Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20240713

From hong kong to tokyo, frankfurt, and washington, our bloomberg voices are on the ground with todays top stories. We begin with the escalating tension in the middle east after the u. S. Killed errani and general soleimani killed iranian general soleimani. Irans president Hassan Rouhani warned of retaliation. They will see the consequent as of their mistake not only today, but in the years to come. Our for the latest, bloomberg correspondent joins us from doha. Telus the latest from iraq and iran. Reporter in iran today, it was an emotional scene, with the Ayatollah Khomeini openly weeping as there were speeches around the burial ceremony for qasem soleimani. He was also joined by palestinian leaders in giving those speeches. In addition to vowing revenge, irans Hassan Rouhani said the country would leave the remaining drags of the nuclear accord. Also, a new Interesting Development with his iraqi counterpart. Of thesehat the blood commanders, also referring to the leader that was traveling with custom soleimani with custom soleimani with kassem come about that they will not stop until they see complete removal of u. S. Forces from the region. Alix thank you very much. We want to go to washington now because President Trump did take to twitter over the weekend, issuing threats if iran attacks america. He wrote, let this serve as a warning that if iran strikes any americans or american assets, we have targeted 52 iranian sites that will be hit very hard and fast. Sunday, secretary of state mike pompeo said any action taken by the u. S. Will be lawful. He spoke to abc this weeks george stephanopoulos. We will behave lawfully. We always have, and we always will. You know that. Alix Kevin Cirilli joins us from the white house. Fromnly ramped up rhetoric President Trump and iran, but also iraq. Kevin exactly, demanding there will be a full pull out of u. S. Troops in the region. President trump warning that should iran or iraq strike back, there would be a disproportionate response in the region. Lawmakers on both sides of the aisle weighing in ahead of their return later today from their congressional recess. House Speaker Nancy Pelosi says, a resolution, she to the floor of the house of representatives later this week that would limit the president s ability to combat iran and retaliate, provided it go on for longer than 30 days. Senator tim kaine of virginia introducing similar legislation in the senate. The talk of impeachment very much turning to the middle east. Alix thank you very much. I want to head back to hong kong. China is putting in a new official to had the Liaison Office following months of political unrest and protests. Dan kincaid joins us on the phone. Who is this new replacement, and what is the significance here . Dan the new replacement is a come his Party Official known for keeping law order in china , for implement and president xi jinpings Anticorruption Campaign very starkly. Hes a guy considered a tough line order guy. A tough law order guy. Some are calling him a tough man that could put the city back in line. He said basically that he hopes that hong kong could be stabilized from now on. It remains to be seen what policy measures will be of limited, whether there is going to be a shift come but it is the first major shakeup we have seen of the leadership here, particularly from the chinese officials, which signifies that beijing is holding some people accountable for the six months of unrest that we have seen here. Alix thanks a lot. In japan, more details emerging on Carlos Ghosns great escape. A pair of americans with backgrounds in the private security business were set to be escorts in his escape to lebanon. Japans Justice Minister reiterated that his flight was illegal. As the case is currently under investigation, i will refrain from making specific comments, but the investigation has revealed no official record of mr. Ghosns departure. It appeared that he left the country unlawfully using illegal means. Alix the more you read about this, the more staggering it is. What do we know now, and what do we expect . Reporter this is truly a breathtaking story of Carlos Ghosns escape. It is amazing he was able to do this given the tight surveillance he has been under here in japan. Earlier today, the justice andster made a statement, what was interesting about that was mostly what she didnt say, and that is give any details on specific actions the government will be taking. She did say they would strengthen border checks, but again, no specifics there, and not even anything directly addressing the reported methods that ghosn might have used to flee the country. Other local News Agencies reported that, in fact, he did in fact fully on a private plane in fact flee on a private plane. This evening, there have been reports that he ordered the bullet train here in tokyo that he boarded the bullet train toe in tokyo and took that an international airport, stayed in a hotel, and boarded the plane after that. That was reported without specific sourcing, and further on in the day, there was a statement from the chief cabinet secretary. Again, what he didnt address was any of the specific issues about what actions japan would take. He only underscored that this was an illegal action, and that in japans view, there was no unfair prosecution of ghosn. As we can see, the government is taking a very defensive position and is yet to go on the offensive, other than to say this was a criminal act by carlos ghosn. Alix thank you very much. Thended in europe, where euro zone economy gradually edged away from stagnation at the end of 2019. Service is picking up to counter shrinking manufacturing in the region. Gordon is inaul frankfurt for more. The euro also jumped on the news. Walk us through some of this here. Paul i think the jump in the euro is largely due to the fact that germany returned to growth in the sector. We also saw reasonably solid numbers from france and spain, not so from italy, which is seeing its biggest private sector contraction in about a year. That is the story at the moment. It is very slow growth. The Third Quarter saw growth of about 0. 1 . The story behind that is that many fracturing remains in a funk. The Services Sector is anntering that, just causing expansion, but the concern is if you lose jobs in the factories, that affects household wealth, and that therefore leads to a drop in consumption, aggregate demand, and that is when you have a wider recession. We are not there yet. In fact, the numbers were better than expected, but it is marginal. Alix thanks a lot. Appreciate that. One other story we are following is the firefighters in australia getting a bit of a break, but only briefly. He had a temps over the weekend to control raging wildfires helped by cooler weather, and some rain today. That, authorities warn dangerous conditions return this week. Fires in australia are now blamed for 24 deaths. Millions of acres have been burned and thousands of people have been forced into makeshift camps. Prime minister Scott Morrison is committing billions to a recovery fund. There is an initial investment of 2 billion. If more is needed and the cost is higher, the more will be provided. Alix that was over the weekend, when morrison announced an unprecedented level of military support to help the firefighters, although individuals are skeptical at morrison for acting too late. Coming up on this program, more on your morning trade and analysis on the markets in todays first take. This is bloomberg. Alix time for bloomberg first take. We are going to give you the news. You get the trade and analysis of the markets. Drawing me is Vincent Cignarella , voice of the bloomberg audio squawk, damian sassower, bloombergs chief emergingmarket asset strategist, and joining us is David Lebovitz, j. P. Morgan Global Market strategist. The big situation is obviously the rush into some safety assets and what is happening with iran. What are traders talking about . What are you hearing . Vincent a really good source, a friend and colleague, fellow at carnegie mellon, an associate of the ayatollah himself, basically said the present scene is not correct. Soleimani was feared in iran, not revered, by the population. This is something that the ayatollah did not see coming from trump in an election year. This is a big surprise. It has put him in a box. He has to respond, but if his response is too harsh, trumps rhetoric over the weekend will come true, and this will blow up. It is not something iran can really deal with at this point. They have been fighting proxy wars with the u. S. , israel, saudi arabia. They really cant deal with a full, blown out situation. What that means for risk is, more likely than not, a continuation of this risk off in spurts going through this year. When it will actually hit, who knows . But there have been instances where this