Are trickling out. For cvs, it was a beat and a raise. For barrett gold, they came in with a beat of . 15 and are increasing their dividend, we inl be speaking to the ceo about 10 minutes time on that. Time now for Global Exchange where will bring you the market moving news from all around the world. From johannesburg to paris and berlin and washington. Our bloomberg voices are on the ground with the top stories. We start of an johannesburg where bloomberg sat down with the South African president on the sidelines of the south African Investment conference. They discussed the state of their economy and the impact of u. S. China trade tensions. The trade wars that are taking place are not good for growth, they are not good for our economy, so we want the trade wars to come to an end. Cranny. Ng us is manus great interview. What were some of your big takeaways . Manus this is a president to i would say after 70 minutes of talking to them is a man who is not going to give everything but the market wants all at once. More haste, less speed. This is a president grasping the financial noose around south africa posner. He is ready. Good productive can discussions. Months tohree actually deliver for the marketplace. Maybe the confidence came from the springboks coming back to the country with rugby victory but he has more work to do. The question is do you have the Political Capital and the financial acknowledgment to deliver the change the markets want . Debt. Er cost, flashier he was utterly charming, but hard to push on exact details to come. This is a country with less than 2 growth over the past nine years. Thank you so much. A politician not being forthcoming, thanks a lot. Equity decline in trading revenues citing 20 in the Third Quarter from year earlier. Impact of global uncertainty on the french bank. Due to this global on,rtainty, brexit and so if you have a ninemonth view, our equity franchises keeping its market share. Joining me is caroline. Walk us through some of the shortterm issues they have to face. A longterm issue will be the negative thing negative Interest Rate. They also cited brexit uncertainty in the trade war which is impacting the Equities Trading revenues because they are mostly focused on structured products, not necessarily cash equities. Shortterm volatilities with trading revenues as its down 20 of the Third Quarter. This also came as they estimate investors actually like the story about capital because the ratio is a key measure of profitability actually came at both target but the Second Quarter in a row. Well, gainingcted as much as 5 and it is also looking elsewhere outside of europe for growth and studying the possibility of opening a brokerage in china. Alix thanks so much. Where turn to berlin europe is potentially a step closer to the Banking Union. Germanys finance minister moved to break the impasse meaning saying he would consider a framework that would include a common deposit insurance mechanism. He wrote an oped in the Financial Times saying im calling on the eu to strengthen europe, now to strengthen sovereignty in an increasingly competitive world. Ash europe does not want to be pushed around on the International Stage and must move forward with key Banking Union projects. Joining me is Patrick Donahue of bloomberg, a government reporter. How much of this is real and new versus early rhetoric. You could say this is new because germany was on the big holdouts when it came to european deposit insurance. This was one of the central elements of the european Banking Union, supposed to stick together the fragments of Member States of the single currency, germany, but not just germany under wealthy but other european wealthy states will hold out. The German Government never said no, but you have to go along long way in reducing risk, especially in southern europe. The initiative is going to come from anywhere, it would come from germany. So this is something quite forward coming from the German Finance Ministry and the social democratic finance minister. Alix thanks a lot. Now we go to softbank strategy aggressively backing Technology Pioneers is backfiring. The operating loss about 14 years, joining us is a Bloomberg Opinion columnist. Walk us through how bad it was. The underperformance and losses stemming from the 100 billion Venture Capital arm, they drove the whole company into a loss. And all of those were attributable to declining writing down evaluations from the most prominent portfolio wework,es, not at least these companies were supposed to be delivering good returns, they were supposed to ipo over the course of the most recent quarter. That hasnt been the case. Questions about strategy and he did issue something of a mea culpa. He said everything is in the red, he made a judgment, the problem of his own judgment led to the consistent backing even though it was a company that didnt have any immediate route to profit. He then announced a pivot the company will be focusing far work ently, that we wework will be working on cash flow. Seensomething weve now from the companies themselves. Uber when it reported yesterday was pushing a similar line. The question is whether investors have the patience or the confidence in his vision at the time when he announced it it was 300 year vision he was going to shape the future of the globe and now its a little more shortterm ensuring investing in companies that really can deliver returns. Alix thanks a lot. Someshington we have highlights from yesterdays elections. Democrats at a pretty good night, seizing both houses of andslature in virginia electing a governor in kentucky. And do these elections mean lay out what happens today in d. C. . Democrats are saying this could potentially be a bellwether ahead of next years president ial and down ballot races. A lot of democrats very much focusing on the state of kentucky. President trump doing a Campaign Rally on the night before that election yesterday where he campaigned with the incumbent governor matt bevin, who really tried to tie that race against the democratic attorney general to make it a naturally against democrats. Making it a referendum against the impeachment inquiry. In a deeply attorney demo the democrat attorney general is able to win a tight margin. Matt bevin has refused to concede the race as of now hoping for a recount, but either way democrats think this could be a potential bellwether. Kevin cirilli, thank. If you think its been a bad week for uber so far, it might get worse. Because thisis ends today and this is what they are facing. You take a look at the blue line, more bearish calls and the white bars are total, you can see them surging to a record. Youve 1. 4 put options per every call. It setting up for it very bearish day when it comes to overstock. Up, increasing its dividends, earnings coming in strong. The revenue a touch light. This is bloomberg. Alix barrick gold earnings beat on the bottom line. They also had better copper and Gold Production year on year. Us itsstow joins always good to catch up with you. Increased are dividends and i want to get your take on how you prioritize right now returns and shareholders versus growing production in capex. To build a real profitable business back in first january this year. Run with the good focus is forand my the longterm we just come out with a fiveyear plan for organization, which sets the foundation of how we run the Company Ended the same time, we delivered a lot pretty much all deliverables we sent ourselves on the first of january and the prices up. Businesses running ahead of plan have always said when you beat your plan, you can always be mindful. You are deafly known for being more conservative on that front in a good way, conserving your cash flow. Imhe gold price rises, starting to hear 16 or 17, even to thousand dollar gold, do you increase your capex . What do you do . What we set when we define our plans for each one of our operations, so the big focus in the beginning was to get our operations to be at our tier one or tier two level which means they need to have at least 10 capitals we set those and we got some big Capital Projects next year, one being the project in the divinity republic and then weve got some capital to spend in tanzania following the other than that, capital is already set for the next 10 years and it is about delivering you are aat and if with the gold price, the margins will be great. We talked about this many years ago. Think, ive said this many times if you take all the gold project and promises with respect to new gold and you forecast what is going to look like. If the new Gold Production will be down 30 . If you balance that so supplies forecasters shrink, demand is on the rise, weve seem more buying from central bank as they de dollarize their Balance Sheets. The risk is more on the upside than the downside of the gold price. Alix lets get use a more immediate things you have to take care of, which is selling your mind. Give us some insight into the buyers. We havent got a target at this stage. Weve got nothing to we need to sell. Biggest sale project at the moment which is the only one weve announced is out of australia, joint venture, its a mine we dont have a active participation in. It doesnt meet our criteria and we would like to sell it. More the 1. 