David time for our daybreak first take. We discussed the top three stories of the morning. First up, equities on the rebound. Second, the outflows from the bond funds. Rd, dreamers did not third, dreamers. They did not get to an agreement in the senate. Michael mckee, we want to start with u. S. Stocks. We are back where we started the year, despite the turmoil. U. S. Stocks are where they started the year. Much. An stocks, not so they have lagged behind. Are we in the midst of a rate hike tantrum. We had seen a thin reaction. There are two points here. Performance in five years, that is silly. We went down, we went up. If you are looking at this, you the to see, not so much absolute level, but what kinds of things are being bought and what is being sold. Other assets are highly risky. Did come in and clean out the safelyso you can more move up. Make the case that equities can still rise. What happened the last couple of weeks, was it a tantrum or did weeks the constructive moves . Has it really not moved . One of the interesting things is it did not seem to be that to the related fundamentals. What we have seen when we look at the economy is a lot of things that should reconstruct the for stocks. Seeing solid consumer demand. The fed is saying they are going to hike rates. We are seeing a gradual,s that he passed a gradual, steady pass upward. This lisa this seems to be evaluation driven selloff. There has been a shift where people are repricing how much rates can rise. This has prompted the selloff. Is that narrative accurate . We repriced little bit. Bond yields have peaked and come down. Most of the strategist suggest we go into a period of consolidation, that we need something to get us through the benchmark. We are in a bit of a higher inflation. They will take more for us to go beyond that. There has not been a profound shift in economic backdrop. Highyield, huge outflows in the past week. You could see more than 10 billion left highyield bond funds in the past week. The secondbiggest outflow on record. This drove the outflows from fixed income funds. There is a question here. Is this just investors taking off risk . Is this a fundamental concern about the economy . Or what would you say . You see a graph like that, it looks like a big move. We see these things go up or down. Psychological moment where everybody says things are looking bad. Rates are moving up. Want to get out of the trade in the short run. I would like to see these numbers over a couple of weeks to see if they have stabilized at a lower level or people are starting to come back in as they search for yield. Lisa david pointed out this fabulous chart. David what does it do to spreads . We will put this chart up now. There is a big spike in the and the investment grade. The spread between the two, they are coming back down. One of the things to watch is what happens with that story. In the want to see is whetherong term this concern about inflation is something we see consistently, or if it fades away as investors get away from this high volatility area. Is it an authentic concern that prices will move upwards or is it is something more fleeting . Absolute yields have risen more. The fact they widened at all is interesting. Those relative yields have come down. Our third story, the fight over daca. In the senate yesterday, they tried to get exd votes. They got they tried to get to 60 votes. They got close once. Say this has to been a disappointing week. I kept my commitment and set aside the week for a broad, productive debate over daca, and otherurity important immigration issues. There is only one reason the senate will be unable to reach a bipartisans aleutian. A bipartisan solution. Trump. Thed lets talk about practical aspect of this. How can we deport 1. 8 million americans . The president was talking about this, there is no way the Immigration Service has do all of this. Each individual probably has the legal right to appeal their own case. It could be difficult to do this unless ice comes in and throws people on planes. Two things will happen. One, this will be an issue for a. Hile we may see something boil down to a temporary continuing resolution to keep them in the country. The other, this will end up in the court system and it will be something that may go to the Supreme Court at some point. Thats seems to be the fall back. If we cannot decide, somebody will files youd and we will let the justices handle it. David coming up, equities power higher. Are extendingpe gains. More on the rally next. This is bloomberg. Taylor this is bloomberg daybreak. Cocacola posted profits that beat estimates. An increase in profits for the fiscal year. They are being helped by their growing portfolio of different drinks. The largest maker of farmer equipment has posted a 25 increase. Corporate farmers are starting to replace tractors and combines. Amazon, youtube, and twitter may bid for streaming right to nfl football. The rights would run as long as five years. The nfl is getting help in negotiations with fox. After yesterday, equity their losses two from last week. European equities have not come back as fast. His jupiter fund is up 40 this year. Welcome to the program. Start with u. S. Equities. How do you account for what has happened. Last week, we saw it was a new world. Now, it does not look like it is a new world. What happened, when bond deals when bond yields , we had anspike emotional reaction on friday. Classicalth, we had a low out due to the inverse vix products and how they were constructed. It was a digital barrier that caused massive selling in s p futures. Late in the day and after the close. That spilled into other markets. Mask risk reduction, other markets started to catch up to the drop in the u. S. Market after the fact. Recovering, are volatility is dropping down. Bond markets are starting to stabilize. Heavily. T sold chinese shares got sold. Commodity markets should benefit from higher inflation. There has been a rebound. I want to look at the correlation between different sectors within the s p 500. It hit a low for the recent cycle. It has been coming up through the market route. This is raising red flags to some, saying this represents hot money, fast lows and could signal more volatility. Do you read anything into this . Are low. Ations that is why we are getting sector rotation. It kept volatility low as the market kept rising. That is not sustainable. We will get more volatility in markets over the next 12 months. Bond yields will continue to hedge higher. Lisa did you buy on the dip . We did not buy, but we did not sell risk assets. They rapidly recover once yields start to stabilize. This is going to be a bond market story. David europe has not come back as fast. Dividend yield, the blue line is europe, which indicates european equities are undervalued compared to u. S. Equities. What is that about . European markets have frequently done this. They will selloff more. Ultimately, european markets should recover and outperform the u. S. You taking the opposite side of the bed . What has been reported is publicly reportable short position. We do not know what his longterm position is. Bea the obvious trade would long u. S. Stocks, short european equities. If this is a shortterm bet, he would have done well. David you think we should be the reverse. One of the reasons europe and chinese sold off hard is because there were large flows going into those markets. When everyone reduced risk, the markets have your flows to unwind than u. S. Markets. As volatility pulls back, people build back positions, they will recover some of their underperformance. It