Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20180220

David . David for now whats making headlines, we have kayley here with the first word. Kayley President Trump has set aside longstanding differences with former republican president ial candidate mitch romney. The president endorsed his run for a u. S. Senate seat in utah. Romney has been critical of the president but lens are trying to hold on to their majority in the senate. Meanwhile, President Trump is open to tightening background checks for gun buyers. The white house said the president talked with republican senator john cornyn about his bill to improve compliance with the background checks. The republicans long proposed bills but is finding a way to curb gun violence after last weeks shooting. Teresa mays team has a plan to halt brexit payments in the European Union back slides on a trade deal. According to those familiar with the matter. They believe by holding billions of pounds from the e. U. Could be necessary. Global news 24 hours a day powered by more than 2,700 journalists and analysts in more than 120 countries. m kailey, alix . Alix were discussing the top three stories. First up is walmarts disappointing outlook and deutsche cuts more staff. Morgan stanley wornes bornes the stock slide with the appetizer before the main andre. Was it a crudite or a tuna tartar. David brook sutherland and Michael Mckey. Brook, well start with you. Its interesting, there seems the sales were above whats estimated but were knocked on the e commerce. Brook thats the only number that matters for walmart investors is how are they competing with amazon and they cant afford to lose momentum and it will be troubling and well see the comments they make for the explanations for those numbers and the trends theyre seeing. It sort of had been the moment after the Holiday Season where people took a step back and said maybe retailers arent necessarily in this apocalypse and maybe they can fight off amazon. Any step back will be trouble. Michael to be their they were up 24 and then 34 . Did we think theyd keep increasing 50 quarter after quarter . Brooke you have to look how fast amazon is growing and how much the share is taken of that market. You kind of do need to see them keeping up that momentum if theyre really going to be a real competitor to amazon. Alix affected tax rate, 24 , 26 and isnt as great as they expected. So a doublewhammy. Michael on the tax front and not only that the amount theyre set ago side or anticipating as a benefit from the tax bill, much smaller than people anticipated, only 207 million by the Fourth Quarter. People were thinking perhaps amazon and walmart would take a lions share of peoples spending of the tax benefits theyre going to get and thats not happening. At least theyre being very kevintive on their forecasts. David have they gotten all the boost out of jet. Com they can get because they have gotten some boost . Brooke sure and well see how it plays out and they made a couple acquisition with a couple e commergs startups and trying to take that technology and leadership and plug it into their system. A lot of that will evolve overtime. Some of the companies they purchased are significantly smaller and you have to lug it in walmarts system and soak up as much as you can. I think well see some benefits from the deals down the road and probably continue to be inquisitive. David from walmart in retails to alix not really, they both have problems. David Deutsche Bank first, 250 jobs in investment banking. Sounds like a big deal and im sure they are high paying. They have 97 employees. Michael its an ongoing effort cut costs. N to what youre looking with Deutsche Bank and hsbc are two different banks with two different sets of problems and arent indicative of whats happening in all of european nking because theyve been morenbun in trying to rebuild their Banking System after the financial crisis in the u. S. And their banks are farther behind. We had troubled banks for a while. Bank of america took a long time to dig out from under and what seems to be happening with Deutsche Bank. Alix they were hurt bay of underlying loans. But theyre trying to get some of their employees to take a unpaid sabbatical. Will this be the how do we know this will wind up being the end . Michael we dont know because theyll put it off as long as possible. Its different in europe because theyre supervised generally by the local central bank as opposed to a systemwide account, which theyre moving towards the u. S. Model somewhat. But it will take a while for us to see when the water goes down, as it was said, who is swimming naked . And the big bet ray dalio is making a lot of people dont have their suits on. And another analyst saying hes wrong. Theyll be in enter shape when they raise Interest Rates because it will improve their net interest margins and their profits will go up. One thing we should note about hsbc, they didnt have a great Fourth Quarter but have done pretty well over the last five years or so of the seven years of stewart gullvers term in reducing exposure to bad loans and risk and also to raising profitability and returning money to shareholders so theyre not badly positioned for the future as they undergo a c. E. O. Transfer. David sometimes the outgoing c. E. O. Wants to clean things up and then hand it off. Alix unless youre g. E. With the one exception. Here, clean it up. The over top story is Morgan Stanley, the selloff we saw in u. S. Equities, theyre saying Morgan Stanley is just the appetizer. Brooke, heres the why, theyre looking at u. S. 10year inflation and as the yield moves out of the trend line weve seen the last four years, that could be the huge disrupter in stocks. Brooke theyre not alone in this. Jp morgan came out on a similar call and looking at the inflation cash rate. What stood out from the Morgan Stanley report is inflation is rising and growth slowing and has been a question in particular, can they pass on rising costs to their customers. A lot of customers said the benefits from tax reform we expect you to give them to us in terms of pricing increasings. Well see how will you can pass off those costs. David we saw it in the latest regional i. S. M. Reports, the purchasing managers reports, theyre paying more for raw terms, their costs are going up but their prices received havent moved or gone down a little bit. Companies are still seeing their margins compress and are absorbing the crost increases. When you can pass those along. The greatest impact, an economist said c. P. I. Is going up and well see prices rise. Growth will rise a bit in the beginning of the year because of taxes and then fall back. It may be that what theyre saying at Morgan Stanley, a question of timing but theyre looking at the same forecast and wondering growth is slowing and prices are rising, can you keep this up . Alix thanks, brooke, and Michael Mckey of bloomberg news. Well talk about that question with andrew sheets in a minute. Albertsons, the grosser will buy riteaid in a deal that accelerates a change in the Retail Industries and acquire the parts of riteaid after a sell of nearly 2,000 stores. Looking at it here, theyre looking at cost energies of 375 million and incremental Revenue Opportunities of over 3. 6 million. Albertsons is one of the largest nations grocery retailers buying parts of rite id that havent been sold. David look at the premarket move. Alix theres more selloff in u. S. Equities to come. This is bloomberg. Alix the stock market has gotten a taste of the potential damage from higher bond yield but the biggest test is yet to come. According to Morgan Stanley, the recent selloff was the appetizer, not the main course. Its when growth softens while inflation is rising and that returns suffer most. We remain on watch for sticky handoff in the Second Quarter as corn rises and moderators moderate. Andrew sheets, the chief cross asset strategist. Thanks for being here. Why is the Second Quarter going to be the turning point when growth is supposed to be pretty solid . Andrew look, its never possible to be as precise as youd like to be around these things but when i look at our economist forecasts, you do have two overlapping themes that cross over in the Second Quarter. Youre going to have inflation picking up not just in the u. S. But the euro zone and in japan. At the same time we think a number of indicators like i. S. M. And Global Economic indices are going to be moderating. So its not necessarily that its going to be a recession or the stop slowdown but these rising Inflation Numbers will seem potentially more worrying when the Economic Data is not as strong as its been. Alix fair point. Lets watch what yields youre watching. People look at the tenure and say 3 , 3. 