A half percent. Another thing i am watching as the rnc tax policy. Toer this hour, we are going look at taxes and how they play into wealth inequality. We are going to do that with Dorothy Brown november university. First, economic data. Confidence, 84. 8, the market was looking for 93. Ist is a week number that a weak number. This tell us something about the stimulus debate, the employment market in terms of the present situation. That has weakened significantly from the 94. 2. The expectation number has weakened as well from 91. 5. We have an 85. 2 this time around. Newhome sales continuing to drive onward. The Housing Market showing no respite. Look at the lumber prices. Sales, 901,000. That is a 13. 9 permit very strong number. Consumer may be starting to show signs of weakness and concern. Lets talk about the market today. We have already indicated what we are seeing is stocks, global stocks continuing to push on very strongly. What is the excuse . U. S. Chinese officials holding a routine call, both indicating they are satisfied with progress under the phase i trade deal. Who knows between now and the trade deal . Sharon steve chiavarone, yesterday it was the vaccine. Who knows ultimately what is driving things. What is your sense of where we are with this momentum we have got going on right now . Seems to be a lot of confusion in the marketplace with why the market has done well. I think more cynically, there are folks who resent the move which i do not understand. The big story is that the economy has exited on recession. We are entering recovery. That is why you see stock prices moving higher. That is normally the case. Daytoday, it may be one headline or another that is parking a temporary move, but the big push higher is that we are entering recovery which means higher earnings and better days ahead. I think that is what the market is reflecting. Kailey this market is very top heavy. Ofs than 60 of the members the s p 500 index are even though the index keeps pushing record high. Does that narrowness concern you . You are ing on where the business cycle. If we were at the end of the cycle and every company was at a 52week high and there were only two or three Companies Left performing well, that would worry you. Cycle,beginning of the exiting recession, entering recovery, those companies have done best are leading the way, that is dry powder. That suggests there are a host of names that will start to benefit from a pickup in Economic Activity and we will see their earnings go higher. The context matters. If it is the beginning of the cycle, not as worrisome as the end. Cell techcks stocks and by cyclicals. Do i actually sell tech stocks . If i have got them, chances are i am overweight. Do i want to rebalance . We made a move at federated andes to reduce our value go underweight for the first time in quite a while. This was a month ago. It is not that tech stocks are going to roll over and die, they are doing well because they grew their earnings 28 a quarter when the world was ending. As we start to price in the better growth, the improvement in the economy, we think value names are overly beat up. Be careful, not all will do well. You have to separate those companies who are going to survive from those who are going to lag. In the value space, you are going to see them start to get credit for an economy improving. How andwe have seen when are we going to get one that is sustained . Any time are making a value ,all given all the head takes it is a lower conviction call. The other way you can play this is small caps. Small caps are also cyclical, like value, but they benefit from lower rates because half of their financing comes from banks. Inflationo average targeting, which it looks like the fed may, that would benefit small caps. In the first year following a recession bottom, small caps tend to outperform large caps by 25 . They have pegged to the s p by 23 basis points. We think that is a way of playing a similar trend, but as a way that is more than just a value call. Guy if the economy is recovering and it comes back strongly, will beget inflation . Will we get inflation . If yields go higher, what does that mean for stocks . Inflation is not an independent organism, it is the product of population growth. If there are more people who want to tomorrow commit will go up. And innovation. If my land is a cornfield tomorrow commit will be worth more tomorrow. Exist the worlds economy in regions with negative population growth. Thes exhuming living inthe world is a structurally deflationary environment. That is the main reason you have a cap on inflation. Which got 10 of the population out of work. That is not a recipe for inflation. All the money that has been spent is not stimulus. We made it illegal for companies to do business, then replaced some fraction of the revenue they lost. That is not stimulus, that is bridge financing to prevent massive illiquidity and insolvency. We think the fed is right that you need to guard against deflation. Guy you were kailey you brought up stimulus, former vice chair and Jared Bernstein wrote an oped saying the fed has largely done its job. Congress cant expect the fed to keep everything together on its own, saying monetary power sets the table. Congress fiscal dollars are going to be what brings in the diners. If we dont next get robust stimulus . I think it is at risk of slowing. By and large, congress and the Federal Reserve have done a good job. 7. 