Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20240714

Alix bunge crushed it. Carlisle group was kind of interesting. A lot of shareholders have been pushing for it. David they are making it much more transparent, where everyone else seems to be going the other way. Including ing they are getting included in a lot of indices because of it. Alix it is still going to be a soggy day headed into the fed meeting. S p futures up by four, eurodollar flat. The outlook not good, but the currency market not really moving on that. Crude up 7 10 of 1 . That is a geopolitical risk story. It is going to be basically put the pause button on until 2 00 p. M. Unless you are trading individual stocks. David thats right. Kawa andined by luke vince cignarella. The fomc will announce what they decide to do. It feels like Everybody Knows whats going to happen, one cut of 25 basis points. The question is what comes next. Vincent everyone thinks they know what happens. This is the fastest few minutes in five in finance. At the question is is beginning of quantitative easing, or wanted done or one and done . I am more in the latter. The fed legitimately doesnt have room to cut, but i think they will do so just as an insurance policy. David luke, what are you expecting . Luke pretty much the same. In that first two minutes, it could be very interesting. You will probably have some dissent. It doesnt seem like everyone there is prepared for cuts. A statement might not spell out that there is future easing. I think it has the potential to be perceived hawkish lee off the bat. You have Jerome Powell by himself, no forecast, having to push back against that tide. A september followup cut is not fully priced in, so if he does decide to push in that direction of saying this is just announce of prevention for that pound of ounce ofust an prevention for that pound of cure. Alix on the flipside, if the market proceeds more hawkish, what does that wind up meeting for the dollar . Vincent i think the dollar rallies either way. This will be seen as a hawkish statement by the fed. He cant be seen as capitulating to the president. He wont be seen that way. Good. Mbers are too the numbers are too strong. You cant be the central banker of the world. Cut, Central Banks need to but 25 basis point isnt going to help anyone. 50 basis points not necessarily either. Luke this is the problem with the cutting cycle or the one cut. That is probably completely predicated on both Global Conditions and low inflation amid dollar strength. That pushes back against both of them. So far, one part of the transition mechanism that really needs to be in place ring this fed easing start is not there, and that is the problem. David lets talk about u. S. china trade issues. The ended negotiations rather soon with out a lot of encouragement. President trump talked about china ripping us off. Not a good way to go into negotiation. The foreign minister came out and said only when the u. S. Shows sincerity and good faith can we achieve progress. There are now reports they may get back together in september, but this is not very encouraging. Vincent we talked about this last week, when the meeting was moved from beijing to shanghai, a kind of shot across the bow. Look out the window at all of this industry. This is where banking is. No trade talks, you dont get to be here. The u. S. Kind of knew going in this would be a bit of a waste of time. Once again, i think trumps tweet that said we think china is going to wait until after the keying himself for exactly that. Researchnwhile, if you the companies, this bleeds into our third story, which is apple. Sales were good, and we havent really seen issues from trade yet. Luke in the case of apple, it is mainly just lobar, being able to beat it, and then things werent clearly as bad as anyone thought. This speaks more to the general case right now. Weve managed a series of alltime highs this year, with amazon and facebook and netflix, without apple hitting an alltime high. If you think of all of these bellwether stocks that have carried the market at various points, those still have some participation to do, some further highs to push to. David whether it is apple or another stock, is the market prepared for a long, drawnout conflict with china . Its been a wild now, and it looks like it will go through the election. Vincent there are a sense that is earnings continue, we havent seen it bleed into trade talks. Of the fx in terms market, the stock market, is what will trump do after a 25 basis point fed cut . I would not be long anything going into the data friday. It would not surprise me whatsoever if he asked the treasury to be in the fx market. David what would be the point of that . Treasury officials dont have enough money to make a big difference. Vincent it is simply just to shake the tree. And Central Banks never really move the market, just a strange feeling i have that he may do something which no other president would ever do, but he may do something just to make a point. David after all hes talked about currency manipulation, he would try to minute delay the currency. Vincent would not surprise me one little bit. Alix i told you he was going to say that. Boy, it would shake things up. Vincent if you want to buy a lottery ticket, just put a put on the dollar going into the weekend. Alix our third story now is apple. What was interesting to me is the iphone revenue is under the 50 level, but the markets took it in stride. The narrative they keep spending on services seems to work. Luke i think both Opinion Pieces on the bloomberg are islly great in that apple clearly becoming more about the platform and deepening the surface even as the level is not getting any deeper. To make sure you can increase revenues . Cracking 20 for the first time, it is clear it is in transition mode, but how big and how wide do you cast this net if you are apple . David if you do start to say where will we make our money on services, it is like buying a printer. They are really making the money off of the think. Makes ate it that point it makes sense for apple to start cutting costs on the phone. Vincent all of a sudden, the old phone didnt look so bad anymore. I dont need all these new bells and whistles anymore. I think apple hit the price point when they cost 1000 and realized we really need to spread out into other areas to earn revenue because weve really maxed out what we can charge the consumer for a phone. Alix i heard yesterday the iphone xr is the one i should be buying now because its small, it gets good reviews. Its the cheaper one. David if shes right, you can wait and get it even cheaper. Alix thats the thing. As we joke, my phone is like this big and ive had it for eight years. [laughter] alix bloombergs luke kawa and vince cignarella, thank you. On your terminal 2 browse the features. Check it out. Gtv. Coming up, we are taking a look at ge. That stock popping up 5 in premarket. They actually raised their guidance for cash as well as earnings. Cfo will transition from that role. We will have more throughout the program. ,oming up on the program markets watching signals on further easing. We will break it down with lticks head of research and strategy. This is bloomberg. Viviana this is bloomberg daybreak. The turnaround at General Electric is showing progress. Ge raising this years outlook for earnings and cash flow. Ceo larry culp is trying to stabilize manufacture and overcome a tough market for power equipment. The maker of rayban sunglasses agrees to buy Dutch Company grand vision. The deal values the retailer at up to 8. 1 billion. Grand vision has marvin has more than 7000 stores. Earnings surging in the Second Quarter at airbus. The european plane maker ramping up deliveries of narrowbody jets that rival the grounded boeing 737 max 8. Airbus handed over close to 300 of the a320 planes. Still, some airlines are complaining shipment remain behind schedule. That is your Bloomberg Business flash. Alix thanks so much. Ryanair coming out saying they are to cut jobs. They need 1500 fewer crew than planned. Part of the reason, no deal brexit. David its funny. Two years ago, they said this was a big issue we are going to have to Pay Attention to. If they dont get a deal, we are going to have affected aircraft. 500 to many pilots and 202 many cabin crew . 