5 and you look at 10year yields inflation link notes. I have the chart on bloomberg and were around the high we saw in 2015 of 82 bids. Basis points. What do you think is the breaking point in the equity market when it comes to yields . Andrew look, i dont think i think unfortunately you cant be too precise about a back breaking point and the reason i like this chart a bit, real rates, i. E. The Interest Rate over and above inflation, is probably the most important rate when it comes to thinking about equity markets and discounting tax flows. For all thats happened the last five years and the markets shifts thinking about growth and inflation and stagnation. Eve actually been at a long range for these long run expectations where policy will be. Were at the top end of the range. While breaking out of it doesnt guarantee anything, it does suggest Something Different and that difference is something the market may have to assign a higher discount rate for and i think thats the reason why were not expecting any more multiple expansion out of the u. S. Equity market and think it has to be earningsdriven from here. Alix the estimates you mentioned doesnt feel like its reflecting that kind of thesis. Come inside the bloomberg and im comparing a european to u. S. Equities earnings, and you see the power. The blue line is u. S. And the white line is european equities. If we ran too far for expectations and once you factor in inflation, can we say the same thing about europe . Andrew europe is in a better place two reasons. The first is to the extent that youre worried about rising bond yields, undercutting the Valuation Case for the stock market and clearly in the u. S. Thats a major debate, i think europe is just a very different place when it comes to that. Bond yields are lower and earnings yields are higher. That gap between equities and ones are bonds are significantly lower and theyd really have to rise to cut the record pace. On earnings, it is quite interesting. You have as you precisely mentioned a huge upward division to earnings due to recent tax policy but that upper revision has happened and its in the numbers and arguably in the price. Whereas in europe its a little less appreciated. That there are pretty powerful long term earnings foster in the e. M. Section turning up and might be less influenced by some of those more oneoff factors like you see in the u. S. Alix how do you construct a portfolio based on this thesis. Andrew theres a couple things trying to keep in mind. First, we think europe is a pretty attractive Global Equity market here. We think it will have strong Earnings Growth the next year and less exposed to the challenge of higher bond yields impacting the valuation story because the overall gap is already rather high. I think its also a case where given that the correlation between bond yields and equities has been shifting, i think we also need to think about looking at different as sets assets for diversification and bonds wont pride the portfolio counterweight to balance it as it has before and the reason we like the japanese yen because its a chief asset with negative correlation and diversifying properties to Global Equities as well as other fundamental reasons we think support the call. I think it is going to force Portfolio Managers everywhere to look at different ways of finding diversification. Alix you expect at some point when this turns youll see the positive correlation continue for equities and bonds and will fill out the same time so those risk parity portfolios are not going to work . Andrew thats certainly a risk. And if im thinking of that trend in real rates, a scenario that would involve bonds and equities losing at the same time would be a higher real rate environment and mathematically hurt the bond market but higher real rates, almost force a higher discount race for equities in almost everybodys equity model. So i think that as you rightly mentioned, thats a problem for all sorts of portfolios, not just risk parity but anybody with a 60 40 portfolio obviously has benefited quite a bit over the last 510 years with bonds and equities doing well and obviously would be exposed to a scenario that relettersed. A lix thanks for joining us, andrew sheets, from Morgan Stanley, chief cross asset strategist. David who better to ask about volatile equity markets, we welcome the g. M. Talk about what youve been talking about, volatility in equity markets. You have a window into this and how do you see how they are right now and how is your bank faring . Im not commenting on the beginning of the year but were in better market conditions. We suffered from low value and Interest Rates, the Global Markets were not good. Were probably entering into Something Like progressive nomenization and might take some time and with the normalization of the monitor policies of the central bank we are exiting the very low environment. David in light of that how do you position your bank without undue risk . Frederick they are sharp line describe and have equities in particular two activities of products for investors and theyre not that sensive to volatility and are fundamentally meeting supply and demand and then the flow business, the volume business and divorce in volatile environments you see better volumes. Alix taking on more risk . Frederic its a driven business and volumes again on the execution size. Alix you value at risk . Frederic we have so much constraints, less of a crisis has been drawn but we dont increase the rates, fundamentally we are developing a client activity. David is that a good thing for your bank or too severe, the regulations, is it constraining you too much moving into a more normalized environment . Frederic we have no choice and have to live with significant regulations and not just on capital regulations but in europe there are the regulations on that test. The most important thing for me is beyond that in europe are the Financial Markets and we probably are going to complete the Banking Union and see deeper Capital Markets. And we can take advantage of things. On top of this, the Economic Activity is good in europe. We have growth rates that weve not seen for the last maybe 10 years. Across the euro zone. Thats a possibility for banks and hopefully we see also rates rising. We suffered dramatically from negative rates. You did not have that in the u. S. Its painful i can tell you. And progressively we have a little bit more inflation and the exit of Monetary Policy where we see a much better rate environment. Alix its not just a steeper curve but you need out of the negative environment . Whats your plan for that . Frederic in 2019 well exit the negative rate territory for the positive rate. You know with growth rates at 2. 4 in the euro zone the next two years, normally shoe see progressively lower Unemployment Rate which means also higher inflation on wages. And i think that the outlook is much better and that the monetary Central Banks would like to exit the monitor policies aggressively to avoid any asset bubble and disportion on prices. David you look to the Banking Union, does that mean vocgen has to get bigger and talking consolidation with france . Frederic the completion of the Banking Union will be top of the agenda with the governments and once we have effectively the german governments, there will be discussions on what the next step for the euro zone, in particular on the Banking Union. Long term, yes, i think youll have less banks. I would say the priority short term is to fundamentally transform the businesses in light of the new technologies. In 10 years time youll have it as banks and we said that in all sorts of predictions and want to be in position of strength to size up the possibilities if any. Alix for your business in particular, your National Retail division was central to your Growth Prospect . Do you need to be an acquirer and if so how and where . Fred d. Eric in french retail the market is consolidative and there are tore markets in europe you need more domestic consolidation and on the outside we have interNational Retail activities outside the euro zone which are driving going very well with strong growth and led merchant markets. We do not need to make acquisitions. Its more around the transporme nation of transformation. Alix even domestically . Frederic no. No possibility of consolidation and dont need to, we have a good market share. Its more about the transformation with new digital technology, transforming the networks. Because yes, we can provide Better Service with new technology at the lower price with our clients. Tom with the european Banking Union, does that raise the specter or encourage banks to go across borders into germany and italy and spain. Will that facilitate the noise because in the past its been too difficult to do. Frederic not yet. We dont have the benefit of the completion of the Banking Union for example, full liquidity of capital flows from one company to the other. Its still a relatively fragmented market. If you look longterm youll probably have more am terization and more benefit to think of consolidation and first domestically. Alix where domestically, what banks [frederic in italy and germany we all know there are many banks and probably you will have less banks Going Forward. In most markets to deal with the challenges of the technology, the investments, you probably need three and six banks concentrating the bulk of the retail businesses. Alix the news is Deutsche Bank is cutting 500 staff and credit swiss is pushing people to take unpaid sabbaticals. Why is the requirement so hard and what have you experienced . Frederic the banking markets have been structural and some businesses have been impacted by the frameworks. You had effective intervals and in 2017, a low volatility environment which does not help. As i said, we should have progressively a slightly better market but beyond the structure you have to adapt your Business Model to ensure in the long term these businesses can