may take time, but they will recover. Will continue the conversation. Ballooninghow a budget deficit could weigh on government debt. That is next from new york. Flood, the u. S. Will have its biggest auction of three and x month bills, pushing up rates more. With the ballooning deficit, there is more to come. Louis funding costs down the line, making life more expens ive. We are seeing a massive outflow from riskier credit funds. The secondbiggest outflow on the record last week. How much more can tenyear yields rise and what will this do to credit . U. S. Treasury yields are under pressure out to about five years. The issuance of treasury bills will put funding pressure and yields higher in the front of the curve. Curve isend of the holding much better. Some of the rise in 10 year and 30 year yields is because we were coming up to auctions midmonth. Stabilizationme below 3 . We will rise higher. The increase in yields in the u. S. Or in europe next year are i dont rail think the increase in yields in the u. S. Or in europe next year are going to derail. One thing we have not seen yet is the full effects of the tax cut. It could drive inflation and affect the yield curve. What do you expect through the rest of the year . I dont know if the tax cuts will affect the long end. In a hiking cycle, usually the very long and is the place to be. That yield the case increases are higher on the long on the front are end. Hikes are priced into 2018, little bit in 2019. Themre seeing globally move towards flattening. Seeing real money, european investors buying long and italian and spanish debt, where the yields are steep. Lisa shortterm rates could rise so much without dampening the economy. How muchink about Consumer Debt has incurred, it will make it harder for them to repay. Investors will see they can make money from cash. After we haveey seen the past few years. Doesnt it dampen the potential growth . Like they raise rates 1994, that would be a shock. All indications are that the fed is going to go three times, four times this year. Next year, maybe they will go to or three times. It is not such a huge increase in rates that is going to up that that picture. We are going to get rising inflation. They will start dropping out with the april cpi release. The second half of this year, we will see inflation pick up. Yearend, we will probably see core pce just under 2 . The talk hasof been about a change in regime based in inflation. It seems to be a shift away from Foreign Investment in u. S. Treasuries. Is that a broad phenomenon . How could that affect Interest Rates here . If Foreign Investors are not piling in, it may not suppress the rate. If you look at the data that has come out, Chinese Investment heading up. Es are japanese investors have shifted investments for technical reasons in the on market towards european debt. It european money divested out of the periphery during the euro crisis is returning and buying long and italy and spain long end italy and spain because those countries have rebalance their economies. Hey are starting to grow if italy grows, the debt starts to go down and everyone will highly in for yields. You buying as people cells . As people sell . We are not buying them. Positions weg have. A lot of what the selling of corporate debt we saw in the last week or so was because Retail Investors have money. When they buy bond funds, they buy corporate funds. They are on hedged. Ultimately, it is as red compression. A compression. From new york, this is bloomberg. David welcome back to bloomberg daybreak. I am david westin with lisa abramowicz. Lisa lets get you caught up with a Market Action. Green on the screen. You can see stocks europe 600 up almost 1 . Also up even more s p futures, less than. 2. Nasdaq futures up a bit more, so tech stocks are rallying more into the open. If you flip the boards, you can see oil is up a little or trying to get back to where it was after plunging on the dollar strength. Gold futures are up. 10 year yield dropping in tandem with a decline in 10 year u. S. Yields with german yields. Kailey taylor riggs here withlor riggs is first word news. Theor the u. S. Has deep in impasse over how to protect undocumented immigrants facing deportation. Lawmakers lost four proposals and republican senators are floating the idea of a temporary extension of protection for dreamers. The 17 People Killed at a Florida High School were remembered at a candlelight digital. The names of the victims were read out loud and there were signs asking for action to fight school violence. A judge ordered the suspect to be held without bond. According to the rest report, nikolas cruz confessed. Officials say he arrived to the school in an uber and begin shooting with a semiautomatic rifle. Retail sales in the u. K. Barely rose in january, climbing. 1, well below forecast. Endushed the pound lower through a spike in inflation. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Lisa thank you. Emerging markets have remained solid during and after last weeks selloff, but is the emergingmarket bet still a good one or is it coming to an end . I am fascinated i this chart. This is the chart of the day in my opinion. It shows investors are earning no extra yield to own high emergingmarket debt relative to u. S. Highyield corporate debt. You are getting paid nothing extra to go into risky emerging markets versus risky u. S. Companies. To discuss all of this is the ubs had of global emerging strategist and said haidar. I want to start with you, what do you make of the fact they are not getting anything extra anymore to own emergingmarket highyield debt. Is this a signal going into the u. S. And leaving emerging markets . No, i do not think so. My focus is mainly equities and theres no doubt emergingmarket debt has performed well. One of the interesting things about the big correction in equities over a couple of weeks ago, 10 drop in the u. S. And em, was have relatively well most other Asset Classes held, including highyield debt in the u. S. And emergingmarket debt. We think because of strong fundamentals that some of the local currency debt markets are still interesting, but generally, folks are focused more on equities, and we think it is more to come. David talk equities for a moment, how much is a currency issue . If you are doing it in u. S. Debt or equities, the value is going down, relative. Geoff currencies play a huge role in e. M. And we have always talked about that in our research. It pushes money into riskier markets overseas, and it also leads to positive translation that you mentioned. Our god is with this 10 correction in e. M. , the work we published a couple of days ago shows currency played a small role, only contributing 50 of the decline in the markets, which is unusually low. Currencies held up, and that you mentioned and has been important to em. It is doing a worse in the u. S. And collection correction. We are rallying as the dollar falls, which is good for emerging markets Going Forward. , you posted a return of 40 in one of your funds on an emerging markets that, what would bet, what drove those returns and what were the best performers, and how have you be calibrated your ideas based on what we have seen in relative value trade moving away from emerging markets . Said i think emerging markets went through a time of weakness for about five years until february 2016, when the chinese valuations were steep. Since then, you have had some interruptions due to brexit, election, various things. In general, emerging markets have performed well in getting large flows as currencies have strengthened