could take up to 40 days before the ayatollah responds, as with shiite law. We wait and see now what comes next. David i think that is the big risk. When i think about what these events mean for markets and what it means for the economy, there are really three separate impacts. There is the inflation impact, the consumption impact, and the sentiment impact. I think the risk you are drawing out is if this takes time to play out, how uncomfortable are get . E going to when you look at equity markets trading north of 18 times, how long can that multiple be sustained in an environment where things may not be getting worse, but these questions are going to be percolating in the background . I think that will cause some investors angst. Vincent that is a great point. Traders never really priced to political risk. That is just a thing we cannot do. It happens. You dont know when it is coming. It is not an Economic Data event. It just comes out of nowhere, and there is no way to really price it. Damian just look at the crude oil curve. You expect to see the market move back, but that has just come all the way back, and now we are at record backwardation. Despite all of the rhetoric and all that we are seeing in the mideast, well is supposed to be on supply. It should be fine. Brent crude strike call option this morning. That is pretty significant, but certainly not enough to get that moving. One of the challenges people are facing is they see geopolitical warm up in places like the middle east and say, i need to watch what happens with the price of oil. The problem is the playbook that has been used in the past is perhaps no longer applicable because of the growth in shale and the changing dynamic we have seen in the oil market over time. Thats why markets are shrugging it off, i think. The risk is, you guys were just talking about manufacturing in the euro zone, it is going to take time to recover. We dont know what it actually means. We still need the consumer to remain in play in order for growth to continue. If inflation gets to pick up ever so slightly or sentiment gets hit, the consumer is now up in the air. The question is, whered we go from there . Damian manufacturing is all about autos and demand for autos out of china. The sub index pretty to buff 55, which is a pretty noticeable uptick. If demand is improving somewhat, we might see that spill over to the eu, and that could be a good thing for all of the fiscal stimulus and all of that kind of stuff. [laughter] werent the Sales Numbers horrible, so if this is a good time to buy a car, i dont think it is a good time to be manufacturing one. Alix weve got a question from a viewer before we move onto this debate, which i also thing is very interesting. Iran cantlain why afford war against it u. S. Against the u. S. . Vincent it is just not in a position to face a superpower, if you will. They already have sanctions. The economy is already struggling. War with the United States would just put more pressure on them. They are trying to put pressure on iraq right now, the proxy war that carries over in the middle east. They are saying, get your troops out, because they are afraid of iran. They are afraid of retaliation. They have been fighting these minor proxy wars because they cannot fight in a fullfledged war against the United States. Physically, just not a possibility. Alix to circle back with that conversation in terms of europe and the manufacturing, and the overwhelming geopolitical risk, if i look at equities and commodities, there is a safe haven bid. If i look at treasuries and fx, theres not. In my wrong and that . , missing something my i wrong in that . Mi wrong and i wrong inm i am that . Am i missing something . Damian theres a lot of dynamics making oil behave differently, but gold, the bid for gold is tremendous. Price alsot in cdx. In certaining it assets, and not in others. Ethic it is a great point. I think it is a great point. David to that point on gold, 10 on an back to zero inflation standpoint, and that is where gold starts to pick up. If there is no cash coming from the asset, you can be a bit broader in what colors you paint with. Rivennt the current algod programs would have been driving a lot of the correlations are not going to hold up in this environment. You are going to see gold go higher. You are also going to see the dollar go higher if this becomes broader risk. You will not see the classic trade were emerging markets go up and the dollar goes down in a geopolitical risk environment. Alix do we learn anything about volatility and where it goes with price . This is like, my favorite chart ever. Fx vol taking up when it comes to equities, but do we learn any upsed price vol ticking when it comes to equities, but do we learn any missed prices . David providing shortterm liquidity to make sure the Plumbing Works the way it was supposed to work, if you look on a euro near basis, that has coincided with the rally into equities last year. Lets not holiday 2020 rally, but there are a lot of moving parts here. Look at what china did the other day. Thanks are easing. Central banks are easing. That is putting a bit of a floor on the market and a lid on volatility given Investor Expectations that these guys are going to rise to the rescue. 450n it it only took billion of Balance Sheet to get to this point, and we are still talking about it. And we see the fed ride to the rescue. Alix we saw all of the central bankers meeting in california. They talk about semiautomatic stabilizers, spending measures triggered by the crossing of some physical threshold. Is a whole rethink of your portfolio. What is it, antisemiautomatic stabilizers . I had to take my time with that one. [laughter] alix a point is the government is forced to act if taxes go haywire. It,an Charles Evans said inflation is too low, and we are going to need to do something about it. We are not going to see two years hitting 10 going to see 10 years hitting 2 anytime soon. It is definitely going to be a fed that airs more on the double side than the hawkish side. Errs more on the dovish side than the hawkish side. Vincent inflation is a psychological issue. It is not something the fed can do anything about. David it all comes back to aggregates. If you look at the top 10 of households in the United States, they spend 70 of their income. Spends more than their income. Damianur thanks to sassower and Vincent Cignarella. David lebovitz of jp morgan Investment Management will be sticking with me. Check out gtv under terminal. On your terminal. This is bloomberg. Viviana this is bloomberg daybreak. Skippingnspectors xray checks on large cases loaded ontowere jets, this in Carlos Ghosns escape from japan. Less than two months ago, bordens larger rival filed for chapter 11. Boeing reportedly considering whether to raise more debt because of the 737 max crisis. According to dow jones, at the end of the Third Quarter, the had in cash, but costs are rising. Analysts say they expect boeing to raise as much is 5 billion. That is your Bloomberg Business flash. Alix thanks so much. Heres one other story that caught my eye. Would you give up facebook for a month in exchange for 50 . That is a question posed by an m. I. T. Professor and colleagues, trying to figure out how much free technologies add to the economy. They estimate the social network 0y itself could add about 1 1 of a percentage point if it is of benefit to the users. Assigning monetary value to facebook use, a little more than 42 a month. Another group did it for whatsapp in europe, and that came to about 500 plus for abstaining for just one month, so clearly, whatsapp more important there to peoples lives. Coming up, brent crossing the 70 a barrel level on flaring tensions between the u. S. And iran. Amrita sen will be joining us next with her breakdown on the end goal of iran, what they really want and need out of this conflict. This is bloomberg. Alix this is bloomberg daybreak. The rush to safety is continuing somewhat, and some asset classes. Take a look at the equity market here. Youre are seeing a drawdown. The dax one of the underperformers in europe. The s p 500 off by about 0. 5 . Its been a really interesting session evolving across asset classes. You have the currency market feeling pretty strong. Cable is the outperform or come up 0. 5 . Her, upe outperform 0. 