5 billion asset sales. We are working on the sales, getting to that specifically, today we wrote 700 million in value from zambia because our team has done such a good job in dropping and improving the efficiency. So weve got some work to do in zambia. And theres a very dynamic situation within the Mining Industry at the moment. We have a very large reserve and resource but we dont have a capacityn their future without the commensurate reserve base. Its a natural pressure to rearrange the industry and we certainly wont stand by, we will definitely participate. Selling assets now easier or harder than it was a year ago in terms of the bid ask price coming in and the leverage the buyers are willing to take on. Mark assets need to sell because there core assets, we have assets that might not fit and our criteria you want to make more than 15 internal real rate of return at a longterm price of 1200 an ounce. Tier two is around 300,000 or 3 million ounces with production over 10 years. Profitable,ts are so i dont see, weve certainly seen no resistance. Approaches a lot of from people because this industry is short of assets, of Gold Production, and ive always said this Industry Needs rearrangement, it needs consolidation, particularly in the mid tier range, you see weve got the consolidation of the upper end of the industry closely followed. But it needs still considerably more consolidation Going Forward. Alix really good to catch up with you, thanks for making the time today. Coming up, it could be the largest leveraged buyout in history. Walgreens reportedly looking into a deal to go private. This is bloomberg. In the Third Quarter, bmws profits soaring to a betterthanexpected 33 . Sales of highmargin models in a costcutting program offset the pressures of bmws investment in electric cars. Over considering you take offer for personal computer and printer maker hp. Xerox may make an offer. Hp has a market value of about 27 billion. The company is more than three times the size of xerox. This could be the largest leveraged buyout in history. Walgreens its studying a potential deal to take the company private. Includestore chain kkr. It has a market value of about 55 billion dollars with 17 billion in debt. Now, ironsideme partners managing partner. When you hear that, what do you think . What does that say . Liquidity is abundant, thats for sure. Alix especially private equity. Thinkthermore, if you about the debate about nonfinancial corporate sector debt and people saying its at a alltime high. Its only risen from the mid 30s to the low 50s. As a percentage gdp. Its not particularly high, if you get and 90 you would be more concerned. Its a fairly tepid growth rate. Doesnt look anything like china s nonfinancial corporate sector debt growth. There is still plenty of credit available, the Banking System is making credit available in the 600 billion in reserves the fed will create to fix the plumbing is not going to go only to fix the plumbing. It will make its way to the system. It will broadly lose some financial conditions and things like this are more probable now that the fed is adding liquidity , certainly than a year ago. Alix so when you hear Something Like this survey and they are tightening their lending standards to lower quality purchasers, you feel like thats a smaller part of the market . Barry there is little bit in thes base. Theres some fairly obscure role andplaying a big banks have recognize that. Prettyis pretty quick. They will make its way into the system. The early 2000 they had to recapitalize the Banking System. That money didnt make it into the japanese economy. System,case the Banking Credit growth is pretty quick. Pull back on cre and a little pullback on subprime, but for the most part you are seeing pretty good expansion, even with the pullback in commercial and burdette industrial lending grade it is pulled back but it still growing at 6 or so. We have decent credit growth. You are of the mind the things are bottoming out and we will go higher . Barry global trade looks like its bottoming out to me. Isme the single best number what they take during 20142016 when the chinese went fromvy , that plus 15 to 20 . This goround went from a robust growth rate for the trade war started but only bottomed out around negative six or seven and its been bottoming for three or four months and looks like its starting to turn up. Furthermore there was an excellent paper that came out a couple weeks ago that said the real effect of a strong dollar is on the availability of trade credit. That is stronger than the effect on the competitive channel. So just a dollar flattening out looks like it could loosen credit and help trade. Alix optimism from barry. We will see if we can sustain it. More view trade analysis. This is bloomberg. Alix this is bloomberg daybreak. Im alix steel. Heres where we are any markets. You have the fear of missing out. Sb futures close at another record. Industrials. In other asset classes, looking at a reversal in what we saw in the treasury market. A big selloff over the last few days. Eurodollar pretty much goes nowhere, despite the pmis over there really bottoming, as well as german factory orders. Did want to highlight copper. We will take a look at copper today, now flat. Time for bloomberg first take. Here to discuss, vincent cignarella, voice of bloombergs ,udio squawk, Damian Sassower Bloomberg Intelligence emergingmarket credit strategist, and barry knapp of ironside partners. I cant talk today. It is wednesday. This is where we are set up. Big set up in the treasury market for today. What you do with no news, no real trigger . Vincent we are really right on at 10 yearf you look treasuries, at 10 year treasuries, right at a significant level. It has capped the rise in yields , the downside in treasuries so far. You look at the same thing in dollaryen. We will go deeper on this later in the program, but the traders i am talking to in asia are feeling it is time to get past the hurdle. That xi and trump need to get something done. China now having a bit of a stronger hand and pushing back a little bit. In may, you saw the president say china moved the goal posts. Now it is coming from the other direction. Xi is pushing on trump, but weve got one your to go to the election. He needs the economy to stand tall. Traders believe that for no other reason, we will get something done. Dealthe markets except a they put together and say, this is positive enough to go forward . The feeling is that we are kind of tired of this battle, and we will go forward. Damian i guess we have to pull out the risk on playbook. Alix really . Ok. Damian short vol, bid for carry. We have seen implied vols collapse over the last three months. I think we are one or two standard deviations below where we have been on a three month basis. Carry to vol are negative. Where you get your carries from now . We havent seen investors move down in credit quality into highyield. Forget about low bbbs. Im talking about where the value dislocations are biggest. Alix barry, weigh in. Barry to me come the thing that sort of to me, the thing that sort of struck me, the way ive been thinking about a trade deal, theres a shock and a flow concept to this. The stock is the cumulative tariffs that have been put in place. Then theres the flow. The reason the flow is so important, that is just the new tariffs and new data, that has been the main channel by which the u. S. Economy has been affected, through the Business Confidence channel. , i look atnfidence sixmonth planning. That makes one from 16 before the election to 36 when the tax cuts and jobs acts was passed. The trade war just eviscerated weakenedwe can and Capital Spending plans. Rollback, it will start to recover. Part of the reason i am so confident in saying that, if you look at industrial sector Profit Margins this quarter, they rebounded sharply. Sector mayial be same adjustment to the tariff environment that they made to 20152016 increase in the tradeweighted dollar. Margins came right back. Earnings and revenues came back. The industrial sectors does not compete in product. Once things stabilize, they adjust. Capital spending recovers. Thats where i met. All we really need to do is cool the trade war and have a truce that extends through 2020 