be profitable and you meet your clients request and things are changing. Tom you set out comprehensive strategy that includes growth, 3 or better a year, and also cost cuts. You in that process . Have you gotten the low hanging fruit already . I know from cost cutting it gets harder and harder the more you do. Frederic in the french in particular we started to cut off branches and offices and still a long way Going Forward. The new Technology Means you can have now with mobile services and you have to adapt for that. We will have progressively the benefits of these cost cuts knowing we want to manage the structuring in a total responsible way and want to find a solution to our people. Alix what is happening to the union labor costs . Frederic theyre under control and we have to avoid increasing our costs so wages are increasing but modestly because inflation also is low. I mean, we are able also to control our wage costs. Alix the curve steepens once out of the positive environment, do you feel like the wage story and union labor cost changes . Frederic i think theyll remain modest and we still have high unemployment and theres a good understanding yes, we need to go for the transformation and probably better for the bank to invest in training and i. T. Tools rather than spending money to quickly on wagers and being able to invest. David businesses doing business with france, its difficult to deal with the labor laws and hard to let people go. Has it changed with the new regime, the new president and new labor laws, has that facilitated what you need to do . Frederic a lot has happened. With the new president , there are reforms, one on the labor market to take out decisions that are difficult to manage for International Companies and also on the tax side. The changes for example under revenues from capital. A lot is happening in france. The growth is good. The concontinuingence by c. E. O. s is very strong and we have a good future and im very positive and optimistic on this one. David we have to talk about ray and bridgewater. Its puzzled people here because its not just your bank but the italian banks and expanded to european equities and people are wondering, whats going on because people think european equities is undervalued. Whats your theory to what is happening there . Frederic i dont know. Im pretty positive on europe. We should have two years of growth. The rates will go up progressively but not probably. Brutally. And we have a good level of confidence and we have this year to further build the momentum with new political initiative. So i think again that factually there are opportunities on the europe and equity side and depends on one sector to another, one end to the other. But there are opportunities. Alix where might ray dalio be rated . What are the risks . Frederic you should ask him. Alix its easy to paint a rosie picture in the environment youre in. But what is the weaker point, where might be he with socgen and other ones. Is it a Political Risk . Frederic to be frank, im not sure. Ive not seen in the last 10 years so positive elements. Governments in france, an agreement in germany, which will probably support the euro zone construction. Currently growth rates that we never saw in the last basically 10 years and overall in the world. So yes, in the longer term you can have perhaps impacts of ninging Interest Rates, so slow down with this issue of the cycle, how long it will be. The twist in the euro zone, i would say im positive for the coling two years. David to wrap it up as c. E. O. Of socgen general, whats the biggest opportunities and the biggest risk . Frederic opportunities really to transform in an economy which is going well. Alix thanks for your perspective and thanks for joining us. The c. E. O. Lets get a quick check on the markets. We are looking for a negative open now. Dow jones futures off by triple digits. European stocks trying to eat out again. Ftse weaker. There is a plan, apparently. David they have gone up with the checkers with their cabinet and they have a secret plan. Lisa to fight inflationa to fight inflation. Eurodollar is down by. 5. Tons of supply coming along the curve in the u. S. 2. 9 on the 10 year. There will be demand at what price will there be demand . Points and the spread has been flatter, consistently with oil love by. 6. Opec seeing neglect dissipating at a faster pace. Lets get a check on another developing story, albertsons thatg areas of rite aid have not already been sold. It will be about 1. 83 a share c the in cash. David bigger deal was the one with cvs. But stock is up 27 . On some assets. Alix did they think they would see a bidding war . They need to compete with amazon and you need the firepower. David amazon is starting everything in the end online. Lets get an update on headlines outside of the Business World with kailey leinz. Kailey the billionaire Koch Brothers have turned trump down on appraisal to raise the gasoline tax 25 cents a gallon. A report released said the increase would fall hardest in 2016. The chamber of commerce suggested the tax height and President Trump has offered to support it. Special Counsel Robert Mueller is said to have expanded his interest in president ial soninlaw jared kushner. According to cnn, he is investigating kushners efforts to secure financing from his company from Foreign Investors during the president ial campaign. He will be looking at talks kushner had with chinese investors. Facebook is facing a new round of criticism. It started last week, when federal indictments accused russia manipulating social platforms, and it a split advertising and date advertising executive from facebook defended the company in misleading cases. They spent global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Alix duke energy releasing its 2017 report this morning. They did beat analyst expectations, earnings of 94 cents a share on 5. 1 billion of revenue, eating estimates and 8 beating estimates. Deutsches global stock in the premarket is unchanged at 76. Joining us is ceo of duke energy lynn good. Always good to catch up with you. Good morning. Thank you. Alix you basically have a three prong growth approach, utilities, pipelines, and commercial renewables. Walk us through what to expect. The industry continues to go through great transformation and we are excited about the Investment Opportunities across our businesses. In utilities, we are focused on the grid to deliver Customer Expectations and renewables and investing in cleaner forms of generation with solar, wind, and natural gas. You mentioned natural gas infrastructure. We make great progress with the pipeline and see that as important for our customers and investors. Alix how much do you think infrastructure will contribute to your earnings . The utilities are largest part of our footprint, 90 of what we contribute. Duke is an infrastructure business. If i add my commercial renewables, i regard that as infrastructure, so we are diversified across the u. S. , really transforming to meet the needs of the u. S. And states we operate in. , whatas we move forward does that do to your unit labor cost and margins as you continue to expand in that area . It is a great opportunity and great time to invest, but i think the points you make around labor as the Unemployment Rate declines, we do see competition for labor, particularly in the field crews and areas that support infrastructure growth. We offer a great opportunity at Duke Energy Career and work on recruiting Diverse Talent across jurisdictions in the way to make it attractive, we believe, for a longterm career. Alix unit labor costs are rising. Can you give me a sense of how quickly . Lynn the labor costs are rising at a reasonable pace at this point across our business. In certain segments of our business, we are seeing a stronger demand for labor. What i would suggest there is in areas where we are building delivery infrastructures and grade infrastructure, grid, that is in area of modernization, so more demand. Vegetation management out of Hurricane Season is also a demand. Alix which leads me to expansion in m a. Duke has been mentioned as a possible buyer percent decrease for for santee cooper. Are you going to make a bid . Opportunistic, an opportunity that presents itself from time to time. We are focused on our organic investment profile and the growth that we have in our business. We talked about infrastructure, electric and gas. We do not have m a as part of our plan over the next five years that we will look at opportunities that arise. Alix you will be helped by tax reform. Walk me through how much of the tax reform is going to go into rate decreases for customers and how much stays with you. Lynn i think it represents an opportunity to lower prices to customers while lessening the impact of price for modernization investments. Over time, customers will see the full benefit of tax reform and we think there is an opportunity to provide balance where reductions in price also offset what might be increases from the modernization investment going on. We think there is an opportunity to continue to invest at low prices. Alix what is the arbitrage for that, meaning how long do you have until you pass on the rate decreases . How long does it stay good are you . Lynn i would think about the tax decrease is going to go directly to customers over a reasonable amount of