today. David great to have you. I think you will stay and talk about cryptocurrency. Alix an outspoken champion of cryptocurrency looking at bank,novogratz looking at building Merchant Bank. We are joined by eric in san francisco. Walk us through what were learning. Michael is going institutional novogratz is going institutional. You can buy bitcoin right now, the token themselves. Butnovogratz is creating a firm that will go public and give people another way of publicly investing in bitcoin. He is starting Merchant Bank a Merchant Bank, which he is calling Galaxy Digital. While being outspoken on cryptocurrency, he is a Firm Believer that the coin that underlying the blockchain, have a transformative power to rishi up reshape finance the same i that the internet underlying reshaped communications. It sounds highly optimistic. But he is taking all of his crypto assets, 400 million of tokens and icos and Start Ventures and rolling them into this Merchant Bank. His investment is concerned, he is all in. David how much of it will be investing directly into the tokens, into the cryptocurrencies, and how much will be in the companies that are involved, either in crypto or in blockchain . Erik it is a mix. Galaxy digital is going to be active in four areas, one of those is trading. It will trade cryptocurrencies and other things that trade on exchanges, tokens if you will, just like a fund would. It will also do principal investing, in which case it would take stakes in icus and dedicate Venture Capital to startups. It will have an advisory business while it would do project management and Market Research for those that want to know more about the crypto world. It will also have an Asset Management business. You may recall, not long ago in fact, just a few weeks ago, michael was on the cusp of starting a hedge fund, which he shelved in the middle of the chaotic bitcoin and Crypto Trading in december. That was going to be living inside of Galaxy Digital. Galaxy digital was part of the plan all along, it was supposed to be a hedge fund first, then Merchant Bank, which would put it inside. Now it will be a Merchant Bank, the hedge fund is not happening. Alix thank you so much for that reporting. Banks areavid big scared to touch this. David the Goldman Sachs of cryptocurrency. Alix on a very limited basis. David nathan still with us. Give us your sense of what is real here and what is really noise, in the crypto world more generally. Bitcoinmy view is that is grabbing the headlines, the real revolution is likely to be the blockchain technology. Which opens the door for potentially decentralized forms of payment and clearing and settlement in extraordinary ways. The other important point that you are touching on, is i think that the established Financial Sector is nervous about getting too close to this, because based on a very factor, the very reason it is so decentralized, and the potential for it to be abused. Which is an issue that regulators are looking at closely. Alix if you are still at the fed, what is the moment where you say, we need to look at this . Nathan i would say policymakers are looking at two issues, one is the issue of abuse and are the bad guys utilizing this technology in a way that is making it a risk to the economy more broadly. The other one is that Financial Stability question. Is there something about the technology that threatens the overall stability of the Financial System . So far the answer to both questions has been no. The regulators have been fairly supportive of it, within limits. There have been times when it has been checked. They are allowing it to develop and allowing financial innovation is a very important part of the policy of it. David really good to have you. Coming up, the World Biggest gadget show kicking off today. We will look at why it matters once again. As a commute in, you can listen to the radio. Tune into tom keene and jonathan foxo in new york, then pimm will be joining. Bloomberg surveillance can be heard all across the United States on sirius xm. That is washington. Foggy. You cant even find the washington monument. Live from new york and washington, this is bloomberg. Emma this is bloomberg daybreak asia and this is the Hewlett Packard greenroom. David ricks, live from the jpmorgan Health Care Conference, coming up. Emma now to your Bloomberg Business flash. In germany, continental considering a possible breakup. According to people familiar with the matter, the company is in talks with advisers. They say continental could create a holding company, and then lose it shares of more profitable units. British sports after martin seeking a billiondollar valuation and a potential ipo later this year. According to people from other with the matter, it would put them on par with safari with ferreri. They are famous for the connections to the james bond movies. The richest person in the world has only gotten richer in the first three days of this year. According to the bloomberg billionaires index, jeff bezos net worth is more than 105 billion. Shares of amazon up 7 this month. They have risen 57 in the last year. That is your Bloomberg Business flash. Alix the consumer electronic show gets underway in las vegas where the Newest Technology will be on display, but what is the difference this year . A distinguished fellow joining us. Good to see you and get your perspective. I was joking that i went to this about nine years ago and i actually hated it, but at that point it was about the little gadgets you would find from smaller companies. What will it be this year in comparison to what we normally see . This year Amazing Things are happening. You are seeing all these little gadgets, they will all be connected together and you are talking to them. It is either google voice or alexa or other technology, tying together using Artificial Intelligence. Vivek the other big surprise, you have ford and toyota, the car industry is there. They are becoming one big gadget and they will be interconnected. We will be talking to our cars. Nissan will be demoing a headset that led to drive. Forget about the car driving itself. You will use your brain for that. And Virtual Reality. We have had oculus for a couple of years. But it was like watching a 1960s tv set. Now you see these in high definition. Those technologies are getting real. You have addons to Virtual Reality, so if