for confidence to come back. Vincent basically, to damians point, i am seeing more people getting to emerging markets, which is a risk bump. I think we need to go from partly cloudy to partly sunny. It is a sentiment. It is a feel. I think we are on the verge of that. When you see trump and china agreeing on a fentanyl staying, trying to make something out of nothing, because this trade deal is not going to be that big of a deal. It is going to put us back to where we were before all of the trade narratives started. But you also have something down the line the president will probably pull out of the curtains, a middleclass tax cut. That will come down. All this little positive feel of things very slowly building into the election cycle, which is where the white house needs to things going after that going. After that, we will perhaps see a different story. In boston yesterday talking to clients, and the discussion is starting on what does next year look like. It is shaping up at this point to be a referendum on taxes. ,ven in new jersey yesterday the Senate Minority leader, who happens to be someone i know reasonably well, he kept quoting murphy, who said, if you are a one issue voter, you shouldnt leave in the state of new jersey. Well, republicans actually took seats yesterday. The point is this whole election is shaping up to be a referendum on tax policy, which is a completely different discussion than what some of the past ones have been, and that will be a big driving dynamic. Damian for me, for that real shift in sentiment to take place, you need to see the dollar stabilization. For me, we can point to the fact that the brexit risk has kind of dissipated, the trade mood is a little more sunny, but i will give you two more. Political risk is going to fall. And by the way, we are now in the season of strong winds, november through january. Strength iseason weighing on people in building this positive sentiment Going Forward. Alix this is the jp morgan global pmi index. We were talking about this earlier. We are seeing stabilization. Buts not ticking up to 55, we are seeing stabilization. When we talked a month ago about alone, youy policy need fiscal to keep everything if the fiscal conversation is taken off the table because things are better, what does that do for a trader . Vincent i think we see a boost from a really strange place. We were seeing it starting with lagarde and kuroda talking last night, that basically central bankers are coming to the realization that negative yields do not work. Less negative. Vincent they depress sentiment because the outlook, things look terrible. If they create momentum that yields may actually go higher, that would actually create a positive credit impulse, where people will stuck into the market more so than they are doing now. Barry there was a Kansas City Fed paper that came out last week alix when you have time to read all this stuff . [laughter] alix we were just talking about this. I thought i read a lot. Was negativeper nominal rates worsen liquidity crises. This model, they surmise theres a level where negative rates will actually start to overcome the impact on sentiment in dynamic, and you know what that came up with for the u. S. . 100 . Vincent oh gosh. [laughter] barry so it will just worsen the liquidity trap, and the ecb and boj are starting to come to that realization. Sweden is getting out of their negative realistic negative rate policy. Alix so you hike so you are out of it, but then you are at zero. Barry but the point is theyve realized this has created this liquidity dynamic. If you look at the discussions today about europe and the Banking Union and all, and i asked yesterday, how does europe start to resolve the problem . For me, germany has the same issue or it is a different issue come up at the same dynamic as in the early 2000s, where they could not compete in deglobalization boom because their labor market was in the globalization boom because their market wasnt competitive. They are trying to sell cars to china. That is not going to work any longer. Theyve got to restructure their whole tax code. This is restructuring the tax code and trying to spur Technology Innovation and that sort of thing. If germany wakes up to that, then europe has a chance to really move forward. At the supply chain part of it in asia, all we need is the dollar to stabilize, trade credit to flow. Damian all we need. Barry and things will rebound, in my view. Alix weve got to leave it there. Early fun, dynamic conversation. Cignarella, Damian Sassower, and barry cannot of and barry knapp of ironsides, thank you guys. Now its time for first word news. Heres viviana hurtado. Pro trump Kentucky Governor matt bevin facing what a surprise loss. A blow to president trumps impeachment defense. Ambassador to the eu Gordon Sondland says that there was a quid pro quo for aid for you quaint aid for ukraine. That undercuts assertions by the president and his allies. The u. S. Impeachment committees releasing transcripts of song blend of sondlands testimony. Vision Fund Billionaire ray freesays on linkedin, money is essentially unavailable to those who dont have money and credit worthiness, which contributes to the rising wealth, opportunity, and political gap. 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. A reminder if you have a bloomberg terminal, check out tv. You can watch us online, click on charts and graphics, and if you miss anything, go back and check it out. s mossimo softbank she son softbanks Masayoshi Son owns up to his mistakes. A judgment in investments was not right, so i regret in many ways. Viviana your watching bloomberg daybreak. Reported improved sales in north america after supply chain problems. Also returning to growth come arising more than 3 . Airbnb using a multimilliondollar fight over home sharing in jersey city. About 70 of those voting in the city election casting ballots to restrict home sharing companies such as airbnb. Jersey city, a four minute train ride from manhattan, is a popular and affordable lodging alternative. Deutsche bank says negative Interest Rates are making things worse for the continents banks. That is the ecbs main weapon to help european economies become stronger. Deutsche banks president saying negative rates are a burden on the system and turn longstanding certainties upside down. Im viviana hurtado. Thats your Bloomberg Business flash. Alix thanks so much. I cant believe a European Bank doesnt like negative rates. Now we turn to wall street beat. First up, softbank loses 6. 5 billion from wework and uber, reporting its first quarterly operating loss in 14 years. Then, walgreens looks into going private. Be drugstore chain said to looking for what could be the biggest leveraged buyout in history. And ray dalio says the world has gone mad. The man who runs the Biggest Hedge Fund in the worlds has free money has led to crazy things, widening the wealth gap. Joining me is bloombergs sonali basak. ,ets start with our favorite and that is softbank. Walk us through what we saw. Sonali the 6. 5 billion is not so crazy relative to estimates. I think thats one thing in fairness to softbank. What was interesting, as many investments in the vision fund gained as declined. The reason i bring this up is the softbank stock is not plunging by any means because people factored in a lot of this. Alix that is a fair point. Sondid hear masayoshi talking about that. Time will solve the wework problem. We will make money once the wework building portfolio is allowed to ripen. Profitability will drastically improve, and we can expect the cost to go down by half or even more. It is that simple. Alix i feel like that is what should have been said when they were trying to ipo. You arei think what seeing is the shift in tone. Of course, he has to have confidence for investors. He just doubles down on this bet. With that said, i think people are still wondering about this next vision fund and whether they will continue to be able to make new companies turn profit. Alix to that point, is not going to be bigger than, just as big as the first vision fund. Sonali we will see if it even gets that far. I think people were really wondering not only what is happening to the current vision fund, but who will invest at the end of the day in a second vision fund. The large investors have been shockingly quiet so far. Alix lets hit our second story, which is walgreens. Is what we broke yesterday on bloomberg, that they are looking for an lpl. How big an lpo. How big would this be . Sonali it would be the largest ever buyout. If an testing scuba our bloomberg deals colleagues. The head of the company has seen this before. Hes done a large buyout with kkr before. Kkr is one of the people theyve talked to. The other reason i love this