200 too lot and many cabin crew . Thats a lot. But you have to give him credit, hes getting a 50 pay cut. So its not just the troops. Alix thats fair. David lets turn now back to the big story of the day, the federal reserve. Chair jay powell this afternoon its going to be talking to us about what exactly they did and why they did it. Theres a broad consensus that we are going to see a rate cut. They talked about closely monitoring the data last time. That was the june statement that indicated maybe they would be cutting. The month before in may, they talked about patients. The question is, what are they going to talk about this time . Closely monitoring or patience . We welcome now Lauren Goodwin, new york Life Insurance multiasset strategist, and Kathryn Rooney vera, bulltick head of research ands tragedy research and strategy. So what do you think . Lauren happy fed day. What is important for the fed to get across today is they are closely monitoring the situation, that they are ready to move if the Economic Data continues to deteriorate. Alix it feels like we are set up for a disappointment. Do you buy the rumor, sell the news . What is the strategy over the next when he for hours . The next 24 hours . Kathryn it should be interesting because what isnt priced in is if the fed gives some surprise and talks about Balance Sheets, if they are going to stop the roelofs six sixs early the rolloffs weeks early. I think the fed is going to have to rein in expectations. The markets are overpricing the cutsof dramatic fed from the current levels. David is there any way for them to do that as a practical matter off . Ut sending the markets the markets are so invested now in at least three, maybe five rate cuts in the coming months. Lauren i think what the fed needs to communicate is that they are monitoring the data, that they are willing to act. It is a difficult challenge not only because several of the fed governors arent necessarily on the same page, but also because they are think about changing their policy framework. What that means is theres lots of things happening behind the scenes that have made communication from the fed a little bit confusing. At the same time, theres about eight when he percent probability priced into the markets that will get a 50 basis point cut despite widespread consensus. That does leave a little bit of room for disappointment. Where we differ a little bit is that we expect this to be basically market neutral, as long as the fed can put forward they are still monitoring the situation. David in some sense we are talking about the debt market, and some since the equity markets. Lets talk about the s p. Moves in thee s p same direction as federal funds futures. Now it has diverged, where we have fed funds coming down and the s p continuing to go up. Is this an illustration of which one is right, if we have good times or bad times ahead . Kathryn i think the last 5 of the upside your to date in the s p 500 i think can be attributed to the sugar rush on the fed going to cut rates more than i expect. I think from here, and it could be today, it could be in september as lauren mentioned, perhaps the fed takes it very calm, but in september doesnt cut again. From here to year end, i think youre going to see about a 5 downside to u. S. Equities on that front. I think it will open up opportunities. If im right and the fed cuts one time or maximum twice, 25 basis points each, that is stimulative. I think we can have opportunities for entry into the equity markets on domestic and International Fronts in the fourth quarter. Alix based on the Market Reaction and expectations, where would those opportunities be if it is stimulative and you wind up seeing a pullback . I think we are struggling with her audio. Lauren, let me go to you. Do you think the Market Reaction will be neutral . Are you just holding positions . Lauren we are moving closer to our benchmark and even below. We are multiasset investors, so with think about the riskreward tradeoffs in different opportunities. Right now in equities and fixed income, we are moving more defensive. We want to stay invested. Where the opportunities are our insecurities that yield high income, for example. You dont have to rely quite as much on the price appreciation to add value. David people have been talking about that trade for some time, and it hasnt worked out. Would you really go that direction with your equities . Lauren it is not really that it hasnt worked out. It is that it is expensive. That is why we are moving below our benchmarks, moving neutral in emerging markets. Alix do you feel likealix earnings have delivered enough to justify then paying up for some of those defensive names . Lauren earnings and Profit Margins specifically are exactly the indicator we are watching to determine whether we are tipping over into a negative economic environment in this environment of mixed data. U. S. U look at 1 3 of companies having reported already so far, the results have been a lot better than expected. 75 of companies have beat expectations. More than half have issued positive forward guidance. That is a better environment that we expected. Haveut the same time, you Economic Analysis in the last couple of days issuing downward 2016, 20 17, and 2018 earnings. Why do we care today . It essentially just means that companies have less buffer for some of those Downside Risks we are worried about, that the fed is worried about. That wiggle room is something we are less comfortable with moving forward. Alix Kathryn Rooney vera will be joining us again, and Lauren Goodwin will be staying with us. Today, the fed decides at 2 00 p. M. Eastern time. Coming up, life after the iphone. Apples flagship moneymaking product brings in less revenue in the second order. We will bring in cross researchs cofounder and managing director. This is bloomberg. When you step back and consider wearables and services together, two areas where we have strategically invested in the last several years, they now approach the size of a fortune 50 company. Alix at was apple ceo tim cook on the companys outlook for wearables. For more, we welcome Shannon Cross come across Research Managing Director and cofounder, cross,phone Shannon Cross Research Managing Director and cofounder, on the phone. Fromf that was on flipping getting more revenue from the iphone to more revenue from services. Does that justified evaluation . Justify the valuation . Shannon i think it does. Youre going to have a pretty strong upgrade cycle around iphones, so this quarter had a pretty low bar from an investor per spec. I think the narrative is going to start switching to what are they going to do for us in the coming quarters. One of the interesting things about this quarter is it shows the benefit of apple more diverse model because iphone was a little lighter. You had strengthen services, and wearables was a very strong category. David im going to put up a chart that shows the percentage of revenue to add coming from the iphone has now dipped below 50 . Is this a strategy of theirs . Will this continue to decline . Can they make it up and services . Shannon it is a strategy to grow services. What they like more revenue from iphone . Clearly, and we do think that should come next year. Their install base continues to grow. From an apple perspective, if you look at the Gross Margins, the Gross Margins art services were 64 , so this was a clearly so this was clearly a revenue stream they wanted investors to focus on. Alix what a sales stagnate . What ifs tales sales stagnate . Can services really make up for it . I think that services can continue to grow. Keep in mind, they are launching a Video Service this fall. Theyve got a Gaming Service they are launching. They are continuing to focus on how they can offer more and more services over their install base, which is growing, in the future. David if they are making their money increasingly off of service, at what point is a Tipping Point in which they are better off to charge less for the iphone and get it out there to make more off of the services . Shannon to some extent, that is some of what happens. They reset the bar for iphone pricing when they came out with the x a few years ago, but you have seen a bit of a decline in iphone pricing, and theyve been creative. One of the things they said last night is theres definitely price elasticity in china. That is one of their theories. They wont go to the very low cost. That doesnt make sense to them, but they are being possible where they can. Alix thank you very much. For your point, 10 year sorating margin is at a low, that is something. More next. This is bloomberg. Alix this is bloomberg daybreak. Happy fed day, everybody. Heres where we stand. Weve got s p futures up by five, dow jones up by 70. European autos, definitely watch that. Weaker gdp in europe, but also fiat coming in as well. In other Asset Classes, i did want to highlight eurodollar. Inflation goes nowhere. Growth pretty not great. Industrial production lower, yet holding onto that 111 level. Cable rate up by 1 10 of 1 . Where are we now with brexit . Johnson wants to renegotiate the deal . David but doesnt necessarily want to talk to them. Alix thats going to be tricky. David another tough hand, u. S. china trade negotiations. Negotiators left talks in shanghai early today with little sign they had made much progress. President trump set the stage by accusing the chinese of ripping off the United States. After the fact, the chinese said that america would