time. I would not think about it as arbitrage. I would suggest as we continue to invest in our infrastructure and provide services to ustomers, tax reform gives an opportunity to lessen the impact on customers over time. They will see the benefit of tax reform quickly and over an amount of time. Alix two more points, the first on rate. Increase in terms of the carolinas, you have been trying to get a rate increase to pay for your ash coal cleanup. Where you stand on that . Lynn we have a couple of rate cases underway, one for duke energy progress. We expect an order from the commission any day. The second case is scheduled to go to hearing within a week or so. Both should be resolved in early 2018. Alix with a last question, utilities have been a big beneficiary of lower rate environment. As the fed hikes and we see a potential to handle on the 10 year yields, this that make a utility like yours less interesting to investors . Lynn i believe there is always a place for investment that delivers a percent to 10 of total return. We come to stop with start dividend and growth. I believe in any market there is an opportunity in place for utility investment. Flowis a low risk, cash producing entity from 8 to 10 . And we look for ways to grow. Alix always great to get your perspective. Lynn good, duke energy ceo. David another step we watch this morning as walmart shares are lower in premarket as they reported a disappointing annual profit forecast. Joining us to discuss is matthew bloom. Is this all online . Matt it has all been online the last quarters, and walmart had done northward of 50 online. When you have 23 today, people will say, what is up . It is lower than targets growth in the holiday time period. Their instore sales are good, but they are focused on one with the amazon threat that this number, on top of the profit margin contracting, led to vendors today. David what can they do . Matt keep investing. I spoke with the cfo and he said they will continue to invest aggressively in lowering prices, new services for online customers, trying to make that Shopping Experience more frictionless, easier, so they continue to do the things that have gotten them there, that we should not get used to these growth rates. 40 is what we will see this year. David well, they brought in their people one jet. Com. Is there another jet. Com out there . Matt not as many. There is speculation of what will happen with the cosco for Millennials Company box, but walmart made their deal with jet, but it will not grow at the same rate. David what about internationally . Theres talk of india. Matt one problem they have internationally is brazil. This quarter, they announced they are pulling out of their first party ecommerce is this in brazil. That means step they sell themselves enough to thirdparty vendors. Brazil has been a huge question and problem for them. India is a Growth Market where they went to where they want to invest and it seems likely. David does walmart have an advantage in the walkman family . They have a big number of shareholders. Matt there are few companies that could give doug mcmillon, the ceo, a blank check, and say, spend what you have to. Raisedof that, they just their hourly wages to 11 an hour and they are trying to make employees happier at the same time. There was a lot going on that maybe amazon is not worry about as much. David give us guidance in 2018. What is the history with walmart . Do they lowball it . Matt yes, they of course are conservative company. If they are going to maybe last year, they did beat and raise in the third quarter. I would not be surprised if we saw some raising over the year. A big question is they have not completed their analysis of the tax cut windfall. David they punted on that a little and have sorted it out. Matt exactly. David there may be good news. Thank you. That is matthew boyle. Coming up, cryan takes out this couple would we look at while cuts the scalpel. We look at cuts. Tune into tom keene and Jonathan Ferro and pimm fox from 9 00 to 10 00 to you can hear it in new york, washington, d. C. , across the United States on sirius xm radio. Live from new york, this is bloomberg. Kailey this is bloomberg daybreak. Coming up in the next hour, brian belski. Now to your bloomberg is this flash. It is the latest step in the remaking of the u. S. Retail and health care industry. Albertsons will buy right aid. 24y have a combined value of billion dollars. Robertson shareholders will own 71 of the combined company. Rite aid is still selling about 2000 stores to the alliance. Call come has raised its bid for semiconductors to get support from shareholders. The offer is valued at 43 billion for qualcomm is fighting off a takeover attempt and has rejected a 121 billion offer from broadcom. Home depot is cashing in on store salesith same rising more than expected in the Fourth Quarter and they were helped by hurricane recovery spending in the south in puerto rico. That is your Bloomberg Business flash. David we now turn to wall street beat, were recovered three things wall street is buzzing about. Number one, cryans scalpel. It is not an ax. Deutsche bank will cut as many as 500, but they do have a few employees left. Betting against the banks, number two. Bridgewater is famous short against european equities is a mistake according to analysts. And the power of the purse. Reports of a secret brexit plan by Prime Minister may reportedly prepared to hold back on eu payments if the trade deals do not work. Kelly,oining us is jason executive editor for Global Television area jason television. Deutsche bank, chrysler two reasons. One, we are seeing cuts. And number two, will this number of people move the needle of the company . Jason Deutsche Bank has not been doing awesome, to use a technical term. Specifically, will be look at fixed income, and equities over the last quarter, that is where they are hurt great on the rise reside, they had in doing well. It does seem, going back to what you said, a bit surgical, but that is what cryan is having to do these days to try and get this back on track. David in fairness to john cryan, it could high paid people. Alix certainly midlevel people. Jason there is a lot of cash. David it is not easy leading 200 people go. Letting 250 people go. Alix and he will not get the 2017 bonus. David that is cold. Alix that is harsh, ework the whole year and they get fired. Jason speaking of Deutsche Bank, one of the most read stories on the terminal is about an ex Deutsche Bank trader, who actually left and now is writing a postal opposite a postapocalyptic fiction. Alix i love this. Jason it is amazing. Alix the best book to read. Jason this guy is the new hero of wall street. David ok, number two, we have talked about ray dalio is short, but now we have a quote i think ray dalio will lose money on this big short. I think specifically talking of italian banks. Jason right, one of the great things about where we are with hedge funds getting back into it are people are talking their own book, so you do have people on either side of this trade, and people being public about where they are on these trades. The ceo not surprising that the isly of that ray dalio short, so you have people lining up on either side. Fun reading the word i can use because i dont have money on the line, is somebody will win and lose. You cannot both be right. Alix we just talked to the ceo of stockton, and he did a broader picture and said, we have really good growth in the eurozone, the best in a long time. And we will get out of negative rates, according to him. David he basically said, we do not get. And he said maybe geopolitics. Alix i kind of swooped at him with this. My favorite story is the supersecret plan to fight brexit. I had to laugh over this because you cannot make it up anymore. The u. K. Is like, we are going to withhold brexit payments if we are not the trade union. Jason amazing they are talking about this, especially at a time when they are public a trying to be quite openminded to the counterparts in europe. It is a reminder that there is a lot of me at stake. A lot of money at stake. People are taking a lazy attitude. David it occurred to me that money is almost always the way out of the problem. Secondly, you said, you have to promise first and then trade. Now, they want to take back the money. Jason no one is clear about the payment plan, what they have agreed to. But it was a Sticking Point early negotiations ended almost broke down earlier in this process. From a wall street perspective, from a city with a capital c perspective, this is the uncertainty that makes bankers and Bank Executives nervous about where are they going to be . Alix if you are working in london as an investment banker and trying to figure out what school to put your kidding, how do you read the headlines . David it is a very complex big business deal and normally you dont see the backandforth. This is what it is playing out in the public with every counteroffer. Jason and did is run by politicians and it is run by politicians looking to keep our. David many thanks to jason kelly. Coming up, it was the most talked about film last year. Black panther was finally released this past weekend, smashing every expectation. More on what i am watching. Alix check out tv , check us out online and interact with us. Go to a tv on the terminal. Check it out. This