story, it allows us to look back at 2007. The largest deal before this was tsu, which also ended up as one of the largest bankruptcies. So this is such late stage behavior, where people believe that if you go private at the end of the cycle, it will allow you to weather some trouble ahead, but that is not always the case. Alix also, the only reason you would go private is an exit strategy, which would assume you would go public later, but it would have to be that much better. Its not like walgreens is a highflying tech company like wework. Sonali this has created so many Zombie Companies because not only do you have to have an exit strategy, if you are taking on a lot of debt to buy these companies, you have to pay back that debt as well. Thats part of the value proposition. Alix we got believe that there because Boris Johnson is now speaking outside 10 downing street. Thank you so much for joining me. Lets go live to london, where Boris Johnson is speaking. From workers to scientists to Agricultural Workers that our economy actually needs, and we can take back control of our laws so that we can do things differently and better, if we choose, from freeports two freetrade trade deals from free ports to free trade deals to cutting out unsanitary products. Onean leave the e. U. As u. K. , whole and entire and perfect as we promised. Seeas been a surprise to those who voted for this deal not vote for the deal. Democracy,or disastrous for trust in politics. Why should mps decide that they can cancel the result of a referendum . Im afraid i also think that think that this delay is bad for the country and for the economy. With every week that goes by, uncertainty is deterring people from hiring new staff, buying new homes, making new investments. If we can get this deal over the line with a sensible majority government, we certainly can, then we can release that pentup flood of investment. Hundreds of billions are waiting to pour into the u. K. , and we can inject a surge of confidence into our system. We in this government can get on with delivering on the priorities of the people. Im very proud of what weve done in the last 108 days, tever it is, 100 and eight 108 days or so. Lifting up schools across the country, 14 new hospitals, by the way. 20,000 more police on the streets. Infrastructure revolution we are planning in rail and road, from electric buses to new green cycle schemes. Gigabit broadband in every home. We have the confidence as one nation conservatives to make those investments, not despite our belief in a strong private sector, but precisely because we champion this enterprise economy in the u. K. When people get up at 5 00 a. M. To get their business is ready, when they risk their own money or mortgage their own homes to develop a new product or venture , when they have the guts to find a new market at home or abroad, we dont sneer at them. We cheer for them and do what we can to help because we understand that its only by having a dynamic freemarket economy that we can deliver on our program of uniting this country and leveling up with infrastructure, education, and technology. It is only if you have great Public Services that you can have a successful market economy. So i say come with us. That is the choice in this election. Come with us, a government putting billions into education, or go with Jeremy Corbyn and the labour party because thats the only alternative, who actually protect kids from bullying in the classroom, or go with a left Wing Labour Party that believes in high taxes for everyone, and that voted under 708,000ernment against pounds of tax cuts. Thats what they did. , putting as pointsbased immigration system, or go with labour, and a totally uncontrolled and unlimited immigration system that would put huge pressure on the nhs and other services. Come with us, and government that believes britain should stand tall in the world, or go with Jeremy Corbyn and the labour party, who sided with putin when russia ordered poisonings on the streets of salisbury. Done,ith us, get brexit and take this country forward, or, this is the alternative next year, spend the whole of 2020 in a horror show of yet more did her and delay yet more dither and delay. Imagine waking up and finding and the whole of his thebow coalition, with scottish nationalists to assist the brink of assist the breakup of the union, and another referendum on brexit. Alix youve been listening to Boris Johnson speaking outside 10 downing street. This is a Campaign Speech in competition with Jeremy Corbyn. He says the government has a. Eady brexit deal this probably we will see until mid december, when we wind up getting that next election on december 12. The cable rate pretty much going nowhere. Joining me for how your trade is set up for the day, vincent cignarella. You can listen to vence on the bloomberg by typing in squa. How do you trade on this . Vincent you pretty much have to wait until nigel farage decides on whether to enter the election fray. At the moment he is on the sidelines, leaving it to labour and the tories to politically speak it out. Hes not yet decided whether hes going to put candidates into the election. If he does, it basically looks like whoever wins wont have a majority. We will be back to where we are. Really negative for the pound. I wouldnt want to own it anywhere near these levels. Thats a little too much risk to really be trading cable. Alix part of it is also what happens to the dollar. Youre looking at dollaryen, around some key moving averages. What do you see there . Vincent this is all trade. We talked about this in early october, that we like dollaryen on trade a little higher. It is now banging up against the 200 day over a fiveyear chart. We really havent seen a sincenge in this year january, december of last year. It is holding at this level because we are still trying to get some clarity on trade. The fuel from the street is, as we said earlier, partly sunny, not partly cloudy. The feel is that thats can continue higher that this can continue higher and that xi and trump can come to a deal. If the market buys into it, we are going to 112. 50. Alix vincent cignarella, you can hear him talk all day. Coming up on this program, david kelly and john bilton of j. P. Morgan Asset Management joined me exclusively on their new longterm report. It is not only on the big themes we are looking at the next 10 years, but also how to invest. What is a safe haven . How do you buy it . This photo rally trying to this fomo rally trying to continue. This is bloomberg. This is bloomberg. Alix welcome to bloomberg this wednesday, november sixth. Heres everything you need to know at this hour. Lets take it right from the top. The trade wars that are taking place are not good for growth. They are not good for our economy. Alix the rest of the world has a lot at stake. Everybody to the tip of africa needs a trade deal. Alix as the u. S. And china negotiate an interim trade deal, commerce secretary wilbur ross is optimistic there will be an agreement. Goodross we are making progress, and there is no natural reason why it couldnt be. We have a view that in this is remainingequity solid. Investors actually like the story of social capital. Alix despite a 20 decline in equity trading revenue, that is a blow to ceos revamp. President trump campaigning didnt keep republicans from suffering setbacks in off year elections. Kentuckys protrump governor faces what could be a major upset loss, and virginia democrats now have full control of the state government. My judgment in investment was not right. Alix and example of understatement from softbanks billionaire Masayoshi Son. Declining valuations from some of its most prominent portfolio companies, not least wework. Alix the firm recorded a 6. 5 billion operating loss thanks to the right down in wework, uber, and other investments. In the markets, fomo may be continuing. S p futures flat. Tech on valuations highs. Eurodollar a little on the front foot. You did have stabilization in the pmis out of europe, as well as german factory orders. Are we finding a base here . That selloff in the treasury market has not stopped for the time being. Yields down by about two basis points. Joining me for the hour is brooke sutherland, Bloomberg Opinion columns. Always great to have you. I always tell people she is the smartest person to work here. Brooke thank you for having me. Im taking a look at cvs. The stock up a little more than 2 in the premarket, a really robust result. It is interesting is these were really broad gains. They saw strong sales numbers. They some really Great Results out of the Aetna Insurance operations they acquired. This is a really interesting contrast to walgreens, who is in the news come potentially exploring a buyout. This just shows they have a strategy. They are really starting to see the reports for this. Walgreens doesnt have that, and maybe throwing things at the wall right now. Alix it is all like, get it done fast before we had a recession, whenever that will be. If it is 2020, youve got to get it done. Brooke especially when talking about the sheer magnitude of debt that would be involved with a buyout of walgreens. Alix joining us on set, david kelly, j. P. Morgan assetmanagement chief global strategist. You are here in part to talk about this report, but first we want to get a quick take on the markets. We had a huge runup in yield over the last two days. You have record highs in the equity market. What do you like . David you say a huge runup in the yields areas we are at 1. 