have to show sincerity and good faith for anything gets done. We welcome now bloombergs chief Asia Economic correspondent in the current correspondent enda curran. This doesnt some very encouraging. Are they making any progress at all . Enda no signs of a major breakthrough. I suppose that was expected in some respects, but all indication is there was some discussion of china buying more agricultural goods from the u. S. We know that is a key concern for President Trump. The relations between both sides were somewhat cordial, and it was an efficient exchange. The fact that they were back at the table indicates some progress in itself. They are going to meet again in september, but theres no signs of a major breakthrough just yet on the core sticking points. David do we know that they really want a deal . Theres been some indications from the president himself that they are waiting until the 2020 election. Enda all the indications are that china is willing to come to the table in certain areas. Their own economy is slowing somewhat. We had some evidence of that today with a pmi remaining in contractionary territory. They also have their own redlines. That is they want the u. S. To roll back some of the herbs on dashed some of the tariffs on uawei,e of the curbs on h they want the tariffs lifted, and they dont want anything that would impinge on their sovereignty. David thanks so much. Thats bloombergs enda curran reporting from hong kong. Alix the question then becomes, which economy has the most strength . If you look at manufacturing pmi, you can see the surprised is appointment in april. Weve recovered somewhat, but we are still below that important 50 level. Still with us, Kathryn Rooney vera of bulltick and Lauren Goodwin of new york Life Insurance. How do you view earnings out of china in relation to the trade talks . Kathryn i think china is certainly growing slower. We seen that trend deceleration over the last 15 years. I think it is structural in nature, not 100 percent attributable to deterioration on the trade front. Growth, theychina are going to report 6 this year and next year. I dont expect the thing out of trade talks. China certainly doesnt have the incentive to get something done in the near term, and it wouldnt surprise me if this drags through to the elections. It is very unlikely that President Trump increases tariffs or covers the totality of imports from china ahead of next years election. David we just saw a bar chart indicating something the president has been talking about, the fact that there is real pressure being put on earnings for chinese corporations. To what extent does that put leverage on president xi . Kathryn when it comes to earnings and gradual slowdown lauren when it comes to earnings and gradual slowdown of the chinese economy, these are here to stay. The slowdown is structural. It doesnt have everything to do with the trade wars. But what is interesting when it comes to the negotiations is that both sides have this potential challenge of slowing growth. An upcomingave issue or two that gives each other leverage. On the flipside of slowing growth in china, you have the elections coming up in the u. S. It is not that both sides want a deal, its that they want their deal, and they will use whatever opportunity they have to gain that leverage. Alix when we were talking earlier about the fed and the opportunity to buy, when you have disappointments like this on trade, where do you see the opportunities . Kathryn my forecast is that trade is no longer the market mover from now until the end of the year. I think it is going to be fed in brexit. Year to date, as everyone on this panel knows, it was u. S. Recession, economic recession, earnings recession, and trade war. Those were moving the markets to the downside. Now i think it is going to be brexit, october 31. My base Case Scenario is for a hard brexit. I also think the fed is going to disappoint on the bag a dude and velocity of rate cuts on the magnitude and velocity of rate cuts. David how does that readthrough for earnings . We are looking for any reflection of possible china trade hurting u. S. Earnings. Will it weigh on the s p . Kathryn earnings have surprised to the upside, consistent with our forecast at bulltick. This quarter did not disappoint. We are up 4. 5 yearoveryear year, which last was a fantastic quarter. Apple, ge. This is a sigh of relief for the markets inasmuch as the trade to has not flown through either inflation or earnings. Inflation yesterday came out at deceleration to 1. 4 yearoveryear. There has been no passthrough heretofore from the suppose it trade war. I think the economy is growing above trend in the fed has a credibility problem if they cut more than 25 basis points over the next six to 12 months. We are at full employment, growing above potential, and the Financial Markets are at record highs. Alix lauren, you seem dubious. Lauren whats interesting is that kathryn and i come to the same conclusion that we should take more caution in portfolios as a result of everything going on, but we see the economic environment in the u. S. As a little less straightforward. Certainly the headline data is pretty positive. Weve gotten a great consumer number of 2. 5 . On the other site of the gdp number, you have investment falling and losing momentum for six quarters and ebro. To me, six quarters and ebro. To me, six quarters in a row. To me, it is not credibility relative to the data. I think the fed is learning. Three or four years ago, the fed would have taken the data we have on the table and said, we are not going to do anything. But what we are learning is that the supportive Interest Rate in the economy is lower than we thought. The rate of unemployment is lower than we thought. The policy stance the fed has taken in the past has been a little bit too reactive. They are trying to be proactive now, and i think that makes sense. Alix Lauren Goodwin of new york life and Kathryn Rooney vera of bulltick, thank you very much. A programming note, i will be on the road in houston for a special edition of commodities edge. I will speak to some executives, coming up atbp 1 00 p. M. New york time. It will be in our. It will be fun. Edge hasmmodities made it. It is commodities edge on the road. Order ike law svu. [laughter] david lets get headlines now on what is happening outside the Business World. Viviana hurtado is here with first word news. Viviana 10 democratic president ial candidates squaring off in a debate in detroit. Warren i know how to fight, and i know how to win. I took on giant banks, and i beat them. Ceosk on wall street and and their lobbyists and lawyers, and i beat them. I took on a popular republican incumbent senator, and i beat him. Debate night two of the futures joe biden and, harris and kamala harris. For the second time in a week, north korea firing two short range ballistic missiles. Secretary of state mike pompeo will be in bangkok for a meeting of the association of southeast nations. He had hoped to meet with the north korean delegation there, but that meeting wont happen. China putting more pressure on taiwan. Beijing suspending a program that allowed tourists from chinese cities to travel there. Thevernment agency cited relations between the two. Now chinese can visit only if they are part of a tour group. Global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im viviana hurtado. This is bloomberg. Alix thanks so much. We want to highlight what is happening with ge. They are actually raising their forecasts in terms of earnings . 60, . 65 ond, the highend. David they said there will be a ,400 million a quarter headwind and they are changing their chief Financial Officer because things are stabilizing. Basically, everything is in good shape, so we can make the switch. Alix fairpoint. They also see some restructuring expenses, but in terms of their industrial portfolio, it is at the highend of about 2 billion. As they go in this process, they are having to pay out a little less on the margin for that restructuring. David may be the good news is there is no big, dramatic news for the downside. Theres nothing like that in here that we can see right now. Alix and they see full year 2020 aviation cash flow as flat to growing. Earningsall of the coming in relatively strong today. Le. N carly the market responding positively. David earnings were above expectations. Coming up here, Credit Suisse breaks through the doom and gloom. The swiss bank bucks the trend, becoming the only Investment Bank to post a trading revenue gain in the Second Quarter. That is next in wall street beat. Alix if you have a bloomberg terminal, check out tv. Interact with us directly. Just go to tv on your terminal. This is bloomberg. Viviana this is bloomberg daybreak. Coming up in the next hour, senator Chuck Grassley, republican from iowa and Senate Finance committee chairman. Viviana this is bloomberg daybreak. British