and inflation rates have dropped, which has let them cut rates in many countries. We could come up with a list of cases where they are doing that. There have been some reforms in some countries to move away from leftist governments toward conservative governments. In general, you are getting flows into em. The weak dollar will help that. Lisa the dollar has continued to weaken. Weakeningink it keeps against g10 currencies because we have a trade going on where other currencies will catch up one year or two years from now to u. S. Rate hikes. David as you look at the em situation, how much of your call on it is based on what they call the global synchronized trade move . Do you see any hiccups . Talking globalre trade growth . David sorry, yes. Geoff we are anticipating a stronger Global Economy this year. We operated the forecast for the , and china, the euro area brazil. That is part of the story. We thought originally our growth comes of the fact it will our growth with flatten. That will flow through through Earnings Growth and em indirectly. We had a strong year in Earnings Growth last year, 23 in e. M. We wont have anything like that this year but it will keep momentum going. I have argued, and i think it is true today, what is happening in terms of the direction of financial flows is important with em, and your other speaker mentioned february 2016, the other half of that is the dollar started to go down. As soon as it continues to fall, we have 130 against the euro at the end of the year, adding another piece of optimism for em. The growth is important, but the falling dollar is also important. Said, what kind of games are you expecting over the next nine months given your incredible gains with the emerging markets . Where is the opportunity left . Said em debt, we do not think there are major increases. If you look at Central Banks mining less debt and developed markets, buying less debt and developed markets, there is an increase between 2019 in 2017, so we will have a massive increase in developed markets. Lisa massive increase in supply and yield . Said supply. But em has the opposite problem. They have inflation dropping. Many of the countries are growing faster and debts will get smaller. Lisa but they leveraged out and have increased their leverage are medically. Debt,but when corporate when it is in dollar terms and it is weakening, that will not present a problem for now. David geoff, going back to your call on em equities, how much is dependent on tech . In 2017, it was surprising how much of the em indices for equities were driven by tech. Do you expect that to continue . Geoff can i be a politician and answer the last weston . Last question . E. M. Leverage has started to fall but government leverage has increased and corporate leverage is falling over the last four years, and that is important for the Going Forward. In terms of tech, tech and financials are 52 of the index together. We have a callout that favors financials over technology. That has started to work since around the u. S. Tax reform bill in november, which led to a tech selling in the u. S. , which led to tech selling in asia. That is the sweet spot. Financials. Lisa where have companies been deleveraging the most . What country have you seen this the most . Geoff across the board. It is less so in china, but a number of the other major , prettys, korea, brazil much across the board as it was too much of a boom out of the financial crisis, and as it subsided, Company Started to deleverage across the board with the exception of china. Brazil . E you bullish on said brazil had a stall under Economic Performance and pension reform, but we are coming up for an election that could restart that reform agenda. Brazil looks like it is an improving story. Their inflation has dropped. They are cutting rates. I think we are positive on brazil. David geoff dennis, great to have you. Said haidar, really good to have you. Thank you. Coming up, profits at their highest since bill gross departed. We take a look at a postgross world come in next. Today, tune into our colleagues tom keene and jon ferro from 7 00 to 9 00, and pimm fox joins tom from 9 00 to 10 00. It could be heard all across United States on sirius xm radio. Live from new york, this is bloomberg. Taylor this is bloomberg daybreak. Coming up at 9 00 on bloomberg, the open. Jim paulsen. Now to your Bloomberg Business flash. In france, a 10 year extension of the ceo has been for another four years, focusing on the automakers partnership with nissan. Meanwhile, renault he remains the secondincommand to take over. A record year for Natural Disaster claims is not keeping the company from raising dividends. Europes biggest insurable stick to their buyback plan. With one ofcontend the worst atlantic hurricane seasons in history. Plus, California Wildfires in the fourth quarter. The rush to see the Disney Marvel black panther is underway, expecting to take in a quarter billion dollars wide in the first weekend. It is likely to question longheld hollywood belief that movies with an entirely almost black cast cannot become global blockbusters. That is your Bloomberg Business flash. David thanks. We will turn to wall street beat , or recover three things buzzing this morning. Number one, looks like a recovering from bill gross after he left with growth greater than when gross was there. Hedge funds may get more love if they call themselves Something Else. Number three, a group of harvard alumnis are getting unsolicited advice to the Largest Company in the country, keep it simple, stupid. Lisa great for harvard lets start with pimco, best operating profit since bill gross left in the Third Quarter o. We will discuss this. This is interesting because it is the opposite of what we have seen and a lot of focused analysts on bonds. What happened . It is interesting because bill gross is one of the big personalities of wall street over our generation. Lisa bond is his name. I think he is legally changing a. [laughter] lisa that would not surprise me. If anyone would do it, lisa he would. Trader,ave another star who has brought in 15 billion in january alone, certainly a star trader a different personality. It shows that maybe you do not ey toto be so bill gross get these results. David when he left pimco, there was a big hit. But we are also reminded that we can be replaced. It may take time and look different from when we were there, but life goes on even when we are not there, which is painful. Jason and bill gross has been fine for himself. Lisa we are not worried about bill gross. The issue fascinating is i listen is not the same iveson is not the same media personality as bill gross but his returns have spoken loud and he has performed in the top percentile of comparable funds. As a result, money has come in and raises the question of where is the money for active managers . Pimco seems to be figuring that equation out. What lessons can be learned from that . Jason we will talk about harvard, where there is a whole new front on the active banks, but first david in the second story, hedge funds know what their problem is, their name. They should not be called hedge funds. They have a Bad Reputation because they charge a lot of money and performance is not a good, so they have alternatives like marketable alternatives. Jason risk mitigating strategy is my favorite. Lisa catchy. Jason risk premium got your. [laughter] david they just collect Something Else and they will know it is hedge funds. Jason we have seen this on wall street before, leverage buyouts the private equity. Leveraged buyout was that swashbuckling of