5 . In the commodity market, you can really see the risk reflected in , and burnt continuing to climb higher. David lebovitz of jp morgan Asset Management is with me. Do you need to buy safety now . Is there something you need to do today that you might not have done a week ago . David im not sure that the playbook has changed all that much. Coming into this year, our view was that Economic Growth would spectacular in the u. S. As many factoring gets out of its bump. The kind of shocks we expect to hit the economy and markets this year are the ones that, as we were just discussing, not quantifiable. The fact that this is happening with oil in the middle east just a few days into the trading your kind of reflects our view coming in. You should be completely over the front of your skis, playing full out offense, but we also think there is room for the cycle to continue. Getting overly defensive could be the wrong move, so our view is trying to balance the two, and the way we are doing that is focusing on income. Focusing on yield and equity markets brings us to ideas where we get a good total shareholder yield, dividends plus buybacks, and that is a combination of things like financials, technology, and actually, energy. The dividend yield is very attractive, and our view was always that oil prices should steadily rise given what was going on with opec. Perhaps this adds some fuel to the fire, but for us, income is king in 2020. Alix hold onto that thought. About to turn now to more the oil market. You see brent crossing 70 earlier. Youve got tension continuing. Ruining me from london is amrita sen, Energy Aspects chief oil analyst. Do we see Brent Holding over 70 on this . Amrita good to be talking to you. I think with brent, we do see these political tensions remaining for now. I know everybody has been talking about the escalating, but i dont think you will necessarily get that anytime soon. The physical market is still tight. Inventories are low. Capacity is also very low. I do think there is going to be support for prices at these levels. I am not necessarily sure we will get an upward move. From these levels i think we should hold. Nymex crudeday, left up above 60 a barrel. That is higher than what we saw back in may, when the Saudi Oil Facilities were struck. Is that the correct market response for Something Like this . Amrita i think the big difference is that the market is starting to price in the probability of the risk of war, which we dont think is likely to happen. We do think iran is far more calculated in the market fears. It is going to mainly consolidate power in its own country and regionally, the focus very much is trying to expel u. S. Troops from a rock. For us from iraq. For us, the main impact is long term. Longterm Iraqi Oil Production is really at risk rather than shortterm. You actually lost shortterm production, even though saudi arabia is likely to manage exports through other means. I think that is the big difference, that this can or should impact the backend of the curve. You should see the flat price at the back being affected. That is where investors should start to look into. That is the impact from the current event. Alix on that point, do we see u. S. Producers, for example, start hedging . Do we see leveraged emps responding . What is going to be the response mechanism . Amrita i think that is exactly right. One of the reasons why the curve is starting to get more backward is that youve got the speculative community buying the front because of all of these geopolitical tensions, but we have seen a pickup in 2021 hedges by u. S. Producers, so they are selling the back. As a result, the backwardation is also increasing, and i think you are going to continue to see that because obviously, the curve has moved, and that is something u. S. Producers always utilize as hedge. Alix on the steeper backwardation, you could look at it as you are discussing, what the u. S. Producers are doing. The other is more fundamental. Goldman sachs says the steepening backwardation can be interpreted as the market immediately and preemptively pricing in an outage of 800,000 barrels of oil a day for three months, or a 30 chance of much larger 2. 7 Million Barrels a day outage for three months. They are very skeptical that that could happen. What do you think . Amrita that is are you as well. In the physical market, there hasnt been any disruption, and we dont believe there will be a disruption of a big magnitude because of what is going on. This is very much about longterm supplies at risk. Terms of the in backwardation, i dont think this has been fundamentally driven. Isinery maintenance currently at the weak seasonal period. Is the are getting difference because producers are hedging the back and the speculators are buying the front. It causes that steepening in backwardation. Before this event, we were expecting the backwardation to ease off in the coming weeks before it tightens again as refineries return from maintenance. Alix really great distinctions for the intricacies of the market. On this point, are we noticing anything within differentials of crude . It would really end up hurting asian buyers, already being heard by venezuela not being able to produce. Have you noticed anything on that level . Amrita absolutely. I think one of the things, and i mentioned this on friday, was the real risk is if iraqi , iraq is yourlost last source for heavy crude after venezuela and iran are off the market. What we have seen in asia is that even the refineries are heading into maintenance and we should see a softer crude market, we are seeing the medium crude bonds have really picked up. Absolutely, this is what ends up happening when geopolitical tensions rise, refineries would preempt and stockpile just in case there is an outage in the future. You are definitely seeing some of these values go up even though you wouldnt expect that at this time of the year. Alix hence the backwardation we are talking about. To rounded out, as you talk to sources in the middle east, what do saudi arabia think doing right now . Amrita i think right now, it is wait and watch mode. The next step, you have already heard and seen what iran has talked about in terms of the jcpoa, but i think the next step will be to see, on the one hand, fundamentally, the market is weakening. Refinery demand is coming off. But should there be a supply output, they are going to be ready. If required, they would have to weak production. Alix great you kept up with you, amrita sen of Energy Aspects. We talked about energy on the backend and where that is going to help them. Where might you be buying energy irrespective of what is happening with the wrong . David if you take a 20,000 foot view and try to think about what area is least sensitive to swings in the price, we would be looking at what is going on with the refiners. Knowing downstream and focusing more on demand is probably the logical conclusion. Particularly in an environment where you are seeing Global Manufacturing and global activity begin to come back, to me, that is where you would want to center your focus. I think you can take more risk on the enp side, but that seems more tilted from where i sit. Alix if that part of a broader growth versus value rotation . David it is interesting because everyone always talks about value versus growth. We tend to think about it as more cyclical versus defensive. We want to retain more cyclicality. The problem is you end up owning things like utilities and consumer staples, and i am not sure that now is the right point in the cycle to be taking on those names. We prefer to focus on cyclicality. As i was mentioning earlier, the idea of total shareholder yield and the banks, which into look attractive from a pricing and valuation standpoint, energy, which continues to look quite cheap, and theres probably some room for things to run their, and tech, which we look at is more of a sector play. You could have a pool but because a more volatility. Theres definitely a fomo in terms of positioning. Do you see the same kind of shortterm issues . David i think we are due for a pullback. I am not sure when it is going to come, what it is going to look like, but i think earnings are going to grow this year. The market likely trends higher, but it is going to be a bouncy ride on the way. Alix the market will grow, but by how much . We are not going to see that kind of return again, are we . David no. We need to think beyond 6040. We need to include alternatives because just owning stocks and bonds unfortunately isnt going to do it for you going forward. Alix if you did that, what would be a good allocation . Do you want alternatives to be have sore quarters . S or quarters . David i think these are assets that people need to tiptoe into. Theres obviously a lot of risk involved. Real estate, infrastructure, things you can touch that provide a cash yield is an interesting place to start the conversation. Alix to wrap it up, election 2020. How do you price that kind of risk . Central banks that might be kind of cutting anymore, but not hiking . David central banks, if they have it our way if they have it their way, are going to be on the sideline. Election, the market is going to give you the best idea at whether the Current Administration has the best chance at the next four years. Alix thank you for being with me, David Lebovitz of jp morgan Investment Management of jp morgan Asset Management. Heres Viviana Hurtado with first word news. Signaling ita is wants to restore law order in hong kong. Theyve appointed a communist as an official. In venezuela, Security Forces borrowing Opposition Leader juan guaido and his supporters from entering the general assembly. That allowed supporters of hislas maduro to choose assembly leader. In new york, jury selection begins in the trial of disgraced movie producer harvey weinstein. It led to the worldwide me too movement. Weinstein has pleaded not guilty. He says any Sexual Activity was consensual. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Hurtado im Viviana Hurtado. This is bloomberg. Is the coming up, citi latest to announced hiring plans for programmers. Plus, if you have a bloomberg terminal, check out tv. Online,watch us download charts and graphics, and interact with us directly. This is bloomberg. Viviana youre watching bloomberg daybreak. Struggling retailer bed, bath beyond will raise cash by selling off real estate. The chain will sell roughly half of its properties to oak Street Real Estate capital, then leaseback the space. That will generate more than 250 million in net proceeds. Little caesars is teaming up with store offer nationwide sh toery with doorda offer nationwide delivery. They expect delivery will help lift sales for both its company and franchise stores. Hollywood kicking off award season with the golden globes. Wasorld war i epic 1917 the big winner, winning the prize for best drama. Sam mendes also taking home the prize for best director. Out three movies from netflix, the irishman, marriage story, and the two popes. Alix hsbc is finding it increasingly hard to keep focus on business and steer clear of politics. And new lows for hedge funds. Hedge funds had a decade low, but managers feel pressure to compete and continue slashing fees. Recruit plans to programmers to bulk up on coding and data science. Joining me is bloombergs sonali basak. Lets start with hsbc and how it is dealing with business in china and hong kong. Sonali about 30 of their revenue comes from hong kong. Recently, a lot of their property was vandalized in hong kong, and they have to really straddle these tensions between Mainland China and the rest of hong kong. So what is happening is even within the offices, you have younger, local employees that tend to side with the protesters, and other older employees who are really worried about the business, tending to side with china. Even within their own offices, they have a bit of tension, apparently. Alix there was a photograph of a vandalized lion statue. Very interesting images for sure. Sonali and also, part of the issue is they had to suspend an account tied to a group that was financing some of the protesters. Alix interesting. Sonali that was because there were certain regulatory requirements that werent being fulfilled, but it has really put their business in a tough spot between that and a lot of other issues happening in the region. Alix the second story is not necessarily new, but Hedge Fund Fees continued to fall spite the fact that some are having higher fees and getting more fundraising. Sonali sonali i think that is why this is so interesting to watch. You definitely have these out of the lowest in terms of fees since 2008, but on the other hand, you have people like lmn shaw chargingg, d highperformance fees. Another interesting thing about tos is that newer funds tend charge less in incentive fees, but we are seeing some newer funds also needing a lot more money out of the gate then in the past. Alix that is interesting. Lets go to the third story. No doubt, we know that big banks are doing big tech, but they are also hiring with that in mind. Sonali this is interesting. Citigroups 2500 program account. Just last year, we reported that citigroup was going to cut down the headcount a little bit in the trading division. Overall, it will be interesting to see where the headcount stands. An example we always use is the Goldman Trading best that used to have 500, then had three cization ofelectroni the desk. It has been a real forefront for many banks right now. A lot of equities have already been transformed. Alix it is also interesting, as is about a year ago graduate at m. I. T. Interned at Goldman Sachs as a programmer and was basically offered a job before his senior year. But do you know anything about finance . Do you care . He was like, no. You have the bank trying to hire, but big tech also trying to hire in new york. Everywhere around the world are places where citigroup is looking to hire right now. Alix that is interesting. It gets more competitive, also. Up getting all these programmers, how are they paid versus others . I wonder how that is going to pan out. Sonali what they are saying is if we invest more now in programmers, ultimately our cost will be lower, but initially, they are having to pay up for this talent. They are some of the most highly paid talent on wall street. Alix xls. In the next hour, sonali will be back with me speaking with the financial industry thanks a lot. In the next hour, sonali will be back with me speaking about the financial industry. Brainard told the american iconic association she was taken back on hearing that the problems black female employees face at the fed. We will see if they actually make a dent in that. Coming up, is crude poised for a hair breakout after for a higher breakout after trading at 70 a barrel . If you are heading into your car, tune into Bloomberg Radio on sirius xm china 119 and the Bloomberg Business app sirius xm channel 119 and on the Bloomberg Business app. This is bloomberg. Alix time now for traders take. Joining me is Vincent Cignarella, voice of the bloomberg audio sqawk. Ive missed these, and you are talking oil. Vincent its your first day back, and we have to bring this in. Alix i know, thank you. So, breakout more . Vincent you hear this talk about u. S. Shale production filling the void. There is a supply Chain Management issue that goes around it is tribute in issue. You cant just turn on shale and expect that to fill a void that could come from saudi arabia, for instance. I just want to read a tweet from an acquaintance, a fellow at carnegie, whos worked with the bend gone, with the Iranian Regime with the pentagon, with the Iranian Regime. He said that no man was more involved in wars and policy over the period than soleimani. What he is suggesting, and this is an incredibly bright fellow, is that this could go on for a long time, that these hotspots could turn even hotter, and that this could develop into a very long, protracted situation. That said, it is hard to believe that oil prices are not going to go higher, and theres nothing that shale production can do about it. Alix this is for wti. What is the next resistance level . Im sure theres going to be top in the meantime. Vincent it is going to be choppy in the meantime. Tocan go from 63 to close 72, and perhaps up to 81 at some point, which, not too long ago, we were there. At 75 awe were barrel, so it is. Not a long stretch. What this does to risk assets is going to be an interesting thing to watch. Alix do you feel like traders are also watching the demand side of the equation . Vincent i think the bigger side is supply. The demand side is likely to taper, which could see this move. I think we will see it as a slow move. We are not going to see oil jumped 10 overnight unless we take out Something Big in saudi arabia. Alix Vincent Cignarella, thank you so much. Coming up on this program, an exclusive interview with bill dudley, former new york fed president , joining us on his call for centralbank policy. This is bloomberg. Alix welcome to bloomberg daybreak on this monday, january 6. Im alix steel. Heres everything you need to know at this hour. Lets take it from the top. They do not realize what a big mistake theyve made. They will see the consequences of their mistake not only today, but in the years to come. Alix iran mourns the loss of general soleimani and warns of retaliation. He said the blood of these commanders, referring to the leader traveling with kassem soleimani, will cement ties between the two nations, vowing that they will not stop until they see complete removal of u. S. Forces from the region. Alix the state Department Warns of heightened risk of missile attacks at Oil Facilities in saudi arabia. We will behave lawfully. We will behave inside the system. We always have, and we always will. Alix President Trump threatens sanctions on iraq if the Government Asks troops to leave. Kevin iraq demanding that there be a full pullout of troops in the region. President trump warning via social media that should iran or iraq strike act, that there would be a disproportionate response. Alix european allies say they are gravely concerned, but urge caution and deescalation. Australias Prime Minister announcing an unprecedented country support for the ravaged by wildfires. This sets aside 2 billion. If more is needed and the