is bloomberg. David this is what im watching, black panther. I did not watch it, i meant to, but reviews have been great. The main thing is the money coming in. It is setting a record growth opening, the fifthlargest ever. You can see this was president day weekend, and this last weekend, as opposed to when you go, it shows a black panther did. Alix and it snowed. David it did, so an extraordinary commercial success. It was remarked on because it had africanamericans in the lead. There has been a fiction in hollywood you cannot get people to turn out if it is africanamericans in the lead and this has loan that out of the water. Alix tell me demographics. David i mentioned earlier, typically, in an action movie, you will have over 50 caucasian and 15 africanamerican. This was 37 africanamerican and 35 caucasian. It is clear africanamericans will come out and pay for it. I talked to tyler perry, the producer of the film, and that constant, could this film have been made 10 years ago . Is this a shift in society . He said, no heres what he said. I think it is the time now. I think it is a whole new energy, generation, and millennials who are more openminded to every kind of person and race. David he is a fascinating man rate i did not know him before, but he is trying to transform hollywood from atlanta. He refuses to move to hollywood. He is in atlanta doing this and he gives africanamericans a prominent role in his company. Alix which is great. Now you had to give black widow her own movie because aside from hot guy, she has not gotten her own. , she has not gotten one. Joining us will be brian belski. We will break it down. This is bloomberg. Alix it is only the appetizer. Morgan stanley says the real selloff in stocks is yet to come. And walmart with warning signs, disappointing outlooks and shares are down in premarket. Alien of treasuries will be auctioned off this week. Demand will be there,. Bloombergcome to daybreak europe i am david westin. This week, i am excited about these treasury auctions. Alix it is perfect. David it is a big one. Alix it is, and markets are wishywashy heading into it. The dow is off by triple digits and the dollar is modestly stronger against all currencies. About the softng belly of the curve, the 3, 5 and seven. 10 year yield up 2. 9 . And nymex crude up. 7. David declare victory and retreat. Ok, lets find out what is going on outside the Business World with kailey leinz. Kailey about 100 students from the Florida High School that was seen of a mass murder are going to the state capital today. They hope to pressure the legislature to vote for a package of sweeping gun control laws. President trump has signaled he is open to tightening background checks for gun buyers. Meanwhile, the president has set aside longstanding differences with mitt romney. He has endorsed his run for the u. S. Senate seat in utah. Critical ofeen President Trump, but the republicans are trying to hold onto the majority in the senate. In the u. K. , Prime Minister theresa mays team has a plan to halt brexit payments at the European Union backsides on a trade deal. That is according to people familiar with the matter. Someone in the administration believes their withholding billions of pounds from the eu and it may be necessary. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am kailey leinz. This is bloomberg. Alix thank you. The Market Correction that kicked off february was the appetizer before the main course, according to Morgan Stanley. We spoke to the strategist of potential pressure equity earnings. I think this is something the market may have to assign a higher discount rate, and that is the reason we do not expect multiple expansion out of the u. S. Equity market. It has to be earnings from here. Alix joining us is brian belski, bml chief investment bmo chief investment strategist. Brian great to be here. Good morning. People are so negative. We transition from trying to call the top and bottom. During the week of the correction, we will transition into a time in the market where everyone will be saying instead of by the david, said the rally divots, said the rally. And then you have someone and say, with all due respect, without people do their job, we have been in markets where people have been going on. Do not know what is going on. Pes are flattening and not going down, and there is a numerator and denominator that we have been so numerator dependent for nine years, and that is a good thing because that mean the denominator is growing. Isnt that what we want . We do not understand about Earnings Growth, taking stocks, so people making broad comments with respect to the valuation of the market, we think they are misguided. David let me understand what andrew was saying in your response. I heard him say, we have been getting a rise out of equity valuations because of the low real deals. If that goes up, we cannot have that evaluation and we will have to have increased earning support for i do not think he was saying we are not going to get earnings. Would you disagree . Alix not to piggyback, and heres the chart three it it is the 10 year link notes, about 82 basis notes. The worry is how we break out of that trend. Versus 2015ngs now are a lot different, number one. Number two, have not seen this type of market with rising yield and earnings since the 1990s and before that, the 1970s and 1960s rate clearly, people havent seen that before. We extrapolate what we know in the market. What do we know . Because Interest Rates go down. That is what we know. We are having a hard time going to the next stage. I am from minnesota, and it were in canada a lot, and i tried to provide hockey terms. We are so stuck on trying to figure out and skate to where the puck is, were not looking at where it will be next. We are so determined to try to define what is happening today and is the market going to go down today . What does this mean . It means this at multiple points we lost about two points based on the next years earnings. If you are looking at training e overs or eat over p p, you are looking at trailing earnings, so things will not look good over the last four months because they do not include closed tax cuts. A lot of companies have not put them in their numbers yet. Multiples could go down even more. What does this mean . It means higher yields our good for stocks are good or stocks. We proved it in a report we wrote on february 1. If you look at history , as earnings and the stock market and Interest Rates go up, it works together. We used to call it the circle of life. Alix that i have because i have my inking. Lion king. David the same thing applies in nascar. If the car is extending, you aim for the car because it will not be there by the time you get there. Where is it going to be in 12 months . It will not be where it is now. Brian markets will had higher but it happens in an environment where you transition more into an earnings environment is what goes on now. More volatility, more decision because people do not understand the change. Swings providese opportunities for longerterm investors. The majority of the upside, if you have this exhaustive, bombastic recovery in stocks since march 2009, we need a respite as we transition. The next phase of the bull market will be flattening out multiples, Earnings Growth going up, inflows in additional equity product. We have not seen that yet. We sought outflows from equities in 2017 when the market was up 21 on a total return basis. Incredible. Alix you think yields can move higher and equities higher, does that mean you see a correlation between the s p and 10 year yield in higher positive territory . Brian yes, but this is about twos and tens, yield spreads higher, financials leading the way and helping define the market performance. We have had periods since 2009, where they performed at the have not defined the markets performance. We have had shortterm periods. Remember, there is so Much Negative psychology regarding financials for this day. One negative data point comes out and everyone picks on financials again. What we have heard predominantly from Institutional Investors is wantbecause they do not to commit longerterm and that provides an opportunity to us. Alix we will talk more about opportunities with brian belski. Coming up, is volatility back, and what kind of gains will we see on trading floors and opportunities and equity markets . This is bloomberg. Kailey this is bloomberg daybreak. I am kailey leinz with your is this flash. It is the latest step in the remaking of the retail and help industries. Albertsons will buy the drugstore chain rite aid, with a combined value of 24 billion. Albertsons shareholders will own 71 of the combined companies and rite aid is still selling about 2000 stores to walgreens. Qualcomm has to raise its bid for semiconductors by 16 to shore up support from shareholders. That 43ash offer is billion. Qualcomm is fighting over a takeover attempt, rejecting a 121 billion offer from broadcom. Walmart has given a disappointing annual profit forecast. Toommerce sales have started slow down. Plus, the tax overhaul will be less of a windfall than expected. Dad is your Bloomberg Business flash. David still with us, brian belski, bmo Capital Market chief investment strategist. We will turn to volatility. We talked to frederic oudea, and this is what he had to say about how it is