84 in 10 year treasuries. Core cpi is 2. 4 , so that is 60 basis points. If you invest for 10 years, roughly expecting to lose money. I think some runup in yields is appropriate because the fed has make it very clear they really do think theyve wrapped up the midcycle adjustment. I think thats was possible for this. The story is yields are so low that if you want to make money in the long run, you really have to thing about equities. Thats whats behind the equity rally. Alix thank you for that set up. David kelly, you are going to be sticking with us. Now we want to get right to the council on foreign relations, were tom keene is speaking with boston fed president charlie evans. We were never on a preset course for anything come of basically increasing the federal funds rate by any five basis points every quarter. Then we got to the point where there seems to be more uncertainty, there were a lot of chinesen play in the economy, and it looks like the path we had expected, which in my own estimation, would have called for probably three more rate increases in 2019. All of a sudden, that didnt look appropriate, so in the middle of this economic cycle, as we had been taking the funds rate we thought to a more neutral setting, and then a little bit beyond that, we decided, im not even sure what neutral is anymore. I think it may have moved down, and we need to make adjustments , i wouldolicy would be a leaning stance to an accommodative stance. That is pretty much where weve engineered our third rate cut at our last meeting. Tom parse the distinctions of vice chairman fisher, where we are now within accommodative. I love the phrase hawkish rate cut. Please it plain that to me when you get a chance. Charles it is like always bringing someone else. Tom but within this path of accommodation right now, we are at a stasis point, waiting for more. How accommodative is accommodative right now . Charles thats a great question. You know, at some level, Monetary Policy can be very detailed, very technocratic. You can look at a lot of data, try different models, look for a robust response, but at some point, you are always basically searching for, do i want to be neutral . Do i want to sit in the background and let the economy go . Let businesses do what they do theywell, capitalism, and employ people, deploy capital, and put it in play when the government is behaving in a nice, responsible, valueadded manner. Sometimes, there is a shortfall of aggregate demand, a weakness providing more incentives for credit intermediation, or the other way around. You are sort of trying to find out, are we neutral . Are we accommodative . I would call the midcycle adjustment one where we were clearly on a pass headed towards slightly restrictive, starkly not that restrictive at that point in economic cycle, but now, and my own mind, i was searching for something that was definitely accommodative, not hugely accommodative, but definitely on the accommodative side of neutral. I think that neutral rate probably moved down. On a longrun basis, my assessment of neutral is 2. 75 , so we were still below that when we paused, and now we are at 1. 5 to 1. 75 . We are definitely accommodative, but i am not entirely sure that the short run neutral funds rate isnt a lot closer to 2 . Forward mentioned the run now, and there are times when a central bank can afford the luxury of not being in the foreground. Is the central bank of the United States too much in the foreground . Are we asking too much . Thises no, i think at point in the cycle, as we made that judgment to move towards something more neutral, and the short run neutral was moving up in that time we still have a lot of work to do, even though we started thinking about raising rates i would say that policy is not that far off neutral. I would say it is accommodative. That is a point where there are other factors working. Now thereesses are other factors. Week four and growth, trade policy, things like that. Theres a variety of external factors that acted to be restrictive, so it is for us to try to reset that in a Risk Management setting, but we are not in the foreground, i would say. Tom you mentioned as one inflation added to the real, and it migrates within your text down from 5 to 2. 5 . Are we slaves to this calculation right now . Charles this is just a technocratic way of describing what i was just discussing about, are you accommodative or restrictive. If you are completely comfortable in talking about, you know, i think we want to be a little more leaning towards incentivizing and helping credit intermediation so people can take on some investments in Consumer Spending a little bit, than that would be below this neutral rate, so you can go as technocratic as you want and say it are stars moved down, and i was just trying to catch up to it and be a little bit below that, but in my mind, we are just trying to be a little bit accommodative. I can pull all kinds of Technical Assessments and other measures, but theres a lot of uncertainty around that. Alix what is interesting here tom what is interesting here , others have a glide path down in potential gdp under 2 . Let us continue with the idea that is not politically except it was well. Charles depots gdp growth. What does politics have to do with that . Tom nothing, but you people are dealing with, graphics. I would suggest the impatience of the president as well. How do you deal with that buttressing all of you every day . I feel businesses have been dealt this environment. Households have been dealt this environment. The ability of the economy to grow at some level is very simple. It is a matter of arithmetic, growth, and output equal to the growth in labor input hours. Plus, what those hours are able to accomplish what the capital and business is give them, that is Labor Productivity. That is just identity, and then you can look at what determines that. Eber hours, demographics are a big part of that. Well, the aging of the ulation, attention attachment to the labor force has run the course that led to very strong growth in labor hours in the 1980s, but now are much weaker. If you add on top of that the fact that you have a particular attitude towards immigration, which would add to labor employment and hours, then youve got a big hole you are looking at, so the labor hours component is not going to be very look, we estimate it to be 0. 5 each year Going Forward. Labor productivity, what are you expecting from that . I would love to think technology is going to improve Labor Productivity a lot. Now weechnology are living with technology. Does that lead to an inequality, a barbell outcome . Completelet me that thought. We got tax reform, disruptive technologies, new digital technologies. When did we see really strong growth . The 1980s. When we were growing, not in a decline, we grew 3. 75 . Why was that . Labor input. Labor input was really strong during that time. How about Labor Productivity . They call that the productivity slowdown. Low productivity growth. A whole bunch of things going. Until 1995 tot 2005 that was a Labor Productivity. It is very difficult to predict when this is going to accelerate. It takes a very long time. Computers hit the factory floor in a digital fashion in manufacturing durable goods in the late 1990s. So you get this, but it is difficult to predict. You can hope for it to be really strong. I just dont know how to predict. We are but acting 1. 