cost is higher, it will be added. As the case is currently under investigation, i will refrain from making specific comments, but the investigation has revealed no official record of mr. Ghosns departure. It is clear he has left the country unlawfully, using illegal means. Escape toos ghosns lebanon included green beret escorts and a rap sheet with people of 10 to 15 different nationalities. There are reports he boarded a bullet train here in tokyo at one of the main stations, and took that to an international airport, stayed in a hotel, and then boarded the plane after that. Alix japan is now tightening its immigration policy as ghosn will give a press conference wednesday. Thebig winner was 1917 at golden globes, which spelled bad news for netflix, which had three contenders for best picture. Also bad for apple, which missed out, and even made it into ricky gervaiss monologue. A superb drama about the importance of dignity and doing the right thing, made by a company that runs sweatshops in china. Alix ouch. That hurt just a little bit for tim cook, im sure. In the markets, two things are happening. It feels like we are risk off, but only in some asset classes. Equity futures down zero point 5 . European equities hit the hardest, but those are the ones people were adding to positions at the end of last year. There could be some positioning shakeout. In the currency market, it feels very much like a risk on feel. Euro, cable gaining on the day on treasuries going nowhere, crude Holding Around 70 a barrel. For more on the continued fallout from the killing of general soleimani and the ripple effects in the middle east, general mark commit, retired u. S. Brigadier general, joins us on the phone. It is good to get your perspective. I want to get the perspective of these areas that the u. S. Could strike, according to President Trump. How would Something Like that go about being ordered in the u. S. Government . It would be ordered by the president himself, and those would come down through the department of defense down to the regional commander, and the regional commander would launch the assets necessary to do that. Alix do you feel like theres 52 areas to attack . Theres certainly 52 targets within iran and elsewhere that would be of Significant Interest for the americans to hit. Do you feel like the response will be more on secretary mike pompeo talking about the escalation, or President Trump when he tweeted out these 52 areas of a ron of iran . I think they are trying both approaches. The president is obviously sick and dig out a is obviously sending out a forceful message, and i think the purpose of that is deterrence. It is a compilation of messages that its giving an option to iran to either face consequences or sit down and deescalate the situation. Alix do you think that a ron is somehow responding already, whether it be cyberattacks or social media accounts, for example . Gen. Kimmitt gen. Kimmitt iran has a very Good Practice of keeping. Gen. Kimmitt iran is a very Good Practice of keeping their fingerprints off of operations. There could be something going on and we would not know it. Alix alix is there a response from a ron that does not exit alix alix alix is there a response from a ron that does not escalate, but would be an appropriate measure . Gen. Kimmitt i think we need to be realistic and focus on the unconventional capabilities that the iranians have. They are not going to attack us with tanks or airplanes. They are going to use cyber capabilities. They may use drone attacks. They may use their proxies. They may use targeted assassinations. They might use their speedboats in the persian gulf to attack kuwait oil platforms. It got a range of tactics they can use. Alix alix what do you think the end game is for both the u. S. And iran . Gen. Kimmitt clearly iran wants a lifting of sanctions that are crippling the country. Clearly, the u. S. Wants renegotiation of the u. S. Nuclear deal that would not only include their nuclear activities, but malign activities in the region, as well as their missile program. Alix just to rounded out and hit on a rock for a second, when you have the Parliament Voting hit on iraq for a second, when you have the Parliament Voting to send out u. S. Troops, where does that put u. S. Troops in iraq . Gen. Kimmitt simply, iraq needs to remember that we left once and we are certainly prepared to leave a second time, but it is hard to replace what the United States is doing sidebyside with our Iraqi Security partners in the fight against isis. We are providing intelligence, providing your support, logistics, training, and equipment. While that ejection of u. S. May make the Political Class feel good, i think the military is very concerned because this is going to significantly impair their fight against isis. Alix general, thank you very much. It was great to get your perspective today. Retired Brigadier General mark commit. That uncertainty mark kimmi tt. That uncertainty is the middle east is pushing oil higher. Ubs head of Wealth Management Leslie Falconio and liz young of bny mellon are with us now. How much safety do you want to be taking on . Leslie, what are your thoughts . Golie i think you have to beyond kneejerk reactions. We are not only fairly we are not overly conservative. We think that it dont we think that it wont be a longterm event in terms of impacting gdp or inflation. Overall, given that supply is going to outweigh demand, oil should come back down over the first half. I think you have to look at more than just the shortterm, kneejerk reaction, and really set up to where you are defensive, but not overly conservative. Liz i think i would answer this in two weighs. So far, this is an idiosyncratic event. I wouldnt caution any of our clients to do really anything about this yet. It could turn into a systemic event, but we would have to wait and see what happens as far as the next few weeks. As far as 2020 goes, we are still pretty optimistic, not in the sense that we are going to kick out another 30 rally for the year, but still optimistic that the market can put out a positive return, maybe even high single digits, and thats fine. But you do need to be positioned in some of those growth sectors and cyclical sectors because of things continue on this clip, that is what is going to do well. Alix i feel like that is what the currency market is telling us today after we got the better composite pmis out of europe, but european equities are getting hit the hardest because positioning was so skewed by the end of the year. Is this a Position Movement we are seeing or a fomo thing . Leslie i think it is partly a kneejerk. Whether it is the china trade deal or the usmca, they do fade a bit. Overall, we dont expect huge growth in europe, but in effect, we arent critically optimistic on euros and equities, but i think it is more of a kneejerk reaction. Liz i agree that we see the dollar having more of a softening bias this year. Europe has been patient zero for such a long time that it is going to take a while for the market to believe its resiliency. Alix so it will be more subject to bad news . Liz it will be hypersensitive, in especially some of these bad new scenarios. However, i think european equities come back this year, not because the european economy comes back and has a rally, but because european equities have been so disconnected on a valuation basis from the u. S. In particular that they have some catching up to do. If we can continue to firm that bottom, european equities have some good runway. Alix which brings us to value versus growth on a global scale, as we saw at the end of the year. European equities being favored, do you buy that on a shift to value . Leslie leslie overall, i think it is too soon to shift to completely value right now. I think some of the value sectors have done well given the fact that weve had a yield curve steepen or and Interest Rates like financials, i dont think we need to make a full shift right now, though. Liz the value versus growth question is what keeps me up at night. Alix everything keeps you up at night. [laughter] alix she doesnt sleep. Liz true. Everybody asks about it, and i want to have a clear answer. I would love to jump on that value bandwagon. I just cant get there because it would make the argument that value will outperform tech, and i just cant do that. Falconio of ubs and liz young of bny mellon will be staying with me. Coming up, our exclusive interview with former new york fed president bill dudley and why he says things cant go back to the way they used to be. This is bloomberg. Obviously we cant know what is going to happen in the middle east at this point, and it adds to the uncertainty surrounding things, but fundamentally, the economy is sound. We will have to see how that plays out. Alix fed officials gathered over the weekend at the end will meeting of the American Economic association, and it was