the day and now it is the ninth the and as the 1990s progressed, why dont we call it private equity . That is more elegant, right . Lisa on some level, you see the cta and managed future funds, and some charge hedge fundlike fees but they are called Something Else so no one has it slide in their mind oh, high fees whereas hedge funds have been tagged as massive fees. David ctas maybe a step behind after that volatility crunch last week. They got a Bad Reputation. Jason it speaks to want to get tied to a certain thing and become part of the political and popculture, you have shows like billions lisa shows devoted to make you look bad. Jason exactly. You could see why they would want to do this. Also, why a big endowment or pension fund might say, i do not know. User not hedge funds, these are risk premiums. Right,shakespeare had it a rose by any other name would still smell as sweet. Jason exactly. And this is involved in the discussion at harvard. Worlds biggest endowment, and what are some things alumni are questioning is are we, harvard, getting too much money into active management, and could we do just as well if we were in index . David which is our third story. A group of alumni got together, and they do not seem to be fund manager types jason mike english majors. Like english majors. Ofid they say to take cap your endowments, move it to passive, and this shows you harvard is far and away the biggest endowment but look at the returns last year, not so great. Jason 8. 1 doesnt look that good given what happened. Given what happened in the s p. Lisa that is true. That the movement is gaining and moving away from hedge funds and active management, does that mean it is the long time to do that . If everyone is moving into etfs now, when markets are more volatile, and you are seeing a performance asset managers, what does that mean . Perhaps they were right five years ago . Jason the last weeks have brought actives back out to say, guys, lets not moved so fast. We do have some value. David yesterday on bloomberg, the actives did have a downturn in the last weeks, and they did well and delivered. Jason absolutely. This has been a near existential debate among endowments, the number two is yale. David swenson is legendary for using outside managers to make the case for private equity, and he makes a strong arguments, backed up by numbers, that over 30 years, using alternatives really has boosted the overall performances of his endowment. He is a topperforming manager, and not everybody can pick like david swenson. David but it isnt that different from cutting costs, this is the place we could cut them right away on those fees and do pretty well. Not quite as well but pretty well. Lisa or negotiate your fees lower and that is happening increasingly. David many thanks to jason kelly, great to have you. Polls up twoalian weeks now, a Hung Parliament is a possibility. That is next. If you have a bloomberg terminal, check out t. V. You could also ask a question or reach us on twitter at lisa weston 1 or they david westin. This is bloomberg. David this is what im looking at now. Italy. They have an election coming up. And the fascinating thing is there are reports on bloomberg about how it is developing. They pulled a lot of economists lisa and the always get it right. David im not sure the , but a hungnostic parliament at 30 and the second most likely is a grand coalition with renzi and the third is a new election, so one is a Hung Parliament and a new election, so a lot of indecision in italy. We had the netherlands, germany, france, and now it really cannot decide. Lisa last year, everyone was talking about this populist wave sweeping europe. Are we going to see a breakup of the european union, people following britain . Everyone forgot about it because brexit going so badly and people that, i do not want to deal with that. But this is still an undercurrent. You have to wonder, where are we seeing this in markets . We are not seeing it in peripheral bond spreads over German Government bonds, so you have to wonder, is this a risk and catching the market by surprise . David Angela Merkel has taken forever to get her coalition and it isnt done yet but she will stay in office. But the markets barely reacted. Lisa to be fair, the finance minister was a social democrat and was more proeuropean union and keeping things together. In some ways, that was beneficial for markets. This could be a new ball of wax. David totally right and you have wildcards. You also have renzi, a lot of interesting characters. Reports, asloomberg many as one third of italian voters are undecided, overwhelmingly middleaged not sure what age that is but middleaged women without College Degrees and they were not happy with renzi. They cannot decide who to vote for. Lisa that sounds like the u. S. Election and we know how that turned out. Interesting to see whether it will be a similar outcome. Fascinating. David also, it is fascinating he will still be in it with all the scandals. Untouchable. Exactly. Coming up, more on the Global Equities rally with mike holland, live from new york. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. David all together now, equities move up around the world with the u. S. We gaining ground it lost that europe has a way to go. Getting out of bonds. Billions of dollars flow out of bonds funds with high yields suffering the biggest second loss in their history. Emotion is not agreed to the motion is not a great too. David dreamers on the brink, the senate finds a way to look at dreamers to stay despite four different tries, leaving 1. 8 million young people left with less than three weeks away from possible deportation. Welcome to bloomberg daybreak this friday, etc. 16. I am david westin with lisa abramowicz. Lisa love to get lets get you caught up on markets for the day. Morezero 600 gaining even than earlier stocks zero 600 gaining even more than earlier. S p gaining a little bit from earlier. Bloomberg u. S. Dollar strengthening a bit after weakening to the lowest in three years. U. S. 10 year yields coming down from the highs of 2014 by three basis points. David time for the morning brief. Eastern time, Housing Starts and Building Permit figures. At 10 00, the university of michigan will go blue with the Consumer Sentiment index. At 1 00, the Baker Hughes Rig count. Lisa you had to do that. Every time. David every time. Here withor riggs is first word news. Taylor the chance of congress approving a broad immigration deal is all but dead within the face of a few hours with the Senate Rejecting the plan and a bipartisan proposal to deal with 1. 8 million young a dartmouth immigrants. Republican senators suggest there may be an attempt to temporarily keep immigrants from being deported. The 17 People Killed that the Florida High School were remembered at a candlelight vigil. The names of victims were red outlined and there were signs asked read out loud and there were signs asking to fight school violence. The suspect is being held without bond. According to the arrest report, nikolas cruz confessed to the police, saying he arrived at the school in an uber and began shooting with the semiautomatic rifle. There is more evidence that British Consumers are being squeezed by higher prices. Retail sales in the u. K. Climbed points one, well below the forecast. The brexit forecast in 2016 push the pound lower, triggering the spike in inflation. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. David thanks. It was two weeks ago today that the wage numbers on United Growth drove equities down and volatility up, many talking about a repricing of stocks around the world because of the new regime of higher rates of volatility. The vix is now down below 20 and u. S. Equities have recouped their losses, is it a regime change or a bump . To sort it out, we welcome my comments, and Stephen Stanley mike holland and Stephen Stanley. Economists, was it a bad dream that went away, or are there aftermath to this we should take care of . I think we are in an economic environment that is different. We have gone a decade where the fed was super easy, no questions, and inflation was viewed as low, and now i think there are some questions about tolation and it is likely accelerate. The fed is likely to continue hiking rates and the markets have come to that realization. It doesnt mean that stocks have to reprice by 10 to 30 because the economy is in good shape, but it does suggest we will get more volatility. Lisa to that point, what does this new potential economic ,eality mean for markets . Mike what is your take . We are seeing a jump on yield dropped almost three months in tandem thomas are you are seeing the rebound everywhere. Mike theres no new news in the Interest Rate discussion we have now. Lisa you want to make some . [laughter] mike yeah, theyre going up more than anyone suspects. Lisa what should we Pay Attention to . Mike people looked at what you described and said, what happened the last two weeks . s points about repricing, we have a situation where people took a step back. The market does what it does. We had a machine driven decline that started when wages was a good excuse for the start, but when machines kicked in, we know the percentage of volume at 30 all0 , use your number, but driven by machines and they dont care what the last price was. Lisa they are humans behind the machines. Mike they write the programs and the programs takeover. David are there humans involved in the qualcomm . There is a new developments in that. Lcomm made a big offer they initially rejected it, and they met or two hours and said, we will think about it. Qualcomm has said, we thought about it and no, thank you. We will reject your offer again. Those are people, not machines. Qualcomms stock is trading up in the premarket almost 1 . Mike maybe they think it is in a highend price. Lisa it was a huge premium, alone canetting they capture the market share of everything becoming a computer. David quite a boardroom saga. Lisa 100 . I would love to hear the conversations. Anyway, how are you positioning, mike . Are you not changing anything . Mike no. Several daysout ago when this was happening, this is not a new thing in terms of what was going on at the time. If you were around for the 1987 decline, that was 25 , also machinedriven. That would have been 6000 dow jones points rather than 1000 we experienced. If you look at the time, the world looked like it was coming to an end. If you look at it this time, ste phen would say fundamentals are still good, right . Stephen absolutely. That is an important point, you 2015, wehe summer of had market pickups, and the fed panic and said, we are on hold for six more months and we are worried about things. Do . Do they they cannot immediately and said, things are fine, it will not affect our rates, but i think the economies are much more solid. Kailey does this give us indication of future experiences in this sense . We talk about machines versus people. We also have joins of dollars of etf funds, trading from algorithms that move automatically. Is it make the marketplace more vulnerable to sudden runs of the bank, as it were, moving up or down . Stephen it feels that way. David mike that answer is yes, absolutely. We have personal experience with this, when they are told they have to sell the junk bond etf, a sub the most attractive to sell, that is what machines do, and you can trace what is going on. Data even if the economic has not shifted, certainly, the supply of treasuries coming onto the market has changed, specifically with the tax plan being passed. Perhaps this is the major change we have seen. In other words, we will have the biggest threemonth and six bill offerings from the u. S. Treasury ever. That alone is going to jack up yields. How sustainable is that . At what point do benchmark u. S. Yields rise too high for the current equity market rally to be sustainable . Mike the increase in yields will affect the market more than 3. 5 , 3 ,te level at or is it how quickly it ascends and for what reasons . If you end up with a gradual way,t at 3 or 4 , by the we should be there because we are talking inflation at 2 to 2. 5 , and you end up with a situation where bonds have to reprice. If they do it in a gradual, systemic way, and underlying inflation is ok but moving up gradually, the market will get killed. David i am curious about at what point the bond market is likely to react. In washington, they say, we continue with deficits and they give no evidence, democrats nor republicans, you cannot find a deficit hawk in washington today. At one point to be get bond vigilantes to say, we do not like this . Stephen we have started to see that. We have known for a long time that we were coming into a time when treasury supply would increase. It isming is such that coming together at once. At the same time, deficits are increasing. You have the fed shedding treasuries at of their portfolio, and you have the fed raising rates, so benchmark rates are going higher. I think the treasury market has been extremely rich in large part because of the Central Bank Intervention in the markets here and globally. Some of that will have to unwind. David Michael Holland and Stephen Stanley will both stay with us because he will ask them where they see opportunities in these uncertain markets. As we go to break, we want to recap qualcomm news. They have rejected once again broadcoms offer of 82 per share. Broadcom made the offer that popped the offer and qualcomm said no. The boards met for two hours and qualcomm said, we will think about it. Now, they say the proposal is unacceptable. It maturely undervalues the company, is what they say. We will follow the saga. Lisa and see if this was the last and best offer. David they said that, but maybe there is another coming. Live from new york, this is bloomberg. Beatingcocacola is estimates, in their fourth is beingand coke helped by its growing portfolio of different tricks. Plus, it revamped its largest deit brand. Sierra has raised its fullyear forecast, the largest maker of pharma quitman, is forecasting a 25 increase in full net revenue. , buthad a prolonged slump now, corporate farmers are replacing tractors. Lloyd blankfein used to be the highestpaid ceo on wall street and now is behind his rivals. Indman increased his pay 9 2017 to 24 million. That puts him behind jamie dimon of jpmorgan chase, and james gorman. David thank you. Blackstone Group Chairman and ceo Steve Schwarzman join jason kelly yesterday to talk about what the market changes could mean for the deals he is looking at. You usually have more deals when the markets feel good and people are confident and prosperous for their own business. You seldom by somebody elses business if your business is having trouble. As Business Confidence remains high, you will probably see more activity. Kailey still with david still with us, Michael Holland and Stephen Stanley. Mike, is that what you are seeing, a rise in Business Confidence and an appetite for more deals . RightSteve Schwarzman is at the neck of what is going on with m a. We had numbers come out announcing buybacks for corporations posting a tax announcement at record level, so companies are not only