25 . I think that is a pretty good growth rate. Dealt what the economy is that hand. The politicians are delta that hand the politicians are dealt that hand, too. Youve got to think policies are going to have an effect on that. Employment practices, all kind of things. Tom tell me about nominal gdp. With the new lower potential gdp, do we need to have a reset in our police of the animal spirit . Can we do ok with karen gdp . Charles with current gdp . Charles i dont spend my time taking about nominal gdp, but more about how you carveout the the real gdp growth and inflation. I would say inflation has been on the light side. We said that we should be pursuing asymmetric 2 pursuing a symmetric to present objective. It would be good if the fomc clarified that a little bit more. I think clarifying what we mean by symmetry would be important. To me, it means we should average 2 over some reasonable time. We should probably spend half of our time above 2 . We spent our entire time below 2 since we call this out. Being willing to go above 2 is something i think conservative central bankers have a lot of trouble with. I think the ecb has directly has had trouble with that. If youlimit yourself, say our objective is to percent but really act as if it is a ceiling, that reduces the Monetary Policy space you have when you need to provide more competition during a downturn. It is why i think it is important to achieve our 2 symmetric objective. Here. He words come out i have mild comfort with 2 inflation. Perseverance is crucial. A powerful, full throated commitment to this asymmetry you speak of, it all speaks of outcome based Monetary Policy. Lets dive into this. Ago, we really need to pop inflation. We need an aggressive approach here. You follow on as a public official with really a strong statement that we have to jumpstart this search for a higher level of inflation. Explain what a powerful, full throated evans commitment is. Charles soon youve interwoven two different policy proposals. Tom i would never do that. [laughter] charles i believe you are referring to the Research Director at the imf who said, you know, what we have said is on average, the federal reserve, when we go into recession, we cut the short run policy rate by , fivest 500 basis points Percentage Points and more. If we start at 2. 75 , we cant do five Percentage Points. So we dont have a lot of ammunition and capacity. That is premised on a real rate of 0. 75 , and to present being at 2 inflation. If you dont get to 2 , we start lower than that. If you have a higher inflation plus ave, if we had 4 1 real rate, that gives you five Percentage Points, and then you got more capacity. Central banks have settled on 2 . People get very nervous when you talk about 2. 1 or more than that. At any rate, i think most people have backed off in our own long run framework. Jay powell took off the table resetting the inflation objective before we even got started, that type of thing. 2 when you are trying to hit symmetrically, i think you need to hit it. If you say symmetric, we need to say what we mean. Alix youve been listening to tom keene speaking with charlie evans, chicago fed president. Keep listening to that by going to live. We want to dig in a little deeper with david kelly of j. P. Morgan Asset Management. What stood out to you . Anything in particular . David this focus on what the neutral rate is for Interest Rates and the question of whether the fed is accommodative, first of all, how do you know if they are accommodative . I will tell you how you know. Is there a sickle business person or homebuyer a single businessperson or potential homebuyer who thinks rates are too high . No. But that doesnt damage the economy in the long run. It calls asset prices to go up more than income. Frankly, i think the fed rates are too low. Im glad the fed stopped, but i idea from here, they cant stimulate the economy at all. Brooke we talked about potentially a lower neutral rate. Theres all this talk about a hawkish cut. Does that limit the arsenal Going Forward if you do start to see a true downturn . David i know we will get to this later, but one of the Key Research Insights weve got on this is that, at a certain point when you lower rates, you selling the are economy down. From that perspective, it limits their ability to i mean, the fed is good at fighting a financial crisis. You want to lower rates to be able to do that. What they cant do is stimulate Economic Growth through more monetary stimulus. From my perspective, im glad they stopped while rates were higher. Alix devin kelley of j. P. Morgan Asset Management will be sticking with us. Is colleague john belden will be joining us for more on their tenure report. This is bloomberg. Alix j. P. Morgan is out with its latest report of 2020 longterm Capital Markets assumptions. Here are some of the highlights. It may be that the goldilocks scenario in this next cycle is a muche different, not so spectacular growth married to spectacular policy, but perhaps allowing rates to rise while Technology Adoption pushes a productivity. Bilton, j. P. John morgan Asset Management head of ,lobal mostly asset strategy and still with us is david kelly, also of j. P. Morgan. What does this mean . Weve watched policy rates around the globe come down, policy rates relatively low when you look at historical context. Markets have massively outstripped, in return terms, the level of gdp growth and wage growth around the world. So weve got this kind of interesting scenario where asset markets have gone a long way ahead of what we might have reasonably expected. In the previous segment, david talked about the notion that we are running out of road on monetary stimulus. If and when we do go through the next downturn into the next cycle, what is it going to look like . Are we going to get a repeat of the situation with low growth, low rates . Theres an argument that, with policymakers having run out of road from a monetary standpoint, do they do Something Different . Do we see more of that fiscal boost coming on . Christine lagarde has been talking about it in europe. Is this the new piece of the toolkit . Where that has been the case, it presents upside risk bus to rates into the shape of you curves come about for that to run of yield curves come but ofat to run come abou yield curves, but for that to run, we would need to restart animal spirits. Theres a great opportunity out there for productivity. Its low around the globe at the moment. That is the upside risk case. Can we bear higher rates in the next cycle . Possibly, provided we get a different policy mix going into it. Brooke when you talk about fiscal stimulus, that is a pretty big umbrella. Theres a lot of risks with that as well. What does smart fiscal stimulus look like to you . What would help revive animal spirits . John it will be country to country. In europe, does this become part of the greening of the economy, something that is very upfront and center . Does it involve greater access to technology out of 5g . Investments in infrastructure that is going to carry us into the next period of growth uplift . The question comes down to working out how you use fiscal not anyway that you simply throw money in a whole, but actually invest in the future. The conversations happening today, brought about in part by having been forced to run out of road from a monetary standpoint, or the right conversations to be having. We argue within the paper that we will probably take some sort of shock to really direct attention on this, but the reality is we do think in the next upswing, it is going to be part of the toolkit for policy makers. David and i think the other thing that is really important in terms of differences between monetaryd monetary, tends to suppress rates and inflation. Fiscal, particularly if it is directed by leftwing populists instead of rightwing populists, could have a significant impact. One of the reasons we dont have much aggregate demand and inflation is because people with money want to buy stuff. The problem is the people who want to buy stuff dont have money. Of taxes for cut lower income individuals, a lot of direct government spending, suddenly you can get aggregate demand, which leads to a higher Interest Rate outcome. Alix we are going to take a quick break, but come back and drill into that more. Also taking a look at where the biggest inequality mismatch is. John bilton and david kelly of j. P. Morgan Asset Management hang tight, and brooke sutherlin staying with me. In the markets, the s p still hanging onto gains. Value continuing to outperform. Eurodollar is a perfect example of have we actually bottomed out here. Are things not going to get any worse in the pmi world . If not, is there also shortterm risk . Yields go nowhere. This is bloomberg. This is bloomberg. Beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected. To do the extraordinary. Take your business beyond. Alix this is bloomberg daybreak. I am alix steel. Happy wednesday. S p futures trying to click onto the rally. 