airways losing a u. K. Court bid to hold a pilot strike, a ruling that may clear the path for walkouts at the height of the busy Summer Travel season. Gone on striket in about four decades. Massiven accused in the s home one data breach raided. With providing the personal information of about 106 million people. U. S. Securities and Exchange Commission isnt commenting on a tweet by Tesla Ceo Elon musk. He tweeted a tesla production number the company hadnt previously announced. That may run afoul of the agreement musk reached with the ftc. He must get approval from tesla producing tesla figures before they are announced. David at least it is not about cars this time. It is about solar roofs. Its been two or three months since this settlement with the ftc. Alix wheres the board . Thats the whole point. David hes going to test them. Alix we go now to wall street beat, where we cover three things wall street is buzzing about this morning. First up, Credit Suisses ceo says negative rates arent making life easy. And deutsches deal progress. How bnp paribass deal is going. And robots arent just trading on wall street anymore. They are writing ads. The new investment may persuade you to sign up for credit cards. No more martini lunches apparently in the ad business. David joining us now is sonali basak. Our own Francine Lacqua caught up with the head of Credit Suisse. Particularly, negative Interest Rates are a challenge. We have different answers to it. David all the european banks are hurting under negative rates, but Credit Suisse did all right, particularly on trading. Sonali they are one of the only banks to have done that well on trading. They had a surprise jump in fixed income and a slight jump in equities. That was better than the wall street peers. Credit suisse has been trickling Credit Suisse had been struggling for a long time. This is a nice start for them. Like, im going to go higher all those people who just got fired at Deutsche Bank and citi . Sonali they were saying we are going to see this everywhere. If you have Credit Suisse and maybelding steady, theres hope at some banks. David its not like trading was expending dramatically, but it is better than u. S. Banks. Sonali thats right. He was complaining about negative rates. Low Interest Rates are a problem for every bank. David bnp paribas is actually taking over some of the Deutsche Bank relationship. We talked with the ceo of bnp paribas, and he talked about the relationship. The interaction between the teams is going very well. The speed at which this is progressing is faster than expected, so from that point of view, we are very pleased with discussions and interactions we are having. David this is a fascinating thing. Basically they are acquiring a big chunk of the Deutsche Bank business. Sonali we cant take our eyes off of it. It is more than 160 billion in balances. There have been reports that barclays in particular was eyeing about 20 billion in balances. That is a significant amount, but even if bmp moves over 100 billion, they will be a major player in prime brokerage when european contenders are backing away. David but they have to get a move on it because it is a melting iceberg. Sonali and eve got jp morgan, morgan stanley, Goldman Sachs also looking for that european business, u. S. Business, and one of the strategies deutsche has really competed in for a long time. Requireshe deal bringing over a lot of technology as well, which is what we heard one of the biggest drivers of the deal was. The technology that Deutsche Bank had really mattered in prime. Alix this is a great story. Jp morgan is using some algorithms and basically robots in marketing, dealing with keywords, and it actually works. Sonali the funny thing about this is if you read the journal story, im a little skeptical, but it is something example, there have been a lot of press on this just in the last 24 hours about how this can make a really big difference with Digital Advertising in particular. David it is amazing the Artificial Intelligence, the number of words they process through this and the phrases they come up with. Sonali but why is Artificial Intelligence working better than a cuban in choosing what to say better than a human in choosing what to say . One of the phrases was take a look at this versus click here latter workede almost twice as good. Alix you think that the Creative Industry is going to be immune from robots and ai because you need creativity to your letter creativity to deliver . David or maybe journalism . [laughter] alix maybe it is not actually true. Sonali jp morgan is spending money on making their credit cards more tech friendly, rolling out a tap and go, so they are ticking a 360 approach to this. David Silicon Valley is trying to get into their business. Thank you so much to sonali basak. Coming up, the race for the white house. Im watching highlights from last nights, credit debate. From last nights democratic debate. Alix if youre getting in the car, tune into Bloomberg Radio on sirius xm channel 119 and on the Bloomberg Business app. This is bloomberg. Sen. Sanders 500,000 americans every year going bankrupt because of medical bills, while the Healthcare Industry makes tens of billions of dollars in profit. Youre going to take private insurance away from 180 million americans. Im not going to support any plan that rips away Quality Health care from and to visuals. Sen. Warren lets be clear, we are not trying to take away health care from anyone. When weo democrats win run on impossible promises . This is an example of wishlist economics. On real deals, not on fairytale economics. Sen. Sanders President Trump is a fraud and a phony, and we are going to expose him for what he is. David i watched as much of that as i could because of my schedule, but it was fascinating. It was really a fight about the middle. You saw Bernie Sanders and Elizabeth Warren sticking out, particularly on health care, a Progressive Left position. Other people saying we got to be realistic. You are not being realistic here. Alix i wonder if this is where the Republican Party was elected. That gave rise to the tea party, which siphoned off one area of the Republican Party and in essence helped elect President Trump. David you may well be right. You also have to distinct what happens in the primary and what happens in the general. Clearly at this point, the people making the biggest splash , particularly Elizabeth Warren, said i dont know why someone would run for president if you are not going to go for a big idea. She has very big ideas, a lot of policies out there. But you had people like mr. Delaney saying it is totally unrealistic. At one point, Bernie Sanders just went after him, saying you made money on health care as if that was a bad thing. I wanted him to come back and say, yeah, ive employed people. Who have you employed . , and a lotry tense of interruptions. Alix the first debate everything was so civil. I wonder what tonight is going to yield. We have another matchup between joe biden and kamala harris. David i imagine mr. Biden will be much more prepared this time. He said he was not very strong the first time. She now has come out with her own modified version of health care. It is fascinating how much of this is turning into health care so far. A fair amount on immigration as well, but a lot of it is on health care. Alix i was talking to the ubs cio the other day when you are out. When they pulled Small Businesses when they p olled Small Businesses, health care was like the number three thing they are worried about. Coming up, more on todays for decision. We will talk to mike swell, Goldman Sachs Asset Management. This is bloomberg. , opening act or closing number . Fed chair jay powell facing investors today with either a fed cut or the start of a cutting cycle. China and the u. S. Talks end in silence. Stall in progress. Talks may continue in september. And ge powers up. General electric raising its outlook for earnings and cash flow is a turnaround in its and abusiness surges search for a new cfo. David we have the fed, we have earnings and everything else, but these top but the top story, lacrosse. Big drama. I did not know this. My grandkids play it on my daughter plays at, but i didnt know there were two rival leagues created, premier Lacrosse League and the mll, major league across. It turns out a player went to practice wearing an adidas outfit, which caused new balance to cancel his deal. Thats because new balance, the chairman is a founder of mll. Andt is two rival leagues, they are canceling an important endorsement deal. Alix typically players have to jerseys for a particular league, but they can still have endorsements on their own . David his brother actually founded this pll, and he says it is purely personal. As i say, the chairman and founder of new balance actually has a rival league and doesnt like the idea of him appearing in a rival jersey. Alix did