hard to ignore Monetary Policy and its relationship with geopolitics. Going to need for his take from princeton, new jersey is bill dudley, princeton Senior Research scholar and former new york fed president. Great to chat with you. Thank you for joining us. I just want to get your take of, when you have the geopolitical risk of a ran, iraq of iran, iraq, and the u. S. , how do you think about something not that . William it creates more uncertainty, but it is hard to react to because you dont know which way things are going to actually break. Risk has gone up, uncertainty has gone up, but it will not lead to any change in Monetary Policy. Alix do you find that things like this delay or postpone any sort of Business Decisions when you were doing your fed surveys . William it could cause some uncertainty about what is going to happen to energy prices. Generally, the bigger uncertainty thats been affecting the economy has been on trade policy. That uncertainty on trade policy has lessened a bit as we are moving towards an interim deal with china. Alix the other thing, recently, that caught everyones eye is what happened with the repo market. You had a recent piece talking about how the fed needs to sort of embrace the new Monetary Policy theory, and there are certain things they can do to solidify it. Can you walk me through your thinking here . Bill the old regime, we had very little reserves in the system, and the fed had to intervene on a highfrequency basis to keep the federal funds rate at its target. We are any new regime where the fed pays interest on reserves, and theres lots of reserves in the system. It is much better, but the fed could make it even better. One thing they could do is establish a standing repo facility to make sure there is no upward pressure on repo rates if there is some sort of shock to the system. The second thing i think they could do is communicate a lot more clearly about why the new regime is better. It is easier to operate, it makes the Payment System work at her. Most importantly, it is better from a Financial Stability perspective because theres no conflict between the fed offering an openended the quiddity backstop versus its control of Monetary Policy. Under the old regime, it risked losing control of the federal funds rate. In the new regime, paying interest on reserves, you dont have that problem. Alix it feels like when Market Participants are most worried about the repo market, it is that money market funds will see outflows this year if risk sentiment picks up. That leaves the fed having to buy a lot more treasuries for Bank Regulations to be rolled back in terms of what they are required to hold in their Balance Sheets. What do say to traders on fear on this . Bill i think fears are overwrought. I think the problem is a small one, not a big one, and the Federal Reserve has addressed a lot of of this already just by adding treasury bills and engaging in a series of open market operations. The fed i think could make the system Even Stronger by setting up an overnight standing repo facility, which would be available to a wide array of counterparties. If there were upward pressure on the repo rates, people could go to the fed for cash against their securities, and that would make it Even Stronger. Alix alix so it wouldnt be dependent on money market funds and banks . Bill if you had a standing repo facility, you would want to be open to a broad set of parties because the fed can provide reserves to the banking industry, but what happens if the banks arent willing to lend reserves to those people who need the funding . Alix fair point. Im sure you were glued to the statements coming out of california at American Economic Associations Annual meeting. Janet yellen and ben bernanke seem really confident about Forward Guidance and getting us through the next downturn. What did you think about that . I thinkmitt bill the fed does have some tools will be effective in stimulating the economy if we have a downturn, but i think theres increased role for fiscal policy. I think janet yellen talked about that during the weekend. Monetary policy cant do it all when theres only so much room to lower shortterm Interest Rates. We dont have as much room as we had in the past. I think there is a bigger role for fiscal policy. Alix part of that was answered by a paper talking about the semi automatic stabilizer. Basically, if the tax or spending measures triggered by the cost of some statistical threshold to your point were fiscal policy, with that be realistic . Gen. Kimmitt it would be a great idea bill it would be a great idea if you could implement it. That would reassure people that andrecession would be mild relative. If you make fiscal stabilizers automatic, you are removing the discretion from congress, and he question is whether congress is willing to remove that discretion. Alix you basically need fiscal policy. She said, you cant be the only game in town. How do you think the fed evolves with their communication or thinking when they are the only game in town . Does it feel like the fiscal world is going to live up to their end of the bargain . Bill i think it is important for the fed to be clear about what they can and cant do. The worst situation for the fed would be if the world thought they had more power and tools than they have. This is why putting some emphasis on the need for stronger fiscal policy response for strengthening the automatic fiscal stabilization, i think it makes sense for the fed to do that. Alix the other thing that caught my eye is mario draghi, his first real conversation since he left the ecb, said that the euro area is at risk of japanification, but we shouldnt say, forget everything viviana forget everything. What else do you think the ecb can do to help this disinflationary mindset . Bill i think you have to make it very clear that they are still committed to stimulative Monetary Policy, and talk about the need for fiscal stimulus in europe. One of the problems the ecb has had is that germany has been very reluctant to use the fiscal policy stimulus tool in supporting Economic Growth. Alix do you think the u. S. Will be able to maintain its best house on a dirty block scenario that everyone winds up saying, comparing it to the rest of the world, or now . Bill i think the Economic Outlook is pretty good. The tensions with iran raise a new set of risks, but generally the Economic Outlook is pretty positive. The household sector is in good shape. Jobs are being created a decent clip. Household debt is not particularly high at this stage in the economic cycle. Monetary policy is very supportive of the economy. I suspect the economy to continue to grow at a slightly above trend pace in 2020. Alix it was really great to catch up with you. I appreciate your time this morning. L dudley, former new york fed president bill dudley, former new york fed president , thank you. Ellene still onset is wald is liz young of bny mellon and ellen wald of atlanta counsel and Leslie Falconio of ubs. Who kimmitt when liz is actually going to be involved in the repo facility and what rate they set it at will be important. Liz one of the things that stuck out to me is the comparison between Monetary Policy and fiscal policy here and in europe is that Monetary Policy has been the only game in town. It is the only thing the administration and markets seem to react to. I dont know that we need fiscal policy year in order to keep going yet, but in europe, they ell might need it. Just a willingness would be a boost for the economy. Alix for sure. I definitely find people jones and for that across the economy. Leslie we are very range bound in 10 year yields one of the. Isks are fiscal stimulus alix to that point, if you ,ipen the geopolitics and oil which i understand the fed looks at core pce and will take out oil, but nonetheless, that does seem to be the biggest risk this year, that a rise in inflation is what no one expected. Leslie we do expect inflation to rise higher than expectations. We just dont think they will be heating up. We have been long securities. We think Inflation Expectations will rise, but they will not get too high. Liz that is the black swan event, right . That inflation spikes and nobody was expecting it. If it is something that actually hits the consumer pocketbook, that is a bigger issue, especially in the u. S. I dont know that that is necessarily going to happen anyway that would require the fed to react to it because that is really where it becomes a problem. If inflation goes up to a point where the fed has to start raising rates, that sends the market in the other direction. I think the bar is pretty high, however, for that to actually occur. Alix just to end on repo for a second, any economist is hellbent on saying the repo expansion Balance Sheet was not qe. Most marketers bentz dont care about the most Market Participants dont care about the distinction. What do you