3075 is how we are printing. Eurodollar on the front foot. We did have a stabilization and pmi. I am still taking a look at copper. You continue to get highs in the stock market. Cyclicals we have industrials and materials. If copper is down. 3 , lets feel out. Her morgan is out with latest report, the 2020 longterm Capital Markets assumption. We will go into that with john bilton and david kelly of j. P. Morgan Asset Management. Part of it is a look at how you allocate, what is a safe haven asset. Why 10 to 15 years . I do not know what will happen tomorrow. David we have to think about the investment horizon of individual clients and all of our institutional clients. They are longterm investors. It is a good time to think about the long run. Markets are at alltime highs, rates are close to alltime lows , valuations are challenging. A lot of uncertainty going into 2020. It is hard to see in the short term. You go out 10 to 15 years and say as this is evolving, as inflation is evolving, as Monetary Policy is evolving, this is what we will get to. The question is how you get there. It is important not to just have a 2020 vision but a vision of 2022 and 2024. We look out 10 to 15 years to try to figure out what the longterm trends are in the economy. What does that name what does that mean for investors. One of the things i thought was interesting about your reports is the idea that bonds are not the safe haven they always were. They will not provide the installation your portfolio. You go instead . David there are opportunities. The key point is bonds provide insurance, but theyre not providing the yield they would. Think about the Building Blocks of your portfolio is a toolkit. One of your tools does not work in the way it used to. The edge has gone blunt on your saw. You will still be able to chop wood, but it will not be the same kind of experience. Bonds have lost income component. One of the starkest things coming out of the report if you hold a bond for 10 years, guess what your return will be. It will probably be negative. If you put that in a portfolio context, do bonds give you protection of the short run . Yes they do, because they are negatively correlated to stocks. Can you say im going to build a portfolio for 10 years with a bunch of bonds and equities . It will not do the same job. You have to rethink how you are making those tradeoffs. A 6040 portfolio of stocks and bonds youre giving up some of your turning stops stocks to have safety in bonds. You make that tradeoff. If youre now giving that up for no income, you might rethink what is the tradeoff i want to make. Do i need cash flow . Do i need to have duration but traded more actively . Do i need liquidity above all else . Maybe i need cash or currency equivalents. It opens up a new swath of assets. Real estate got a bad rap because the last cycle, it was the center point of the losses. If you go back over the long haul, real estate offers a strong stable cash flow stream. You do not have liquidity needs immediately in a portfolio. Maybe that is the right place to be funneling your cash flow. You can look the way currencies behave. The yen and the swiss franc behave counter cyclically. Perhaps that is the right place to be for the dollarbased investor knowing the dollar is overvalued. As a result, perhaps that gives you something more. This is the point in the cycle where we are 10 years into an expansion. Yields are at record lows. Unlikely to rise. Therefore, the result is we have to think harder about the toolkit we are using. David john talks about how real estate is unloved because of what happened in 2008 and 2009. International equities are unloved by americans. We are not making a shortterm prediction. There is a lot of volatility and risk in Global Equities in the year ahead caret if you go out 10 years, the dollar trend we think will emerge, and you look at current valuations, the argument for emerging markets doing better than u. S. Equities is very strong. Brooke i have to ask a manufacturing question because i cover industrial companies. Because you talk about the import of technology. Industrial companies are moving down the technology spectrum. D. C. That is a risk of being a d inflationary force do you see that as a risk of being a d inflationary force . It is more inflation technology and robotics that has the deflationary impact. The most essential point about markets used to be that sellers knew more about things selling then the buyers did. That is why the used to say times. Emptor in roman now they use it to crush markets. It is making a lot of consumer markets competitive. It is not so much in the Manufacturing Sector as an information technology. The other part of the story is an Income Distribution issue and a Wealth Distribution issue. That is dragging on aggregate demand. Move toward more egalitarian distribution of income and wealth over time, that could reignite inflation. John staying with the question about technology, we wrote a paper looking at the technology passthrough. There is this assumption that all of the sudden the robots will take over. Think about it logically. Robots are being used where there is a shortage of labor. The biggest boost comes to those countries with the biggest demographics. Germany, japan, etc. These things tend to happen over a prolonged period. When it comes to technology, what we are excited about is it represents not just the means of reaching the consumer, it also represents the internal value change of many corporations. If you can operate with a more efficient value chain, you can reduce the capital intensity of the Balance Sheet and give support not only devaluation but to margins. There is an upside case for corporate mechanics that works in place. It is not only a Macro Economic feature. Alix i have to break some news. Bloomberg has learned china is said to discuss investing 5 billion to 10 billion in saudi aramcos ipo. Chinas silk road fund is sent to be in talks to buy some of aramco stock. This is not finalized. That could change. It could be as much as 5 billion to 10 billion in saudi aramcos ipo. That would be a big boost for saudi aramco considering they had a hard Time Marketing it outside saudi arabia. Who will buy it outside of the rich saudis . Brooke there was a lot of debate over the valuation and saudi arabia wanted a very high valuation. To have china buying into this lend support to the underlying value case. Alix we will get more on that in a second. I want to go back to the idea of the technology and how you invest. We had a graphic that showed where is the most popular that sat, private equity, gold, all of that needing the weaker dollar. Walk us through why that . Why these sectors . David what you have to look for is what is necessarily worked in the last 10 to 15 years. The u. S. Has been in the sweet spot in terms of technology development, getting ahead of the curve in terms of recovery from the crisis, strong domestic demand. That has plagued through. The question is can we expect that to pete can we expect that to repeat . Some shades well. Successful stories get replicated good the notion we have a world of low rates, which are favorite areas that have managed at Financial Leverage against areas like europe and japan which have operating leverage, that has played through. Where you want to exposure to . Number one, regions that have good demand but inexpensive equity markets. We think with a high level of u. S. Dollar, there is a tailwind from currencies. International diversification will be a feature for the next few years and into the next cycle. Number two, more access to that technology story. It is not going away. We have a huge increase in the Technology Sector of the stock market over the last 10 years. It is now broadening out into the bigger economy. As that starts to boost margins and growth, we want to have exposure to that. One place to do it is private equity. Alpha trends have been stable. The expectations of returns are good and it has a much greater exposure to technology than the broad public equity market across the globe. Finally, areas like real estate. We still need cash flow into portfolios. If bonds are not doing that job, we need to look for areas that are. Infrastructure, real estate are reasonably priced at the moment and they have not had the excesses in the cycle we saw in the last one. We think those will offer more insulation than might be reasonably expected as we go through the turbulence in the coming years. Alix where you guys going to do with all of your time . [laughter] david we will take a deep breath. Theres a lot going on in the short run, but we will get back to the long run. Alix appreciate you bringing this in. Very insightful on the big trends. John bilton and david kelly of j. P. Morgan Asset Management. China discussing investing 5 billion to 10 billion in saudi aramco. I reporter joins us from london. Walk us through what we know at this time. The chinese are looking at bringing in a substantial investment in the ipo. This is in line with saudi arabias plan of seeking asian investors along with tapping liquidity and High Net Worth individuals in