buying their own shares but of the companys. Lisa i was in the heated debate yesterday about how good or bad share buybacks are for the economy and whether companies are buying back their shares at peak valuations. Is this a bad deal . What is your take . A fan ofave never been stock buybacks, even though i am a shareholder and understand the effects of that. I am always interested in building up businesses and paying cash dividends. I am big on those. All things considered, if there is Nothing Better than that, as you talk of qualcomm, we have managements endboards where their shares are still ok. The record is not good in terms of buybacks, and they usually buy high and sell low. Acrossin a broader sense the economy, is there indication of whether share buybacks help business in the economy or heard it . When you buy back shares, it means you are making your business smaller and you dont have enough ideas to invest in your own. Stephen from a macroeconomic standpoint, you would rather see a business to Capital Investment or expand their business. At the end of the day, you want to think about the process of the economy, and it is in process of making sure the marginal Investment Funds get to the right place. If the company does not have good investment prospects, they give the money back to shareholders and they can put it into Something Else. And other company with better prospects. Mike to his point, apple does all of this and buybacks a lot and gives cash value. It is an example of a Company Growing their business. Lisa yeah, but apple is the anomaly with respect of the amount of cash point in their door so fast. Mike that is the best case. Lisa where do you see the top three opportunities given increase in volatility and valuations . Mike u. S. And chinese stocks. Lisa interesting, chinese stocks. Mike i think the best companies are still like Steve Schwarzman, you have u. S. Companies like blackstone, jpmorgan, microsoft, the Biggest Insurance Companies in china, all relatively ok valuations. We have had a huge run and they are still ok, even with Interest Rates going up because you have jpmorgan with 2 yields, and 13 times next years earnings. You are doing ok relative to the Interest Rates. David staying with us, Michael Holland, and Stephen Stanley. Coming up, we will get a read on the economy and the point of farr,f hiring with david a chairman and ceo, live from new york, this is bloomberg. I have talked to in the is a sleeved or participant, and sooner or later, it comes to employment. Are we growing jobs fast enough . Our wages going up . Do we have enough workers, and are they right for the job . David farr is on the front lines of the debate as the chairman and ceo of emerson electric, employing over 75,000 workers, and the chairman of the National Association of manufacturers. Welcome. David great to be here. David from emersons point of view, what is the situation of employment . Im curious about, are you having to raise wages because we saw numbers two weeks ago that theyre going up, and are you having the right trouble getting qualified employees . David f. yes, yes. The wage impacts started last summer ahead of time. What we start seeing as optimism in the world, jobs expands, and we have gone up a notch in wages. I expect that to happen the next years. From the standpoint of finding people, you can find them but you have to pay them more money. Right now, across manufacturing, there are 350,000 jobs needed, a big issue, but you will have to pay more. It is a good sign. Lisa what types of jobs are seeing the biggest wage increases . Just f. across all wages, general wages go up to get people in factories, but the higher skill level workers. The people that have a Technical Capability to work in factories. There having to automate factories more, so you need a more technical skillbased. I grew up in a manufacturing platform. My dad worked for glassworks, and there was a lot of labor around. Nowadays, there is a higher skilled labor, the Biggest Issue we deal with. We are having to go out and train people. Now,ll have to do a tour we finish in st. Louis, at a Technical School we support with 2000 and high school kids, training them to go into manufacturing and the skills they need. This is a problem across the country and we hear from different sources about what you talk about, where is the likely source of solution . This is the government, state or federal, private sector . How are we going to get ourselves out of this . David f. it it will have to be a hybrid approach. Companies have been involved for years in their own small regional way, working with small colleges, high schools, and now you see a discussion at washington to figure out how we put that together. Located in ferguson. During the ferguson events, we told the government to we needed support trade the government put money up front, and i got five times the Million Dollars they put up, and we put that through schools to help kids stay in schools and get the right skills to stay in the community and rebuild it. Tensionere is this underlying the economy as wages increase. Our revenues and profits our revenues and profits increasing enough that manufacturers part of the group can support the wage increases . How concerned are you about that getting out of whack . David f. the level of growth is climbing now. We have underlying growth from the standpoint that it will give us more room from a leveraged standpoint that will be able to price some standpoint, but we are in a good so now. If you look at emerson, last quarter, we present we reported 7 growth rate. It has moved into this 6 , 7 range, allowing us to absorb the cost. This will be an issue we play with for the next years. It is nice to have inflation, because we have dealt with five years or six years of no inflation and to pricing environment, but we will have to work this skill set aggressively. Every ceo is dealing with this now. David your business is tightening Capital Investment and when it goes up, you do better. What are you seeing now and it and how much do you attribute the tax cuts . David f. we had our investors day yesterday, and from the standpoint of the environment, we are seeing customers wanting to invest. Reform, a is tax positive aspect, but the global economies are starting to rebound. They rebound in unison, like 2002 time period. We had seen underinvestment are some time. We had worked hard to get incentives for manufacturing for investment. I think this goes back to the question of people. We are going to need the Capital Investment and balance that with People Investment and balance it Going Forward the next five years, six years. Do in the u. S. Curve immigration at all, do you expect a shortage of workers . David f. as we tell washington, they need to focus on the right balance of immigration and the type we need. If we reduce numbers, that will be a big issue for the u. S. We need a workforce that is growing, therefore, we will have to have the right type of immigration, certain skill sets, and we won the that immigration level to continue to climb, and we will have to train them. This is a big balance. That is the dilemma now because we know, youve got probably eight years to 10 years, we have 2 Million People at the way people short manufacturing. David in a nutshell, does that mean you support the president s position to move away from a lottery situation and a meritbased cisa . Yes, i support that because we need to improve the skill set of this country. I think we need all type of labor coming in, but i would like to see the people who come here to go to school, get