you ever play lacrosse . David only with my kids in the backyard a bit. Alix i would be terrible. In the markets, the s p futures are in the highs of the session, but you cant expect anything to go to high up. Eurodollar goes nowhere, amazing because inflation is lower and gdp also goes nowhere. Thats not really affecting the fx market. You are having steepening in the curve, 10 year yield down by about one basis point. Crude up by 7 10 of 1 . Theres an oil field that is going to be shut down in libya, so purely geopolitical risk. David that geopolitical risk keeps going on. A lot of problems in libya. In the meantime, lets turn to washington and the federal reserve. The fed will announce its latest Rate Decision this afternoon, followed by chair powells news conference. Michael mckee is on the scene, and we welcome him now from washington. I think most people think it is going to be 25 basis points. What else are looking for . Michael is there anything less controversial than what they are going to do today . What we are looking for is what theyre going to do next. The market is looking for a signal from jay powell that this isnt just one and done, that there is going to be at least one more rate cut and perhaps two. We will see how he would explain the need for that given the data in the United States. They will also look at the statement, and want to see if the language changes to also hint at future rate cuts. The other big question, what do they do about the Balance Sheet . They are set to stop the taper in september. Do they move that up because tapering tightens a little bit . David what is left of the data dependency we heard so much about . The difference in the language comes down to closely monitor, which is what we heard last time, as opposed to being patient the time before that. If you look at the numbers they had in front of it, it is not clear why they would have gone more dovish in june than in may. In fact, gdp growth was actually stronger that point. Participation rate was not really that different. Core pce was not that different. Are they looking at the data at this point . Michael that is jay powells real dilemma, to avoid looking like the market is just telling him what he should do. The market once lower rates because it increases stock prices. There doesnt seem to be economic justification if you are data dependent, so how does he get back to that formulation . That is going to be a real challenge for him in the news conference. The fed wants to be able to say we are doing what it will take to keep the expansion going, but right now the expansion seems to be going without them doing anything. David mike, thank you so much. That is Michael Mckee down in washington, covering this all day long. Swelljoining us now, mike , Goldman Sachs Asset Management cohead of global and fixed income for fully management. Income portfolio management. Mike i think the bigger issue is lacrosse. [laughter] alix he just mocks the opening of our show. Race tothink in the zero globally, you have a fed right now that is that has a real challenge in front of them in terms of how they signal to the marketplace. I think we are likely to see 25 basis points cut today. The big question is around the language described earlier. Done is is that one and a decent probability. I dont think the fed wants to set that expectation for the marketplace, but i do think that one, maybe two cuts are likely to occur. Andou look at the economy apply the test, strong growth, inflation lower than expectations. The idea that we are moving into a cutting cycle, very low probability. It all comes down to currency, in my view. Alix where you see the most movement . Mike in the near term, i think youre likely to see a steepening in the curve expectations of the fed easing in the marketplace now two to three times. The market is pricing in about three cuts. As a result, you are likely to see inflation expeditions pickup. I think the risk of today and over the course of the next couple of months is not necessarily that we start to move towards Higher Expectations of easing cycle, and we see rates go down in the u. S. , but we actually see the opposite. We see expectations from the fed being below expectations. Theres a lot of impression in the marketplace that the politics of what is going on in washington are having a big impact on the fed. I dont think they are having a big impact on the fed. The fed is looking at the numbers, looking at a little bit Slower Growth, softer growth due to the china trade escalation. Inflation is below expectations, but not that far away. Aning 25 basis points from insurance perspective makes sense, but the idea that politics are going to influence an independent fed, theres a low probability of that. David numbers may not warrant an easing cycle, but what about the easing cycle going on around the world . To what extent does that constrain the fed . If everyone else is going down intact, we are tightening. Mike that is having an effect more than any politics. The currency issues are a challenge. In an event you continue to see easing in europe and asia, that has a profound impact on the dollar. Weve seen strengthen the dollar. That is probably the number one driver. We dont expect to see direct manipulation of the currency occurring, but easing on the margin is something that is going to keep currencies in imbalance. In the end, you still have a Significant Growth and inflation differential between the u. S. And elsewhere, but if you are trying to predict where rates are going to go in the u. S. , where credit spreads are going to go, you need to see what is going on outside the u. S. You see significant slowdown in europe, significant continued slowdown in asia. Alix does that mean you are looking at a stronger dollar no matter what . Mike not necessarily. Youre going to have easing in the dialogue. I dont think the fed is going to say one and done today. We are going to open the prospects for continued easing, depending on data in the future. I dont think you are talking about a stronger dollar. I think we are in this environment where investors think that the fed is in play, and as a result that is going to keep a cap on the dollar. Youre going to have Global Growth that is good enough, and that is an environment for currencies that have higher yields to perform really well. If you look at emerging market currencies, you have the yield differential that are just massive, unprecedented. It is an environment not necessarily where the dollar is going to do incredibly well. Theres expectations for the fed to continue to ease, and as a result, the dollar is going to be a little weaker and you see emergingmarket get emerging market economies doing better. David mike swell, Goldman Sachs as a management, is sticking with us. Coming up, the u. S. And china trade talks in shanghai and with little progress shanghai end with little progress. We speak with former trade representative, senator rob of ohio, next. This is senator rob portman of ohio, next. This is bloomberg. David u. S. china trade talks ended early in shanghai, with little sign of real progress, and reports out of china that there will be another round in the United States in september. We welcome now republican senator rob portman of ohio. Welcome back, senator. You were trade representative yourself. Are we misreading it to say this is not going anywhere anytime past . Sen. Portman i think we dont know. I think that is what is always difficult about these trade talks. But the chinese and the american side are being pretty quiet about what happened, but with secretary mnuchin and bob lighthizer, the current u. S. T. R. , it was a substantive talk, and i think we are making progress. We will probably learn a little more over the next couple of days about what actually happened. The fact that they agreed to continue talks is also a good thing. David the president has tweeted out that the chinese dont want to deal until after the 2020 election, speculating im sure. Do you think that is possible . Are they trying to wait out the president , hoping they will get an alternative . Portman in my conversation with chinese leadership and those closer to the talks in the trade world, i do think there is some of that. I think theres a sense that donald trump is going to be tougher on them then perhaps previous president s were, and therefore maybe they should wait and see what happens. The problem with that is twofold. One, there is a consensus in the congress that we dont need to take certain measures to be that we do need to take certain measures to be tougher on china. And then the trade imbalance, i dont think the congress is going to change significantly. Some people have indicated that a new president might be left us might be less tough on china. I dont think that is true. If you look at the democratic debates, if anything they are just as tough or tougher. I dont think it makes