guys think . Leslie it doesnt add duration and value buying tbills, some in that sense, it is not qe. To the Balance Sheet, so in that sense, you are providing liquidity. It is a tough call. I dont think it really matters whether you call it qe or not. The Balance Sheet is expanding globally. They provide liquidity to the market which will continue to inflate prices. Liz one of the points is that as growth goes up in a certain country, the Balance Sheet and also go up. It is not necessarily a bad thing to have a larger bandwidth sheet as long as the economy continues to expand. Alix but then it become sort of excess. Liz exactly. It is more you have to take a relative look at it. I dont know that it is that big a concern right now. Part of the reason they had to do it is because reserve requirements have gone up so much, and they can be intraday stress tested. That is why theres more than enough reserves in the system because they dont want to get tested and failed the test. Its not that they didnt have the cash. They just didnt want to use it in that manner. Alix ladies, really good conversation. I look forward to continuing that in just a moment. Leslie falconio of ubs Wealth Management and liz young of bny mellon Investment Management, much more coming up with them. In the markets, equities take a leg back. Gold has a nice rally. But in the fx and treasury market, it is a very calm story, raising the question, were we overextended positioning rather than this being a real risk off kind of feel within the markets . We will try and break that down a little more for you. This is bloomberg. Alix this is bloomberg daybreak. Look at equities taking a leg lower as futures are down by. 5 . He underperformer is in europe. That thiske point out is where all the money came into the market at the end of last year. Now we are reversing a little bit as we get ahead. In other asset classes, it doesnt feel like a risk off story. The euro is moving higher and the yen is moving a little bit lower. Treasuries pretty much go nowhere. 24 basis points. But in commodities, it is very much a risk off deal. Level since 2013. I just spoke to bill dudley, former new york fed president. He made the case that we need fiscal policy as well as Monetary Policy. Cant do itpolicy all when there is only so much room to lower shortterm interest rate. We dont have as much room as we had in the past. I think there is a bigger role for fiscal policy. Alix with me is leslie and liz. Liz, you were talking about how we need fiscal policy. Everyone wants it. Where will we see it . Think we will continue to see it in europe, china, japan. Most fiscal policy will be in the u. S. Think thats fair and i think they need it more than we do. Monetary policy hasnt been as effective. They dont have as much room to go. They need some other bump to come help them out. In germany, leaders made it very clear that they do not see the need for fiscal stimulus. It says germany may not even need it. But investors want it. Wonder what kind of conflict we are setting up for ourselves. If germany did bottom and the pmi numbers continue to go up and we get into expansion territory, if the region doesnt see any other issues, then we dont need it as much. If something reverses course or if auto tariffs come back on the table, that is when i want to see fiscal policy come back to the table. Alix is the market priced in . Leslie not at all. You would not have negative Interest Rates. It will be more of a spotlight topic. Alix i want to get your take on the longterm portfolio allocations. John williams was talking about , and you can see it going lower because of demographics. But the broader conversation is that rstar gets revised lower and lower. What do you think about that for the next decade . Leslie rstar is very difficult to calculate. There is no question that we have aging demographics. We think it will be a range bound 16 come market or treasury market. Rates have skyrocketed. You have to mitigate returns on the fixed income side. We think the aging demographic is a big part of the need for income, fixed income, and why inflation will skyrocket. Demographics continue to be part of the conversation and they should be. We all understand what the demographic problem is. You dont see it on a daytoday basis or on a monthly basis. You dont even really see it on an annual basis. Over time, what will happen because of rstar and the demographic picture as well as Inflation Expectations, the frontier just shifts downward. The expectations we have had as investors, calling it a 6040 portfolio, it will be different going forward. But there is still positive. Diversification is still relevant. I dont want people to think we cant be present or that we have to do things completely differently. The division frontier will shift downward compared to where it has been. Leslie i completely agree. Curve, look at the felix i think it does have a lot to do with that. I dont think it will be negative or fixed income going forward. Take a look at this as a risk parity index. In two decades, what is the realistic return that we need to Pay Attention to . Be 5 or will something, where else do you get the juice . Where do you get returns . Liz that depends on where you are in the investment horizon. On thetry to generate upside, private equity and private investment will be a best bet. But you have to become trouble locking up the capital. If you look to generate outside income, that is where private debt comes in. Investors have to be aware of that. All of the traditional assets are probably not going to have in the riskyear parity portfolio. I dont know that anybody should ever expected 22 year. Highs untilit new october because of the pullback in the Fourth Quarter of 2018. This rally is only a few months old. Leslie i think if you want the ,oubledigit quarter returns would you dont want to do is go to a lot of deep credit right now. Compressed. We say you should be defensive and not overly conservative because we are expecting positive returns. Reallyadies, i appreciate it. Great to see you both. Updateto give you an that is making headlines outside the business world. A in australia, firefighters are getting a break. Cooler weather and some rain helping their attempts to control raging bushfires. Authorities warned that dangerous conditions will return. Fires are blamed for at least 24 deaths. 12 million acres have burned and thousands have been forced into makeshift camps. In venezuela, a day of political chaos. Guaido and his backers are prevented from entering the general assembly. Nicolas maduro is choosing his own assembly president. They are drawn praise from the u. S. , europe, and latin american countries that oppose maduro. Donald trump talking tough on both iran and iraq. He says of tehran retaliates coming he is going to hit iranian cultural sites. He also threatened heavy sanctions on iraq. He says iraq owes billions in military base construction costs. The ayatollah prayed over the remains of the iranian general. Is a tehran will no longer comply with key provisions of the 2015 nuclear deal. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Alix thank you so much. Asde crossing 70 a barrel tensions continue to flare in the middle east. Joining me from jacksonville, florida, from the Global Energy center. Good to chat with you. What is your biggest take away from the tensions we have seen . What does it do in the middle east in terms of geopolitics gekko geopolitics . The market is not as concerned about the possibility of allout war that were seeing from pundits and politicians on both sides. The market is reacting to the of aased potential temporary disruption to some kind of Oil Production or Oil Transportation in the middle east. And we are not seeing the kind of price spike that we would be looking for. Goldman sachs wrote something very similar. And ultimately unsustainable occurred in 2018. What would make it sustainable . What would we have to see . We have to see a Real Movement towards military confirmation and we see some sort of arming on either side. And i dont think that is where we are heading. We are seeing rhetoric on either side but it is just rhetoric. Right now, the saudis are sending their defense minister to the United States to talk about the escalating the situation. Becausea key aspect saudi arabia and the uae really dont want to see in military conflict here. It is not a good story for them. They are in no way willing to participate in this. They do not want to be forced to say that we dont want to participate in any kind of coalition against iran. Regime serves a really important purpose for these regimes. Likes having this authoritarian bogeyman to play off of. Theyre looking to deescalate the situation. Are we going to see some kind of retaliation from iran . Will that take shape and what will that look like . It is a temporary or a transient issue, i think. Alix