the region. For china, this makes sense because theyve been trying to boost relations with countries in the middle east, especially saudi arabia, one of their key suppliers of oil. It does provide some kind of hedge against an upside in oil price in the future. Expect for theu timing of the ipo . Does this help speed up the process to get this kind of buyin from china . Dinesh it definitely helps. Ipo is the timeline for the , they are looking at sometime in december. The key concern is the valuation of the business. Saudi arabia has been seeking about 2 trillion for the whole entity. It does feel like some kind of understanding and saudi arabia they need to come down on that good moreover, some of the other concerns have been raised by investors, including climate change. If you look at investment from china to come up with those concerns to be a late to be allayed and getting a chunk of money from china help speed up the process. Alix give me a sense of other countries saudi arabia might be tapping. Any goes to underlie relationship between saudi arabia and china and saudi arabia and russia have been getting closer as well. Dinesh a lot of these divisions have to be seen not just commercially but politically. Just like china, russia has been making big inroads into the relationship. Last week you could see a big presence of chinese investors. Prominence of russian wealth funds. You could expect russian investors could be looking at investing in this ipo, more as a gesture towards bolstering ties with the contrary. Brooke if you look at china and russia and the aramco ipo, you have to wonder if that is something the u. S. Will be a fan of, particularly given the trade negotiations still happening. Is there any sense the deal night lay into this in any way . Sure the dealot will get played into the trade dispute going on. It is an interesting double event. Saudi arabia realizes that despite their close ties to the u. S. , when it comes to marketing their oil and selling their oil, the big markets are in asia, whether it be china, india, japan. Those are the markets that see the potential to grow the business. Ares interesting they tapping into money from that part of the world. We have not heard about any kind of significant u. S. Investment into the ipo. It is being marketed in the u. S. Do not be surprised to see some of the u. S. Asset managers or other institutions putting in money. The big money has to be investors. Alix thank you very much. It looks like china could be putting anywhere between 5 billion and 10 billion into saudi aramco through different companies. Walgreens considering a potential deal that to be the largest leveraged buyout in history. More on that, next in todays bottom line. Remember, bloomberg users, interact with all the charts we use at gtv on the terminal. Check it out. This is bloomberg. Alix time for bottom line. We focus on Companies Worth watching. We will drill down into walgreens as they are said to be considering a potential deal to take the company private. Joining us are scott rostan and Jonathan Palmer. Why would they do it . Jonathan a couple of reasons. Walgreens tried to buy rite aid to get bigger and they are focused not on deals, but to acquire assets, but on partnerships. The reason they might do this is to get out of the treadmill of being a Public Company and having to focus on the shortterm and focus on the longterm value youll build with Companies Like labcorp and the right. Brooke is this even doable from a private equity standpoint . Is there the capital to make this happen . Jonathan it would be massive. If you assume an aggressive seven times leverage, youre talking about 50 to 60 billion of debt and equity check on top of that of another 15 to 20 billion. That would be huge. It would take them out of the public eye and given the amazon effect, is that something investors want to do . I am skeptical, but i am also not plugged into it on a daytoday basis. Brooke is there one private equity firm that can do this . Scott it would probably have to be a club deal. The common misconception is private equity firms can write a 10 billion check. They want to diversify. If someone has a 10 billion fund, the client can write a 1 billion equity check at most. This brings up other issues around control, around joint strategy. Clubs have had bad track record, and they were scrutinized from an antitrust perspective within the most recent years. This has fallen out of favor. This would be unique. Possible, but tricky. Alix from that perspective, say it does not happen, are they in deep trouble . Are we going to learn this exploded because they are struggling so much . Jonathan walgreens is in a safe spot. There are challenges in retail, challenges in health care, there is an election coming up. At the end of the day, walgreens and cvs are the prime assets in retail pharmacy. People are still going to need their prescription filled. The business will continue. There are longterm challenges, but i think they can whether thats. They can weather this. Brooke cbs has put up a lot of capital. If walgreens was in a buyout scenario, i assume they would be making similar investments. Jonathan they are focused on two things. One is to cut cost from their business. They are also trying to transform the Retail Locations and make these morava Health Delivery asset as opposed to just retail. Andis focused on aetna, walgreens is going the partnership route. It remains to be seen which is the right choice. Brooke if you have all of that uncertainty, if you are private equity firm, how do you plan for an exit . Scott you probably have to come back to the public markets. The other way to exit would be through a sale. Who is going to buy walgreens . You probably have to do another ipo. What is the story, can they transform themselves . That is to be seen. With that amount of debt, you might be constricted on one investments you can do to transform. Maybe you are doing more partnerships to acquire additional capital, but will that move the needle to transform the company so it is a super exciting ipo. Alix did we learn anything about where we are in the cycle and the world . Scott it is something i bring up in class. This is a different name but it proves the point. When wrigleys was bought by mars, that was the last great multibillion dollar, it was similar to an lbo from that standpoint, that was a high watermark. Alix and upset. Scott rostan of trading the street and Jonathan Palmer of Bloomberg Intelligence. Brooke, it was a pleasure. Thank you for joining me for the hour. Brooke it was a pleasure. Alix you can Read Everything brooke writes on Bloomberg Opinions. The 10 year yield is bumping up against resistance. That is next. If youre jumping in her car, turn into Bloomberg Radio on sirius xm channel 119 and on the Bloomberg Business app. This is bloomberg. Alix time for technically speaking. Me. Ent cignarella joins you can listen to vincent every day. Youre here with look at stocks. I want to look at the 10 year yield. Vincent the 10 year is the bottom yellow line, it is the second standard deviation from what the blue line is, the average daily close over this fiveyear period, now bumping up against the first standard deviation. Where it goes from here is a trade story. Talking to traders last night in hong kong and asia, they like the trade deal. They think trump and xi will come to terms. It depends if the market will accept the terms or is it just delay of trade deal for political reasons. We saw china investing in saudi arabia. This plays along with the Regional Economic comprehensive partnership, a trade deal china is doing with asian nations. This will put the u. S. In a position where they have to close a deal. Should they do so, we look for mean reversion on the 10 year to take us back to two. 25 or so, the average Closing Price line. Alix on that, we have the 10 year option coming up today. Yesterday we had a solid three year option. There were buyers in their in there. Vince, thanks a lot. Good to get your perspective. We get 27 billion coming out 1 00. Vincent cignarella of bloomberg squad. Taking a look at uber. A blocked trait set to price 2 million shares at 2690 east. At 2690 each. There are a lot of options in the market as you have investors betting on a drowned draft for the equity. That wraps it up for me. Coming up with jonathan ferro, Julian Emanuel will be joining him. Lets get a check on the markets. S p Futures Holding steady, up. 1 . Yields taking a break, up two basis points. The curve is flat. This is bloomberg. Jonathan from new york city for our audience worldwide. Im jonathan ferro. The countdown to the open starts right now. [no audio] jonathan recession odds falling. The chance of a recession is not significant. Recession risk is off the table