any sense to try to wait out the administration. I think secretary mnuchin and aree rep lighthizer participating, now is the time to do it. Five premier vice permit or seems toremier liu have a good russian ship with them Good Relationship with them. David democrats and republicans seem to be in agreement that something needs to be done about china and trade. At what point does this goal of the president of the united flict with his progrowth goal . If you look at some of the regional measurements of factory activity, they are going down now since the last year and a half or so. Portman there are a lot of factors there. One is the monetary side. Youre watching carefully to see what happens this afternoon because other countries and regions, including europe, have done quite a bit of loosening. I think that is part of the reason. There are other trade issues. We havent yet resolve the usmca , the successor to the north American Free trade agreement, nafta. Ive been promoting getting the usmca finalized. Thats get that done. It is good for American Workers and farmers, great for my state of ohio. Lets resolve not to pursue the 232 with regards to interference because it is a National Security exception that doesnt deal with our allies. If we resolve some of those issues, it would help come about resolution with china would be useful as well. I dont think that is the reason we seem less investment, but it is certainly one. By the way, our economy is still strong, and relatively strong when you look at Growth Numbers over the past couple of months even, although there were some readjustment in the first quarter. People still prefer to invest in the United States as opposed to elsewhere. Unemployment remains low, wages continue to grow. David talking about the u. S. And ca specifically, as you talk to your democratic colleagues, are they going to bring it to a vote . Is Speaker Pelosi going to bring it to a vote in the fall . Some reports say maybe october. Sen. Portman i certainly hope so. We talked about this yesterday and the finance committee. We had six witnesses, and five of them were saying this is a whole lot better than nafta. The other was saying he thinks it is better, but would like to see improvement. Everyone thinks it is better. It has many things democrats have asked for over the years, including things that are unusual for republicans to have negotiated like minimumwage for 45 of the auto workers in mexico, like insisting that 70 of the steel used is north american steel. Theres some issues that democrats have fought for for years. Enforceable labor rights and environmental rights. These things are things that democrats should embrace. My hope is that Speaker Pelosi will allow this to go to the floor for a vote in the house and we can get this moving. When you compare honestly the status quo, which is nafta, and the usmca, it is better in every respect for workers and farmers and Service Providers in this country. David you mentioned it doesnt make sense to let usmca or s china trade negotiations going to 2020. Part of that is because we have an election for president , but also for an entire 1 3 of the senate. If we dont get usmca and dont make progress on china talks, how does that read for voters back in ohio . Will they hold President Trump responsible for the . Sen. Portman trade is complicated politically, as you know. A lot of people are skeptical about the benefits of trade, and partly that is justified. There have been instances where the u. S. Does not have a level playing field. Part of this is making sure that we have a level playing field. If you play by the rules, you can win. We will win. We just need a level playing field. I do think that this will be an issue in the campaign. By since is that if we can get these done my sense is if done, weet this will see a lot of jobs in regards to usmca, a reduced trade deficit with mexico and canada. We have an opportunity to do something really good. David senator, thank you so much. That is senator rob portman of the state of ohio. Alix with us still is mikes well, Goldman Sachs asset ,anagement is mike swell Goldman Sachs Asset Management. Ood. Th is pretty g china, though, different story. How do you see it . The forecasts of the rollover of the u. S. Economy are way overdone. I think the treasury market as well is basically pricing in a significant slowdown or rollover in the u. S. Economy and significant that activity. I think we are likely to be very surprised, so i think the u. S. Economy is fine. I think the china issues in the trade issues senator portman talked about our one, very complicated. From a macro perspective, completely changing your investment pieces in the u. S. Is a very tough thing to do. The fundamentals of the u. S. Economy are strong enough. There are sectors of the economy impacted by china more so than others. When you look at earnings, earnings have been very good, but the forecast from a lot of companies from an investment standpoint, as well as sales, we seen about 70 or so of companies report, and youve heard the word sluggish in terms of growth from a lot of companies, more so than weve heard in a while. It is something we are watching closely, but i think it is more of a sector oriented issue, not a macro enough issue to cause a significant concern overall. David mike swell of Goldman Sachs Asset Management will be sticking with us. Coming up, ge Ceo Larry Culp reports signs of progress. We will look for where those bright spots are in todays bottom line. This is bloomberg. David time now to look at three Companies Worth watching this morning. First of all, aston martin went public last fall, and they are having a tough time of it. They just reported their results , like 45 million to the negative. They had a big expansion program, and raising questions that they may be a takeover target. Alix it was a tough environment for them. Talking about apple, the analysts takeaway was good enough for now. No one super excited to come about ok. You are selling iphones, services are better, china not that bad, but nothing really exciting this morning. David making a big turn of a battleship is not always exciting. The Third Company were looking at is General Electric. Joining us is brooke sutherland. Some good news out of ge. Brooke some positive numbers, yes. They did see some stabilization in their power unit, which is hugely important. They turned an operating profit in that business, which is not always seemed easy in the past. Perhaps more importantly, they say cash flow could actually be flat relative to that 2. 7 billion burn last year. That is a positive development. They are raising guidance for the year. A big part of that is because they are lowering their elements for restructuring. That doesnt jive with the narrative weve been told that there needs to be more urgency on cost cuts. That is the big reason John Flannery was out. Investors didnt feel like he was moving quickly or aggressively enough in that power unit. It is interesting to see that taken down. That was always going to be a secondhalf weighted expense, so i am waiting to see how they get that comfortable. David is there a big move they can make in power to try to sell it . Brooke theres nothing you can really do with those old contracts. Youre kind of stuck with them. They are trying to be more disciplined going forward, so on the new business they are trying to make sure those are profitable, but it is sort of a situation where you have to focus on the cost cutting side of it. Alix the reason why the restructuring charges are lower is because they are ahead in their restructuring . Or are they not being as aggressive . Brooke it was supposed to be secondhalf weighted, so im a little bit confused. The other big news today was that their cfo is stepping down. She was sort of one of the most visible, remaining legacies from that flannery era. There had been a lot of talk among investors as to why she hadnt left earlier. Some were hoping larry culp would clear house. I think he wanted the continuity and stability to try to get his hands around the business. You are starting to see some of that take place, and that is probably why you are seeing change happen now. David investors really did want , but at thetheir same time hes going to be his own cfo now. Brooke investors were hoping he might bring that team in earlier in the process come up with this company has a lot of different problems. I think there was probably some value in keeping jimmy miller around for a while so he could figure what is going on here. It does make you feel a bit bad for John Flannery and jamie miller, that they were brought into this nowin situation that they didnt necessarily help, but also didnt create. It is just a difficult environment to be a ceo or cfo in. Alix we didnt actually talk about boeing in this whole conversation. Coming up, we talked drug prices in the proposal to keep them down with senator Chuck Grassley this is bloomberg. Alix this is bloomberg daybreak. I am alix steel. 