the state department warned that we could see attacks on military bases. I am wondering, what are they thinking right now . Ellen right now, i think they are all on really high alert. Aramco knows what is doing. They have situations before where they ramp up production to combat all sorts of issues. Thats to supply oil and to troops coming to the middle east. It is true that they havent completely recovered to the point where they are as they were before. But they are prepared for a lot of situations and they are both preparing for all kinds of potentials. They are also focused on defense of the area. The attack really brought to the forefront the vulnerability and how they can be better protected. Alix can you give us a sense of where the proxy battles could be if we have aramco prepared to target Oil Facilities that may not be in the cards . One of the proxy battles and how does saudi arabia fit into that . Ellen proxy battles are all over the pace place. We have yemen. Saudi arabia is definitely vulnerable in the southern part of saudi arabia. It is not a usually populated area or an area with strategic facilities, but there are still important Industrial Centers that can be reached. Proxies inthat the yemen have been able to send missiles. It is something that the saudis have to be prepared for. Successfulever been at really hitting anything of note. It is a thing they need to be prepared for. The uae is vulnerable along the coastline. We have seen iran attack tankers. Are smaller tankers that were carrying petroleum products. Whenever face the threat of an oil spill. I would be a huge issue not just because of the transportation consequences but also the environmental consequences would be huge. It is something that people need to look out for. We know there is an increased presence in the gulf. Various militaries are committed to defense there. Thes are things that have been building for a while. These are things that have been building for a while. Alix really great analysis. Alan wald from the atlantic council. Well speak to the ceo of one of the biggest players and retail trading. Doug, todays bottom line. You wantberg users, if to look at any of our charts, go to g tv. This is bloomberg. We begin withna airport inspectors getting xray checks a large cases before they were loaded onto a private jet. According to japanese broadcaster nhk, carlos ghosn escape from japan. They believed he was hiding in one. Going reportedly is considering to raise more debt because the 737 max crisis according to dow jones. The company had 20 billion in cash at the end of the Third Quarter but the cost associated with the max grounding is rising. They expect bowing to raise as much as 5 billion. That is your Bloomberg Business flash. Alix time now for bottom line. We take a look at Companies Worth watching this morning. Today we will look at semtech and look at issues like geopolitics and the 2020 election, how they may attract trading volatility. We have only seen it pick up in the equity market. That white line. Doug joins me along with city all security estimating majority of the retail flows. And good to see you. Thanks for coming. Thanks for having me. Alix what are you noticing in terms of volume . Doug last year, we had lots of events. For example, when the iranians attacked the saudi refinery, you had episodic volatility. But it really wanes. It seems like the world has gotten a little more used to these types of events. The United States has ramped it up. If you think about tariffs, brexit, turmoil in the middle east, you wouldve thought there would be a larger response. Overlaying2020 is the election on top of that with geopolitical and economic events , i think that we will see heightened volatility in 2020. Thee are one week away from National Holiday which is Bank Earnings season. Alix is all of this volatility better for the trading desk . Will we see a lot of margin compression . Think the Fourth Quarter was not involved quarter like last year. December 2018 we saw a burst of activity. It helps the equities business dramatically. We kind of went through the end of the year in a very docile fashion. I dont think you will see a Significant Impact on earnings come january 15. But the theme of 2020 will continue to be price compression in terms of commissions. And how do we deal with that in terms of managing expenses and developing scale and efficiency. You are doing something controversial. Youre putting a lot of resources into it. About thelk to us outlook for the Members Exchange and do you think it will be successful . Were calling it the Members Exchange for a region a reason. We had a city dell, a handful of banks and large retail brokers. Remember the scene from the Movie Network . ,he reporter goes out and says everybody scream were mad as hell and we are mad as hell and where not what you take it anymore. It is a little bit like that. There was a lot of frustration that i felt that was shared throughout the industry that the exchanges lost their way and were not representing our interest in washington. They were charging us what i thought were egregious amounts. I thought we could demonstrate that the emperor had no clothes by putting together a consortium that would build in exchange for members and provide real value to the industry more broadly. It has a lot of institutional sport support. Are going to of us be interested in seeing it be successful. The second thing is that it is being built from scratch. The third thing is that it will have a totally different orientation. Its not just about deriving profits as a public company. Taking a look at the turnofthecentury, fees like at charles schwab, what does that mean . Will we see a more active Retail Investor because of that . It is part of a larger theme that investors are demanding efficiency of scale. Zero commissions is just one of those. Statement asnice to how efficient the u. S. Equity markets become. Buy upo money, you can to 10,000 shares and give price improvement with absolute immediacy. No other country offers a Retail Investor that kind of value. That enablehers that type of efficiency and that type of execution capability. There are fewer publicly traded securities. The directu doing model is the trend to look at these days. Do you think there can be more companies that get off the ground with this model . I think the New York Stock Exchange has been at the forefront of this and the nasdaq will follow. Is part of the theme that with the advent of technology and the demand for efficiency, people dont want to pay a 7 plus discount. We started the Capital Markets business in order to enable companies to do secondary offerings. Enable them to use all the tools, technologies, and the liquidity to offer securities on a primary basis. And not have to do it in some inefficient manner. Alix think you for stopping by thank you for stopping by. Coming up on this program, we look at which assets are moving between iran and the u. S. We will have the top trades. And if you are heading out, tune into Bloomberg Radio. Channel 119 on the Bloomberg Business at. This is bloomberg. Time for technically speaking where we set you up for trades for the day. The voice of bloombergs equity squad joins me now. Listen to bill all day. Lets kick it off with the s p. Bill futures are down around 18. Looking at the cash right now, using the december 3 low and the january record high brings us to 32 for the support level. At 32. 05e looking down which is the december 19 by. 3200 is around 3213 or so. Alix lets go to gold. He talked about it on friday as we had the first move higher. I was he the highest level since 2013, up only 25. Bill right now, it is up around 2. 3 today. Down around 87, is somewhat of a buy. They did have a breakout. 1588 which is todays high. It is a trey smith level. 1588 today in gold. Reaching 70. Talk about that fundamentally as well. We are up only . 77 right now. Looking at a oneyear chart, 6467 is still the resistance zone. , this can get above that is still a pretty good resistance zone. Alix bill, good to see you again. That doesnt for me here at bloomberg daybreak americas. Coming up, the open. From new york city for our audience worldwide. The countdown to the open starts right now. Geopolitical risk group being markets, the world is waiting for irans next move. And gold advertise level in six years. Pushing through 70 a barrel is crude. And a 30 minutes until the opening bell this morning. We have weakness in s p futures, although not as much as you would expect given the rhetoric on all sides. The euro gain versus the dollar, their dollar weakness is pervading. The 10 year yields dipping a basis point, not as big of a move as he would expect my rising 1. 4 . The big issue, further escalation in the east in the middle east. Is this going to be a oneoff event . The risk is toward further escalation. The market is going to follow the fundamentals