educated, i would like to see them stay. What we have is an opportunity to be aggressive manufacturers is we need people. David great to have you. Coming up, qualcomm rejects broadcoms sweetened bid. Qualcomm shares are up in the premarket. We will cover that, next. Live from new york, this is bloomberg. Lisa we are getting you caught up on the Market Action heading into the new europe is up, s p futures europe. Things are coming down heading into the the u. S. Dollar spot is up, building on gains after reaching the lowest level in three years yesterday. We just got that Housing Starts numbers, 1326. Housing nice beat on starts. It was a slight revision of from last month here in thats a big tick up. Building permits are up over estimates. Thats a little bit of a surprise. Going to be soft, you get a bead again on the Housing Starts and Building Permits. You can see that yields are not really responding much. David Michael Mckee is here. What do you see that we should be paying attention to . Michael im looking at the import price numbers. We are looking for an increase in import prices with the dollar getting weaker. Thats what we got. If you take out petroleum which does get influenced by the dollar, youve got a. 5 increase. You see if the dollars going to start contributing through inflation, at least on a onemonth basis. David inflation cant be too far behind. Lisa the prices 1 and the survey with 0. 6 . David still with us are Michael Holland and Stephen Stanley. Its up to you, give us not just for this month but in the larger sense where we are in the Housing Market . Stephen the number one fundamental is demand is outstripping supply. We have very low inventory and rising home prices. Thats what you would expect. Weve been waiting for years for builders to start ramping it up. They will supply us with the homes the market requires building they have been constrained by a number of things. Skilled labor is something theyve talked about a few minutes ago in a different environment. These Housing Starts numbers build up monthtomonth. Its a very good thing to see every time you see an outside surprise. Ata we were looking Mortgage Rates have reached the highest level since 2014. I have to wonder, what point will this get into housing prices, people paying a lot more on their mortgages . Stephen it depends on why rates for going higher. If its because the economy is stronger, the ability to pay is raised. Potential homebuyers have the wherewithal to spend. What we have typically seen it history is when Interest Rates rise, its a good Housing Market. The underlying economy is good. David you can see that chart showing where we are going roundtrip from a 2014. The demandout outstripping supply for a while. Why doesnt the market adjust . Michael its very slow. The rent has gone up as well. There is even more reason to build more. I am on the board. Blackstone, i was with those people yesterday. They invest in residential. They believe the supply and demand will continue. Ratesn weve seen rental rise quite a bit in recent months. But we are getting back us the calculation end line is becoming more attractive to people. The dynamic is to push more and more purchase purchasable housing. We think about his apartments in stephen it the increase in the Interest Rates is inclusive of that, buying has become more attractive. Mike its a psychological thing. We dont know when people start to think that Mortgage Rates are high. Historicallyh, but its been so much higher on average. Michael what is your price for the month . Lisa there is some talk about loosening requirements for mortgages and make it more affordable. Weve heard that before. There is a trend in the last five years with people who have been buying homes, tending to be wealthier in the people who dont. And numbers are better. You are exactly right. Are we putting 2007, 2008 behind us. Is it fixed . Stephen i think that overhang has been gone for several years. Of a numbermatter of reasons for supply constraints, whether its labor or zoning restrictions in certain areas. Ts a slow and steady housing is typically boom and bust. Its been the tortoise, it is slow and steady. Thats one of the reasons why even though we are nine years into the expansion that we are not at a point where things are ahead. Labor is going to be interesting Going Forward. Mike fighting the people has been a problem builders say. What happens now with the Stimulus Program and the infrastructure built, finding people to build things is going to be tough. The dreamersny of are constructing things . Mike what about people without papers . Lisa those are a lot of good questions were not going to be answer for a while. Thank you to Michael Mckee. You are staying with us. Lets get than once making headlines. Taylor riggs is here. Taylor mitt romney has made it official, he is running for the senate from utah. His goal is to serve the people of utah and bring values to washington. Hes running for the seat held by orin who is retiring. According to an arrest report, a former student invest to the Deadly School shooting in florida. In the schoolas for just six minutes. Hes accused of killing 17 people. People turned00 out for the candlelight vigil. The names of the victim were red. At one point, the crowd chanted no more guns. Japan hasminister of continue him to running the bank of japan for another five years. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. I am taylor riggs. David . David no deal. Qualcomm has injected broadcoms latest offer. It is materially undervaluing the company. Join us is bloomberg. Ntelligence analyst welcome. Welcome back. This is an ongoing saw that. Is there more to be written . It depends on how firm the last and final is. This is oldschool negotiation. If you look at what they are saying, qualcomm is interested in keeping the company together. They think its unequivocally low. Broadcom on the other hand believes if we start trading at 65 and your earnings curve is 19, thats going to be very weak. Investors, take your money and run. Even if you look at 2018, the consensus is here and the management does appear. Qualcomms management wanted investors to take the short pain and look through the longterm benefit, which is 5g. Lisa lets talk about the bull case and the bear christs bear case. The bull case is they come up with all of the chips. The bear case is competition is stiff and entry goes up. There are technological paces they cant keep pace with an apple makes their own chip. I think an xp and qualcomm have a good shot. The problem is the business model. We make chips, we invented technology. Youve got to pay us for the device as well. That construct is what the industry has a problem with with qualcomm. Qualcomm does not have that problem. I assure you, the moment after consummated, you will start to see it unravel. That is part of the strategy. What chance is some of the reticence the nature of the business . The report as they are taking on a lot of debt to make this work. Lisa the biggest ever corporate loan. How can the market avoid saying im not sure how you are financing this. Look at this. Thats a lot of debt. Anand they did the same thing with ivanka broadcom. They have been excellent in execution. Thatreasonably confident he can execute this deal from putting together the pieces of the company and you can take that load down over a. Of time. The issue is the near term. How do you get through nearterm operations when you are settled with litigation . Lisa what is the most likely strategy Going Forward . Anand qualcomm shareholders will decide whether they want to take the