affecting his business. Markets wasy in the not good. We will enter into something with normalization. It might take some time, though with the normalization of the Monetary Policy and the central bank, i think we are exiting the etf environment. David how do you trade into this higher volatility . Brian we look back and saw how after following a long time or spike in volatility with respect to longterm average, we typically see the s p 500 between 18 and 20 higher. Why is that . Kick gives the traders an opportunity, we think more investors an opportunity to redeploy capital. We have seen so much of that already with respect to tech stocks bouncing and financial stocks bouncing from lows. We think there was a fair amount of selling into late january and early february, that people were doing shortterm things. Typically, it usually ushers in regime change is. What is the biggest from a strategy perspective on investment side . It is the notion of unwinding momentum positions or whatever he went to call the. Called them. And then redeploy and be more diversified with value strategy and financials, maybe some health care. More importantly, industrials we think are the place to be over the next years. Still maintain your tech positions but do not be overly weighted and constrained to five stocks were six stocks. Alix we have a viewer question, what will Central Banks, lenders of last resorts loading the Balance Sheets with equities and other risky assets, are they compromised in a crisis . Brian [laughter] alix we were going to talk correlations. Brian do we know that for sure they are buying equities . Well, the po j, we are trying to get growth in japan for a long time. We are worried about japan trade that it is so ultra consensus. Everybody is on japan and europe. We have a chart that shows how u. S. Stocks can go through prolonged periods, meaning several years about performing. Years outperforming. We do not leave it. We are trying to find every single reason to sell u. S. Stocks. Global Central Banks are beginning to follow the u. S. lead in terms of tightening up because that means earnings around the world are starting to good. Fy, which is that does not mean we will see crazy up trending Interest Rates in japan and europe until we see discernible growth. They are behind the curve at least, especially europe, at least one year with respect and so you see that denominator in their valuations. Europe is always cheaper than the u. S. , the euro is always cheaper than the u. S. , but we have continued to think, you should probably have some money in terms of other areas, aside from the u. S. , but we believe the u. S. Is the most clear, consistent earnings grow it in the world for the next eight quarters to 12 quarters, period. Why would you not want to own that asset . We have had an opportunity for cheaper prices. And so we have yet to see kind of strong inflows in the u. S. Areay that Central Banks running equities, that is probably fixed income talk. David around the world, europe is talking about normalization and we are gradually doing it in the United States. How do you factor in your historical view of equity markets with the etfs in the market that were not there before, algorithms, and Central Banks coming into normalization . Those are different, arent they . Brian normalization is a scary word because i dont think what think anybodyont knows what it is anymore. We were talking the treasury yields over the last years, and that is 5. 66 . Because it trades are heading higher, we think that is a binary decision. Theyre going higher, i need to react. How much higher . Take a step back and say, the economy is improving. Earnings are improving. Interest rates are slowly increasing, along with the path and pace of growth. That is a good thing. How do you derive an Investment Strategy . We believe that starts with Free Cash Flow. If you buy this Companies Generating Free Cash Flow, theyre able to grow earnings. If they are generating Free Cash Flow want to generate and grew earnings and pay a dividend, even better. In america, more and more companies are increasing their dividend. Many financial stocks could not pay dividends. Now, over the next one year to three years, the majority of the financial areas, are some of the strongest dividend growers, and you are seeing apple increase their dividends, microsoft, dividend powerhouse is Going Forward. Alix if you have to choose a company doing buybacks, dividends or, what would you choose . Ryan i do not think it is a binary decision. Alix meaning, apple would be off better investing for buying a Company Versus a huge buyback or dividend. Brian we run a reallife portfolio for our clients in canada called the north american Dividend Growth portfolio and one stock is apple in the growth phase. We own three types of stocks in that portfolio and apple is a Dividend Growth stock. You will not hear someone say, i will buy apple because of growth. You will fight because of innovation but it is part of by diversified portfolio in terms of buying Dividend Growth and apple shows that. David brian belski will stay with us. Coming up, if you look two walmarts, a disappointing outlook. Comparable sales remain strong. Shares are taking a dive in the premarket. More on that, next. This is bloomberg. Alix one stock we are watching is walmart, getting slammed the a disappointing profit forecast. Brian belski is still with us. In theory, 136 billion in revenue, a dividend yield of 2 , you should like the company. Brian you should, considering i think people forgot how to build what folios because walmart is now one of the against stocks in the Consumer Staples sector. If you look at three buckets Consumer Staples, you have households, retailers, and the dividend guys. The beverage companies, tobacco companies, companies that have decided we dont know how we are going to grow, so we will grow the dividend. You have households, personal strongse areas have challenges Going Forward in terms of capacity, and Earnings Growth. And then you have staples, walmart, costco, and these are real numbers. I think there has been so much money in walmart in the defensive way they own walmart shares because of the consumer full do, so now all of a sudden, they are having, what is going on . Walmart is not going away and it is the category killer. Overreact andnd when youre from now, two years from now, you wanted it to be in walmart stock. David we will bring in our gadfly columnist from washington. Sarah, on one hand, samestore sales were up and above what was expected at the same time, they are getting hammered in the ecommerce. Cause of sarah that is right. They had been delivering such a ecommerce growth for three quarters, a blistering pace of the above 50 . Some of that reflected them attackingjet. Com jet. Com on to their business. We only saw a pullback of 20 . Relative to the industry, it is consistent with other retailers but it does raise questions about how sustainable their ecommerce turnaround is. David is this the market same week that we had a giant killer and maybe we dont and walmart . We got someone could take amazon on, but not so much . Sarah i think think people are wondering. It appeared to be just total new energy and creativity injected in walmart, try new things, to day shipping for free on lots of items, with no membership. Really doing aggressive step to challenge amazon. When you see this slow down, investors are saying, how long can this last and help sustainable is it . Alix in the general consumer space, you have a low Savings Rates and then you have tax reform. People will put away their money in savings to punish it rather than spend in bearish views. That would hurt retail space, what do you think . Brian we are good at spending money in america, we love to spend money. I do not know why a comment on why the market needs someone to take on amazon you need walmart, home depot, costco, those companies. We do not need just one. Amazon will not be the only one in the marketplace. On days like this, we react in an emotional way that amazon will be the only company. No, it is not. Maybe we are disappointed on a shortterm basis, meaning today, quarter of quarter over growth and ecommerce and walmart, but that isnt the only reason to buy or sell stock. To buy or sell stock. David people were hoping, if they were not the only one to compete with amazon, did they figure out the secret sauce, await other small details retailers continued back and challenge amazon . Sarah i think walmart was becoming the shining begin a but was possible for rick and mortar retailing. This is just 1 brick and mortar retailing. This is one quarter. They are calling for 40 growth for the year ahead. That suggest they think this one is a look on the radar and they can turn up the heat again. It remains to be seen if they can pull it off. Alix we are taking a look at what it means from tax reform and their top end, 26 . Not as great trait what is going on . That is what is also driving the stock decline, etf outlook is not where folks hoped it would be. On capital expenditures, it is in line with what they have told us and they were not get a boom as much as folks thought. David you are a little bit bullish, right . This what would be the one thing that would make you wrong . What are you worried about and you would say, maybe it is not as good . Brian if growth goes the opposite direction. David global . U. S. . Brian global. If we see companies go the baby out of the bathwater in terms of numbers and say, we are not seeing growth, people are not coming back to stores, then we would have to think more defensively. I do not think investors are thinking that because we hear more of inflation then growth. Than growth. A growth scare to the downside are things many people do not talk about but the likelihood is low. David thank you for joining us. It is always great to have you. Brian belski will stay with us. Coming up, we will talk with carter airways ceo akbar outback are. Baker. R al live from new york, this is bloomberg. Alix this is bloomberg daybreak. Im alix steel. I went until the open and it will be about the bond sales this week, futures off by 100 points, s p futures off by 6 10 of a percent. Lichen mentioned, other asset classes. Take a look at the 10 year yield. It is moving higher command 2. 