2 00 when thentil fed comes out. A little bit of pop in u. S. Equities but nothing to write home about. I wanted to highlight what is happening with the cable rate, up. 1 as the dollar goes nowhere. The current steepening of touch. Of Goldman Sachs still with us. Brexit, your best case . Mike the best cases for a deal and an orderly exit by halloween. The markets are out of control in the u. K. There are so many players that stand to lose so much as a result of the risk of an ugly brexit that you have so much insurance buying, whether it is shorting the pound, whether by u. K. Rates with the prospect of Slower Growth or buying inflation protection with the concern that a weaker pound will cause inflation in the u. K. Our view is there is a lack of players in the marketplace with the desire to take the other side. Were trying to take the other side. Alix i like it. Mike swell sticking with us. With Prescription Drug prices is something everyone in washington said needs to be done even if their differences on how to do it. We welcome senator Chuck Grassley, republican from iowa and Senate Finance committee chairman. Thank you for being with us. Grassley you bring up a very important issue because this comes up in all of my meetings in iowa. Most senators have been talking about it. Polls show it is on the agenda of people, so we are fortunate enough in my committee to have a bipartisan bill supported by the white house. We have a bill that changes in entitlement for the first time in a generation, and it saves 100 billion according to Congressional Budget Office and lastly, it gives seniors some tappingy by outofpocket expenses for seniors so they have some peace of mind. David we will put up some of the key points in your bill you are proposing. Use a bipartisan with senator wyden of oregon. It limits the increase on Prescription Drug prices for seniors. Is that what it does . Sen. Grassley yes. First of all there are many parts in it. You bring up the one is the most controversial. Some people say we are setting prices. A Pharmaceutical Company can continue to do what they are doing, set their prices. They shoot up so much year after year. We are to limit the price increases to the inflation rate. Some people say that is setting prices. We are not setting prices. Were just limited what the increase can be once the price is set. The cato institute, which is very libertarian supports this because it puts a cap on subsidies. ,t does not affect the pricing but other allies but otherwise we will have the taxpayer subsidizing forever. That is another thing our bill does. There are perverse incentives, the way it is worked out in the pharmaceutical part of medicare, there are incentives to drive up the price of drugs, get people through the doughnut hole into the catastrophic provision where the taxpayers pay most of the cost and we want to do this bill this bill does away with wese perverse incentives so are incentivized to price drugs high and get people in through the doughnut hole. That is where we will get a lot of savings. 53 billion of the 100 billion savings comes from that portion of it. David can you get it through the senate . You have approved by the finance committee, you have bipartisan support, can you get the votes in the senate . Sen. Grassley i believe we can. Not only do i believe we can get it through the senate, but we have a Good Opportunity of working with the democrats in the house of representatives to get this done. If the democrats in the house of realize it takes 60 votes to get a bill through the United States senate, i think we would find them corporative with us, not given into the senate entirely but an understanding we can do something bipartisan, bicameral, and the president is not only for our bill, but he has also been a year ahead of us. A year ago, in june, he gave a strong speech. His goal was to get drug prices down. He is still trying to do that by supporting our legislation. David another thing the president was for was trying to address the issue of rebates for pharmacy benefit managers as the Administration Given up on that . Have you given up on that issue . Sen. Grassley no. We are trying to save the taxpayers money but if we can take some of this 100 billion to reduce the rebate direct to get the rebate directly to the consumer, that is what we want to do. Indirectly, we think we are getting the rebate to the consumer this way. There is so much secrecy and the Pricing System now. With this transparency, the marketplace will work better and the consumers are definitely going to benefit from this. David talk about the marketplace for a moment. When a big discussion with pfizer and mylan. A big deal in the pharmaceutical area. Do you expect more consolidation in the pharmaceuticals . Sen. Grassley i think youll find more and i hope the antitrust and the ftc take a close look at these. If you more mergers like this, you have less competition, that tends to drive up prices. , i think we have two or three pieces of legislation that will join my bill and a bill out of senator alexanders bill, so three or four bills out of judiciary that are going to work to get generics on the market faster than they are now. Let me put it another way. There are schemes that brandname companies have to extend the life of a patent or to keep generics off the market. We will have legislation that gives generics on the market much faster. David thank you so very much. Truly helpful. Senator Chuck Grassley, republican from iowa. Alix thank you so much. Pfizers upjohn unit has issued 12 billion of debt before or when it spell up it spun off. That is a drop in the bucket. What is your outlook for ratios right now . Mike a lot of people look at issuance as an indicator of how Asset Classes going to perform, and a lot of issuance is concerning a bubble sign a concern there is something going on that people should be concerned about. I think it merits analysis, but does not merit running for the hills. A lot of people are concerned about the bbb issuance, the extent of duration, and when you dig in more deeply, youre looking at companies that are issuing for the purpose of a transaction. What you found through the cycle is that a lot of these companies are deleveraging post cost. As a result, this increased amount of issuance has created a lot of opportunity for investors , particularly if Management Companies are committed to deleveraging overtime. The rate environment is incredibly low. From a debt service perspective, most companies can handle more leverage. Alix where are the opportunities . If they will be issuing debt, not just all of the sudden load up on debt to take advantage of Interest Rates, where is the opportunity . You look at the indices, and this is happened in the equity market, but when you peel the onion back, it is a tale of two markets. In the equity side is the value lacking significantly. ,f you look at the debt market the higherquality sectors of Investment Grade perform well but these areas we are talking have, bbbs underperformed. The same thing with highyield. Nobody wants to take on the rest. We think a lot of the opportunity in credit does exist , maybe not as much on the indices but more and some of the down all the sectors of the credit market. Alix does that mean you go shorter duration . , this is aneral environment where you will not get an enormous amount of capital appreciate by owning longduration assets. You can make money in fixed income. You just need to be smart. We are not in one of those environments, but we are in a very attractive environment where you can earn spread above and beyond treasuries by earning credit, but do not go to longduration. Take advantage of the fact that there is a steep curve and Corporate Credit. You can buy fiveyear or sevenyear Corporate Credit and have it roll down a couple of years and then earn significant capital appreciation. It is one of those environments where kerry, take advantage of the yield curve, roll down, and do not take risk within credits. Alix treasury funding, there was no surprise there. Point treasuries will have to come to market and this issue of a boatload of debt. What does that do . Mike in the current environment, investors do not care. Speaking for myself and speaking more broadly in terms of the market, you have such massive issues in europe and asia, so much capital that it generates a much return from and the u. S. Looks like the higheryielding market. The idea that the deficit is expanding, given that low yields exist elsewhere, i do not think it is a 2019 story, but it very well could be a 2020 or 2021. As we dont the election next there will be more discussion around the deficit, and that could have an impact on yields. Alix currently we have higher yields in italy and greece . Mike exactly. Alix mike swell will be sticking