you are playing a game, and you die, you get knowledge of shock get an allergic shot. David im not sure i want my car to know what is in my brain. Lets get past that. Is there going to be a big winner . Hsit like betamax versus the vhs, or will they all be talking to one another . Vivek for the moment, it is jeff bezos that is when, because alexa is everywhere. A close second is google. But eventually, you know right now it is like, it is like, remember star trek, we will assimilate you . Everything is being assimilated into a common intelligence. Each device will have its own Artificial Intelligence chip, just like you have computers and devices, you will have Artificial Intelligence chips, like robots in sciencefiction. You are talking to your robot, rosie the robot for example. You will talk to her rather than the collective. That is what you will see in the next figures come Artificial Intelligence becoming localized. David i remember star trek and i know what youre talking about. [laughter] stay with us. On the phone we have ramon lammas, Research Manager for wearables and mobile phones. He is in las vegas. We are talking about what vivek is looking for, what are you looking for . Ramon you will see a lot of voice. Of things with a here is what i am looking for, the ecosystem that will ties altogether. As much as we have seen these devices, it is one thing at a time. What i am excited to see is the connected home where the tv talks to your appliances, talks to your bedroom and thermostat, even your bathroom. At one of the smaller shows last night, there was no shortage of smart things. Guess what, they are not talking to each other. Wouldnt it be nice that as and as you walk into your home, the home of the future, you could say a command and all these things talk to make sure that they are ready for you. You do not even have to think about. It is an experience as a go from one room for the next and they are ready for you. You say in new command in order to get things done. There is not a lot they can do that yet, but we are starting to see it. Especially from samsung, they have a great platform in play. Alix fair point, that is what they will try to do, and operating systems a let you talk to every device. Will it be a situation where only one company can play with one other company, like google or amazon, or will it be multiplatform . Vivek i think it will be multiplatform. Now you are picking and choosing, but eventually you will have more centralized tools. The question you should be asking, do you want your toilet talking to your toothbrush in the refrigerator . I do not think i want that. I am waiting for the next generation where they are alone, they are intelligent, but do not talk to everybody else. David how will it change our lives . Will it be for the better or the worse . We have these things in our pockets, were constantly texting, but is it making a better and more efficient is it improving our lives . Vivek my next book is called your happiness was hacked. I think it is making as unhappy. Even now, i am sitting with my smartphone wondering what i just saw, the click. This is where we are. Imagine every device, the toaster, the refrigerator, talking to each other and being connected, and watching us to enforce up. 247. I do not have any of these devices at home because i do not jeff bezos spying on me. I do not want him knowing when i wake up to go to the bathroom, or how active im. This is what the dark side of it is. Some of it is good, too much is bad. Now we are talking about cars being connected, the car is watching you. You are being watched. It is like the scary stuff of science fiction. Remember that tom hanks movie in the dome when he was watched all the time . That is what it feels like. Alix im glad that you brought it up, because there was a huge issue with an intel chip that was in all devices, and they are in the process of fixing that. What is it in terms of cybersecurity . Vivek i do not think they want to talk enough about it. They want to celebrate like christmas, but the discussion about what it means, the discussion right now, is the discussion we should be having what happens when you get hacked . You want to spy on your exgirlfriend, you get into her network and you can see everything that happens. Those are things which have now become possible and do we want this . I worry about it. Even though i am excited about technology, i am talking about all the Virtual Reality headsets, but i worry. Those are discussions that do not happen at this event. This is the discussion you need to have more of. Alix we appreciate your perspectives. It is a real pleasure. Thank you. Check out tv go. Click in our charts and graphics and interact with us directly. Go to tv on your terminal and you can also reach out to us on twitter. I am sketchy on twitter. I need to get on this. I am an old woman. [laughter] this is bloomberg. Alix here is what im watching. The treasury will auction 24 billion in three your notes. The last option was auction was strong and im curious about the stock short end. Today you see the steepening. The backend with nice selling. Up by three basis points. David because . Alix it shows the yield sensitivity. If we rise far enough, will there be buyers . That is what i am interested in. David shortterm interests could be going up and they are more likely to hold up to buying. Alix it depends. You will probably want to buy and getting us return for the yields. Otherwise, why would you touch it . That is a good read to what the fed might do. Open, chiefn the u. S. Equity strategist, and a chief market strategist, the bulls coming out. 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 10 year treasury yields hit 2. 5 . Fuels speculation about policy changes. Nothing disrupts the u. S. Stocks, five days of trading with fivetime highs. The economic backdrop looking even better bid unemployment in the eurozone test even better. And implement in the eurozone dropping. We are tournament away from the five days and five records. We are up five basis points on the s p 500. The eurodollar on the back foot. And the dollar catching the bet against most of the g10. You see the pick up in the 10 year treasury yields, it has been a slow grind, but we are breaking 2. 50, up two basis points on the session so far. And now the movers with abigail doolittle. Abigail lots of