9 . This is all around the belly, 3, 5 and seven. And we have to measure 58 billion in auctions over the next few days, but will the price be that will woo traders to buy the bonds . Crude up by 4 10 of 1 , despite the fact opec said that the glut is dissipating at a faster pace, the market could rebalance around at the Second Quarter. What that will mean for production, that is in question. Has beentar airways hit hard by the blockade of its home country, but today at least for the day is putting aside that as it Takes Delivery of the largest ever twin engine passenger anjet, with 36 more to come. The new model was launched against the boeing 777 in the market. We welcome the chief executive akbar al baker, coming to us today where he is delivering the aircraft. Welcome, good to have you with us. A3501000, why is it important to your airline and more generally to the fleet . We r. O. E. s we are always taken the most fearless airplanes into our fleet and it was launched by Qatar Airways. We have 42 aircraft of this type. Fuelefficient, it has one of the lowest and it has a lot of enhancements over and above the 900. Roots exactly into the network. David give us a sense of the timeline, when will many or all of these aircraft actually be in use . When we sign up for Qatar Airways we can go on one of these aircraft . Akbar al baker akbar the first will operate next saturday to london heathrow and over the next 4. 5 years we will use all 42 we have in order. You will always be able to travel in the most modern Product Available in our industry, this is why were the best airline in the world. David lets turn to the blockade. When you spoke with bloomberg in november, you said you are making adjustments. At the time, the estimate was 11 of the network would be affected and to 12 of the revenue, how are you adjusting that now and have successful are you in making up for that . Akbar let me correct it, weve only lost the routes in the blockaded countries, but we have replaced them with new routes and we have expanded our network usually and we are continuing to do so. We are continuing to grow, the the main purpose of the blockades have a failed. It has increased operating costs, but has also put a financial strain on the airline into this is why i mentioned to you last november that our bottomline will be affected and Qatar Airlines will post its first loss from the last seven years. David what about the next fiscal year, what are you looking forward to . Will you return to profitability then . Akbar we hope so, we are doing new investments, making sure that we mitigate the network that we lost and the revenue that we lost in those, in that network. So i hope that the next Financial Year we start from april this year will bring again, hopefully, positive results. David talking about the a3501000, apart from that is the difficulty you are having with the blockade affecting your purchases . Akbar not at all. You can see that we are not only doing additional acquisitions of other airlines, we are keeping our receiving aero planes and growing our fleet size, so this is not going to in anyway slowed down Qatar Airways, contrary to what the blockade aimed. David from your point of view, i understand you are not a government representative negotiating these things, but is any progress being made on resolving the blockade . Akbar let me correct you. Yes, im not a government official, but i in the qatari. If something hurts my government and my country hurts me as an individual, this is why i am being a very open spokesperson for the people of my country, because we are all one when we are in qatar. David are you seeing any progress, do you see any like that the end of the tunnel, so to say . Akbar unfortunately, the only progress that i see in this is President Trump coming on the side of qatar and making it very clear that this blockade should andand it was unwarranted, there should be stability in the relationships in our region. David does President Trump have enough influence with a saudi arabia to make a difference in the blockade . Trump is theent leader of the worldss superpower, it is also the leader of one of the major democracies in the world and he has decided not to stand up with the people who are blockading, and supporting qatar and undoing the blockade. David you have an interest in Cathay Pacific and you said that you are interested in further integration, such as codesharing. I will play a little bit of what you said in the interview, i am would doe quote, you some codesharing with them as you do with other airlines. It is important to have synergy between us and them. That is what you said last november. Having made progress with Cathay Pacific . Akbar of course we have made progress in extending our shar with Cathay Pacific cathaye with ca pacific and others and we will keep on doing that. Just yesterday, we had a press conference and we changed the name of to air italy and we will be expanding with our partner. David whether it is iag or other airlines coming try to find interest in american and it did not work out, but are you looking other investments with airlines . Akbar we are constantly looking at other investments, but we do not always put our chips on the table, so you have to wait to hear when we announce our new investments. David fair enough, i hope it will come back and tell us about the new investments. Airways baker, qatar ceo. Brianan bilski is belski of bmo Capital Markets still with us. Do you feel like they are properly valued right now . Valuationsi think from a priceearnings basis could go down from here. I think if you buy cyclical stocks into sell them at low pes. We are looking at the return on investment capital, assets, as it accelerates, that is when you want to buy the industrials. Given the diversified nature of the multinational companies, we hear about global synchronized growth, the difference between buying industrials now versus five years ago or 10 years ago, 10 years ago we bought these companies because of global growth. We are buying them now because of diversified growth across platforms, right. Caterpillar is not about russian e aboutelds, they ar buying new equipment in america. At ane of equipment is alltime high, it is the diversified nature of the companys bid alix but what about companies. Alix what about margins, once the companies be squeezed . Brian if you are selling a stock, because of margin picks the last five years it wouldve been underperforming, so we see sales growth actually increasing to help some of that margin pressure, so we will be able to pass some of those costs along. Because of capex. We have not spent money on the capital base since the late 90s, so some of these will be pushed along, but that is the natural course of growing. We as a company come as a country, have been holding down costs for so long, cut, cut, cut it is like pushing a beach ball down when you are playing in the pool. When you release it, it will explode. That is growth. People are not prepared for that. That is why we are hesitant and that is why we think earnings for the second half of 2018 and 2019 could be stronger than people think. Great to seean, you. Coming up, tax reform and infrastructure spending. We will discuss what they could mean for building companies. In ceo of u s concrete will join us. And as you commute today, you can tune into our colleagues, tom keene and Jonathan Ferro, from 7 00 to 9 00, and pimm fox joins the conversation the conversation at 9 00. This is bloomberg. This is bloomberg daybreak. Coming up in the next hour, jim biancago bianca, Research Founder and president. Now to Bloomberg Business flash. Home depot cashing in on americans who are pouring money into their homes. Sales at the largest Home Improvement chain rose more than expected in the Fourth Quarter, home depot was also helped by hurricane recovery spending in the south and puerto rico. Johnson and johnson keeps looking to sell off noncore assets. According to people familiar with the matter, they are seeking buyers for their sterilization product division, which could bring in as much as 2 billion bid the unit is attracting as 2 billion. And sony getting into the hill writing business. They will join with taxi operators in japan this spring. The service will use the sony payment technology. Hillhile, the largest writing startup uber is also looking at japan. That is your Bloomberg Business flash. David one of President Trumps Campaign Themes was the promise to fix american infrastructure and over a week ago he presented his plan that he said would stimulate 1. 