with us. Join me tomorrow. Ill be on the road in houston for a special onehour addition of commodities edge. Ill be speaking with executives including bp of america chairman. Definitely a hot topic of conversation. David how very british. Alix i know. David now lets get an update on what is making headlines outside the Business World with viviana hurtado. Viviana the u. S. And china wrapping up a new round of trade talks in shanghai. Little evidence of any progress. Says willagency continue negotiations in september. They also reported negotiators discussed the purchase of formulated products. Democratic candidates going out again last night, squaring off in a debate in detroit, michigan. Bernie sanders and Elizabeth Warren defending their politics against attacks from low polling moderates. I know how to fight and i know how to win. I took on chinese banks and i beat them. Ceos, on wall street and and their lobbyists and their lawyers and i beat them. I took on a popular republican incumbent senator and i beat him. Tonight, night does go of the debate features front liner joe biden and kamala harris. The hot topic at the event called google campus, climate change. Among those attending, barack obama and leonardo dicaprio. More than 100 private jets were expected. The New York Post pointing out those planes could do some damage to the atmosphere. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im viviana hurtado. This is bloomberg. Alix i love that. You will talk about climate change, do not take your private jet. David davos does this every year. Theyll come in on their private jets to talk about climate change. Alix the irony. You have to love it. David coming up, the dark side of rate cuts. We look at the unintended consequences of Central Bank Stimulus on todays follow the lead. This is bloomberg. Viviana this is bloomberg daybreak. Coming up today, an exclusive interview with the air france cfo. David time for follow the lead. A deep dive into stories making headlines and moving markets. We take a look at all of those low Interest Rates. We turn to Sarah Ponczek to take us through the dark side of rate cuts. Sarah thats right. ,s we head into the fed meeting likely the first rate cut in 10 years, everyone is talking about the benefits, but what about the downside . Guggenheim scott meyer has warned about inflation. The one that is the riskiest area being leveraged loans and private credit. The private credit market has now grown to 866 billion. If it keeps moving at this pace we could likely hit that 1 trillion mark. ,ccording to Covenant Review companies that bar leveraged loans have seen it expand to 7. 5 times. It discussedheard many times, the amount of money wrapped up the naked yielding bonds has passed 13 trillion. It moves quickly towards 14 trillion as well. That is not just sovereign debt, we even have highyield bonds within that. From a topdown level, the s p is trading at 17 times or were however, some have warned there could be pockets. Rob arnott told Bloomberg Television that maybe the faang stocks could be forming a bubble. This white line is an equal weight version of the faang stocks. The blue line that looks pretty flat is the s p 500. The fans of moved 1000 , that is about 10 times that of the s p. Alix thanks. Mike swell is still with us. Leveraged loans. Where are you at . Mike when you see a lot of issuance it is an area of concern but not an area to run from. Goldman sachs we have a discussion across the firm of key issues, and a couple of weeks ago we had a cage match with someone constructive on the loan market, and then someone from the street that came in with a lot of concerns, a lot of those increased and supply and leverage concern and we had an interesting debate. In the end, it comes down to quality and your ability to source quality loans. That is incredibly important to the market. Overall, there is been an increase in leverage. You have tourists in this space. You want to stay away from them. If you want to get into our company and do your underwriting, you can get a lot of value. The covenants that exist in the loan market are significant, particularly in the private credit market, where you can affect your outcome and up in the position where you run an enormous amount of risk. In general, the bubble in the private credit market is overdone. Another factor that people do not look at is you have seen it get disintermediation by the private credit markets from the banks. The banks used to be the big lenders. There is nothing new going on. Is only thing that is new the loans, instead of being originated by the banks, are not going directly to investors. That is the big change. Eleanor enormous increase in the amount of debt in the credit market. David what could go wrong . We are in territory we have never been in before, and whatever that goes on i ask what could go wrong . Alix junk bonds yielding negative in europe. Mike what went wrong in the financial crisis is you had these bad leverage turns in leveraged loans. Not the actual loan made to the company, but a lot of leverage that was market impacted. When market prices went down your forced deleveraging. That does not exist anymore. There is much better hands, longerterm capital, you have cielo that are term capital. I think the biggest risk in the private credit market is the economy, stupid. It is the economy. ,n the event we see a recession the idea of being able to hit 546 or seven times numbers will five or six or seven times will be difficult. Alix mike, so good to see you. Mike swell, Goldman Sachs Asset Management. Coming up, a quarterpoint cut expected. More on what i am watching, next. Also what accounts for kiwi. It for kiwi. For qe. If you are heading in your car, check out Bloomberg Radio. Sirius xm channel 119 and the Bloomberg Business app. This is bloomberg. Alix here is what i am watching. The fed decision. Johnny us is ira jersey. What i am curious is what they want up saying about qe in their Balance Sheet. You have ideas that are not necessarily consensus. Ira it is possible they stop runoffs. That is not my call, but they could, youre only talking about another 23 billion. It would be strange for them in the optics of cutting Interest Rates and at the same time continuing to do something hawkish like running the Balance Sheet rolloff. Only talking about 23 billion or 24 billion. Nonetheless, it is the optics of that. What you are talking about is the idea there is a potential for the fed in the nottoodistant future to start expanding their Balance Sheet. That is something they might do is a dovish hint to the market while not actually cutting Interest Rates. Lets say the fed cuts Interest Rates now, they cut again in september, they do not want to cut more because they do not have a lot of bullets. What if they start expanding their Balance Sheets but they say we are doing this to keep balances stable . It is not largescale asset purchases but it is something the market would take is a dovish signal from the fed. Alix how would that work. Would it be stimulative . Ira not really. The fed will have to do this anyway. If you go back to precrisis and go back to the forever history of the federal reserve, theyre are always incrementally increasing their Balance Sheet. As the economy grows, you have demand for currency in circulation. ,s you have demand for Currency Bank reserve balances go down. It is a natural way the Financial Sector works. Even before the crisis, the fed was buying a couple billion dollars every month of Treasury Bonds because that is what they have to do. Today it will look much different because the Balance Sheet is much bigger and the economy is much bigger. Instead of buying two or 3 billion a month, they will be buying 15 billion. Some say that is qe, it is not, but it will feel like that. David republicans hate large Balance Sheets. Ira that tone has changed. Dont care about the deficit. Isnt that the tone . That doesnt for bloomberg daybreak americas. Coming up, the open with jonathan ferro. About watch oh hours from the fed decision. Four hours from the fed decision. This is bloomberg. Jonathan from new york city for our audience worldwide. Im jonathan ferro. The countdown to the open starts right now. Jonathan coming up, it is fed decision time. Investors looking for the first rate cut in a decade. Trade talks wrapping up in shanghai. Neither side signaling any material progress and apple rallying. With 30 minutes until the opening bell, good morning. Here is your wednesday morning action. Futures up six points on the s p 500. In the fx market, eurodollar doing nothing. 1. 1151. The treasury market premuch where we have been of last couple of weeks. 2. 05 is your yield on a tenure maturity. Lets bring in chairman powells biggest challenge. Is about communication. The communication challenge. Are we doing this as an insurance cap . Are we doing this because we believe the economy is slowing