money and run, the 82. Or do they stay with qualcomm and that is in the middle of a potential payout. Wait to 5g and they are confident they will win against apple in litigation. Lisa carry on. David im not sure about that. Thank you so much for being here. You are just switching from tv to the internet. When they leave, so are the ads. How is that affecting Media Companies . You can tune in on the radio. Fromfox joins tom keene 9 00 until 10 00. Live from new york, this is bloomberg. Taylor this is the enterprise green room. , then up, Steve BallmerLos Angeles Clippers owner. Cvs release concerning and it be earnings and revenue. In the premarket, shares are up 1 . Join us to explain what lies behind the numbers, we welcome the Bloomberg Intelligence director of north american research. It struck me just reading its allhe transfer, about subscribers, not about advertising. Is a company that over the last four or five years diversified away from advertising. Revenue has gone from 70 several years ago to 40 today. They have divested the radio and billboard business. What they have today is a company that has ever residue, retransmission or revenue from they haveators, licensing fees for all the content they are creating like star trek. They have diversified the revenue stream when tv advertising is sluggish as weve seen from the other Media Companies. Their portfolio is in a good position now. David one thing quickly, that reposition money, thats a lot , tohere they are going charge Cable Companies money. How secure is that Going Forward . Or would happen to cbs if the law changed . Paul its a big business for cbs and the other broadcasters because the networks, the broadcast networks have a very large audience. When you look at cbs versus espn, one can argue as les moonves says, cbs is not getting their fair share of fees from the cable operators. To the extent that ever came at risk, it would be an issue. That is a big source of growth for cbs and the other broadcasters. Les moonves is one of the more aggressive operators demanding payment from the cable operators. David thank you so much, paul sweeney. Cbs reported earnings today. They showed a 3 drop in and revenue. Disney said they are down on advertising revenue. They are making up for it in theme parks. Are joined now by jason the land, the Founding Partner of joint global ceo of the Advertising Agency anomaly. Still with us, mike holland. Welcome. Take us through the big shift mediaon across the landscape as we go from broadcast advertising to subscriber online. Jason this looks a lot like six Line Telecommunications moving into mobile and all these Big Companies try to figure out where they go next. You dont have to be a genius to see more and more eyeballs are moving to digital. This is been happening over the last 10 years. It has accelerated in the last three or four. You have dramatically changed a hugeandscape and amount of new inventory out there. What they have been able to figure out in the Digital World is now i can create inventory weather never was inventory and i can sell that. Lisa i want to talk about the efficacy of Online Advertising versus a 32nd spot on television. Have there been studies looking at that . Everyone skips the ad on any video. Theyve learned to gloss over any advertisement on any side of the page. Jason this debate would take a couple of hours. There are lots of studies about this. There is a famous tweet last bowlduring a super commercial break, how many of you are looking at your phones right now . Thats a little bit of an anecdotal point. This is something that the tv industry is going to have to catch up to. The data enabled television, give television the same reporting matrix of the digital universe has created or happen next. Michael is there any reason for cbs management and board to go with viacom . Jason not that i can think of. Michael why would they do it . Even with advertising going down, business is pretty good. David les moonves said he would not take questions on that question. Showsl the report today thats what you do. Sherry redstone once it. Jason the shift is people who grew up in one world who are trying to grapple with the new rules that are being created. Theres an incredible amount of Creative Destruction happening in the media world. Im reminded of that general anecdote that if you dont like change are going to like irrelevance even less. Those two worlds are colliding and there are going to be winners and losers. Said something about how engaging the ads are and where they appear, adjacent to what kind of material. This is a quote from the chief marketing officer. People are becoming concerned about the impact of digital on wellbeing, democracy, truth itself. This cannot be brushed aside or ignored. Consumers are demanding platforms and make a positive contribution to society. This is about someone who spends 10 billion the year in media taking a look at that investment and the quality of that investment. He is in his right to be concerned about that. He is deciding to spend the money in an appropriate manner that equates to better value. The Media Industry and the Advertising Industry started in the first place. Platforms have been attacked by this. The reality is while many to do a better job making sure appropriate content is next to a valid content, its the responsibility of the marketers to plan and by media in the right way. Its a race to the bottom to find the cheapest possible impression. Caused brand advertising been next to something that should not have been. You need to lean in any to be active about what you want to buy. Lisa could there be a bubble in content . There is all this confusion around advertising heating up. Could this be a problem . Michael its overdone and will probably get more overdone. Supply and demand. Lisa they are burning through so much cash, the shows are popular. Delan, thank you for joining us. Generated aseason return to merchandise. How are retailers floating these returns . If you have a bloomberg terminal, check out tv. You can watch us online and interact with us directly. Us questions. End regis on twitter. From new york, this is bloomberg. Lisa returns are retails secret market. They reached 292 billion. Will likely be returned in january and february of this year. This raises so many questions. This came to us from a wall street journal article talking about how problematic returns are. Example, 49 washing machines and dryers or returned to best buy sold at a 68 discount. They cant get good prices. David all the conversation we have about how a retailer is doing, it doesnt reflect how they are doing. We never asked how many returns lisa . Retail sales and general, they could be inflated. If we talk about how much people send things back. David how does it compare, amazon versus brickandmortar. Is it more or less . Lisa in my lobby, there are with peopleges sending things back to amazon. Will be live from your. This is bloomberg. Jonathan it is the request to the start of trading. This is the countdown to the open. Coming up, equities shaking off volatility. The s p 500 is set for its best weekly gain. More cracks appearing in investors heading to the exits. The easy money is continuing and japan as yanis strength returns. The governor gets another term. The market opens in just 30 minutes. Futures are a little bit softer, down four points. Treasuries are receiving a sizable bed now. They are right off the session highs of yesterday. We come back all the way back in. The market has been volatile to say the least. Shaking off her new concerns about high rates. At what lev dyo