5 trillion in new investment, shortened time to two years, improve training and a boost investment in role projects. Rural projects. Kevin joins us. Im a sick mall the news i hear is about i must say that all the news i hear is about tweets from the president and robert mueller. What is going on . Kevin the framework that the administration put out last week was the starting point, but i will be candid, i have spoken with republicans in various factions of the party, the altar conservatives who are saying this is way too much government spending, the moderates who say it is not enough, and it is difficult to see a pathway in order for the administration to get this accomplished. They have risen several issues,uch as asset recycling som allowing the private sector to invest in the dead of several public works, such as municipalities that are burdened with debt throughout the country. The question becomes, number one, with that same will that allow in rural communities, as well as city committees, will private sectors make the investments or will it only benefit the cities . That is why you see this interesting political alliance, so to speak, between groups like the Freedom Caucus and congressional black caucus. All of this does not seem like there is much of an appetite to get this done before the midterms. David we will check in with you to see if they are making progress from time to time. Whether it is housing, commercial real estate, it involves concrete. When it comes to Ready Mixed Concrete there is nobody bigger than the United States concrete and we welcome the ceo, william sandbrook, who is involved in some of the biggest projects around including the new laguardia airport. Welcome back my good to have you. We will pick up with what kevin was saying. When you talk to people in washington, d get a sense of whether there will be Forward Movement in infrastructure . William the devil is always in the funding, the details, all the stuff that kevin was talking about is noise around the edges. Been funding since 1993, when the gas tax was raised, but a larger pool of money will make all the details of, now i can do the partnerships with private and public, if there is a bigger pot , you can do that, but do we have the political will to raise the money . David where does it come from, you have three different pots one is private, one is government, and you have private funds like carlisle who has money to deploy. The government does not have the money. William private investors have raised the money. Their gashave raised tax in the last three years, which means they were not afraid of making a hard decision to meet the needs. The constant and is for democrats and republicans is that there is a 2 trillion need in the country and Everybody Needs to get around that and get the political will to solve it. The other way to do it is to take it from other priorities, which is not palatable either. Alix speaking of other priorities, there is rhetoric that if you do end up having money from the government it will take money away from you and make your life harder. Is there validity to that . William i think there will be Wage Inflation, so the ability to get a bigger infrastructure bend into the field could difficult, but tax reform and whatnot is going to raise, hopefully raise gdp from a 1. 7 rate to 2 , maybe in excess of 3 . I have heard higher numbers. To flowuld allow that efficiently through the economy as well. I want to be clear, 70 of our revenue comes from infrastructure. 83 comes from a good economy. It is more impactful for us to have a 3 gdp for instance, then a significant infrastructure build good david important point bill. David important point. We hear a lot of immigrants, including dreamers, they work in construction. William it is interesting, as a Public Company we employ only legal immigrants, so it does not affect us. Some of the downstream customer base, where there is a lot of immigrant labor, i think it will be tighter there. But for us, you need special skills to drive a truck, you need a commercial license and whatnot, so we have difficulty in finding trained drivers. Alix to pivot off of that, you mentioned Wage Inflation, what are the labor costs looking like . William we are growing at 3 a year. We are short on drivers, we have bumped it up to 5 . Alix what is this speed you think we will see a rise over the next couple years . William i think it will probably be may be percent4 over the next couple years, 3 4 over the next couple years, depending on things. David we have a viewer question. Basically asking come is Wage Inflation a good thing . Would you rather have a raise in the minimum wage or have a grow organically, which is healthier for you . William we do not pay minimum wage because we are elevated from that because of special skills, but i think that planned, progressive slow inflation is good for the entire economy. David what about the skills gap that we hear about, you say you have skilled workers, who trains them . Are you training them . Do have a tough time finding skilled workers . William we have a difficult time finding trained, qualified attract drivers and the trade schools really only give us a miniscule amount of our driver pool, so we have to do a lot more self training, bringing in people who do not have skills and putting them into apprenticeship programs, with a mentor to teacher them how to drive. Alix that is input cost it when it comes to labor, what about material . We heard about proposed tarif fs on aluminum and steel, what does that do for you . William we have enough domestic cement capacity right now and are run materials are local, rock, sand and gravel. Tariffs will not affect us. David what about rebar . William it would affect our customers. Alix when would you be impacted by tariffs . How would it affect you in the margins . William i find a remote possibility that it would affect us as domestic producers. David are you concerned about inflation at this point . William no. David does it bother you the size of the deficit . William it needs to be addressed, but hopefully an expanding economy can bring in more tax revenue to deliver on the deficit. Alix how do you see u. S. Growth over the next year . William i find it accelerating. I think the policies have been put in place over the past 12 months, they are beneficial to growth, i think reduction of regulatory burden, that will help us grow at a faster pace than we have in the last eight years. Alix so this may be the best we will get, growth will be harder. But from where you sit with demand for housing, you are not seeing that . William no, we are very solid into 2019. Alix is your backlog weaker . William i think it is uniformly elevated and all of our markets. Alix i feel like it was rapidfire, bill, thank you for playing with us. Coming up, u. S. Bonds under pressure and three days of auctions totaling 308 billion. And if you have a bloomberg terminal, check out global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 tv. Reach us on twitter. Which one of us is worse on twitter . This is bloomberg. Alix here is what i am watching, the treasury auction we will see this week, 258 billion across three days and we are starting with a twoyear. Probablye be a demand, yes, but at what yields . It has beena look, relatively strong, but what kind of yield are the investors going to demand . I think we might answer that later today. David will Foreign Investors becoming in . It will be coming in . Where will the banks make up the shortfall . Alix take a look at japans biggest banks, they are buying their own governments bonds since 2011, so will there be the foreign buyers . If not, you are left with domestic demand and private investors and it could require a higher Interest Rate. David how much is the hedging costs . Alix it would seem, although china bought more in december, but japan has been on a losing streak for five months. Take a look, you can see what we are looking at. The yellow line is the twoyear treasury yield, the white line is the ratio, so pretty strong. What will it do with the yield to this high . That is the question. Open, andrewe mackenzie will be joining jon ferro, interested in that conversation and what they will do with shale assets under a lot of pressure to dump them. And looking for a softer open in equities in the u. S. 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. Jonathan from new york city im , Jonathan Ferro. This is the countdown to the open. Wall street returns to work, u. S. Futures are lower after the s p 500 delivered its biggest weekly gain in five years and we are digesting a monster 258 billion where the of treasury auctions over three days and looking at the damage from highyield. The biggest test is yet to come. The story is, futures are up, stocks are down on the s p 500, 6 10 of 1 . Dollar stronger against everything, but a big one for me, i know you have your eye on 1 on ar basis points, 29 u. S. 10 year. Government bond issuance begins today and we are looking auctions totaling 258 billion in three days, here is what investor strategists have been telling us at bloomberg. We will have this for a while, a lot of issuance to come. Not so much of the demand, but w