5 on ae up yeartoyear basis. Mortgage delinquencies are up,loor foreclosures are down and the 200 bankruptcies we saw on the Second Quarter are only one fourth of what we were seeing in 2008. They have done a good job bridging it. It would be unwise to fumble the ball in the red zone. There is probably one more package needed to get us toward a vaccine and allow this recovery to solidify. It is important that we do it. More than likely, we will. There is a posturing game. I expect we will get something done, but there is risk to the consumer as you saw in the Consumer Confidence number, if we dont get the last bill over the finish line. I am hopeful congress will get their act together. Kailey your football puns are not lost on me. [laughter]. Thank you so much for your insight. , exxon, pfizer, we take a look at the dows biggest reshuffling in years. This is bloomberg. Kailey live from new york, i am kailey leinz. Alix steel is off. Reshuffling ofst the dow in seven years. Oversees the that Dow Jones Industrial average has replaced exxon and raytheon with honeywell. Another show of dominance for u. S. Tech. , the longeston living member of the dow. This was the worlds biggest company, talk about a fall from grace. 1928 is when exxon joined the dow industrial. It is a sign of the times when you have the clouds replacing energy. The newest members of the dow all popped at the open gap in higher. Which is making its return to the dow after getting dropped 12 years ago. Companies getting the boot are declining. There are about 20 billion in index funds. That is a drop in the bucket compared to the 4. 6 trillion dollars that tracks the s p. We know the dow has trail because it is not as tech heavy as the s p or nasdaq. That also cant include amazon or alphabet which are part of our economy because their share prices above 1000. This comes about because apple announced plans to split stock. We talked about how stock split does not affect the value, just the price. The dow is an oddball, it is price weighted, not market cap waited. When this apple split takes effect friday, the representation of tech in the dow gets cut. This is a remedy to that. Apple was the single most influential contributor to the dow so far this year. Almost three times as influential as home depot. Microsoft adding 392 points to the dow this year. My producer looked up the last change to the dow. It was walgreens that was added in june 2018, replacing general electric. At has not been a big hit, down 40 . Kailey back to you. Guy thank you very much. The conversation and talk about what matters. More on the reshuffle, Howard Silverblatt joins us now. Ctia. Howard, why does this matter . The changes are significant. Apple andghting of the impact on technology. The overall take is the change in representation in the dow. From 27 y will go down to 23 . Health care will go up. That will change the performance. Over time, the dow and s p very well. Shortterm, not at all. As you mentioned, one is market waited the other is price weigh ted. The apple changes significant. The apple change in itself would have taken down to 20 . Significantly under. [indiscernible] apple, because of the split [indiscernible][indiscernible] [indiscernible] if it goes down, you are only going to take one quarter of the hit. So, you reallocate and lock in some product. The issues we put in, the substitutions, we believe will influence what the higher end of the market is. Of thisobviously, a lot is about balancing more toward technology with the apple stock split. What can we glean from this about your attitude toward embracing Technology Going forward . [indiscernible] this is market weighted. [indiscernible] the makeup is going to be different, but the apple contribution, plus or minus, will be that will be a major force in their. [indiscernible] guy what do investors gain from benchmarking through the s p rather than Something Else . The s p is a more energy t into technology is up significantly. Index [indiscernible] we have emulated the markets. What would be the advantage of following the dow . I am trying to understand why this is important. This feels like it is creating a lot of headlines, but from an investment point of view it has no bearing. Most people track the s p, you laid out some reasons why. Why what i want to track the dow . Why is it useful to me as an investor to pay any attention to the dow . Is easyoubt itself enough to understand. [indiscernible] youve got to adjust for index shares, the dow was very recognizable and therefore an accepted benchmark on the broad population. [indiscernible] there is a very big social element to that. As far as money against the dow, that is very small compared to the 500. The 500 is broader. [indiscernible] manage iflly you want. [indiscernible] from a money managing perspective, the s p 500 index, the dow has interested is broadly accepted because it is so widely understood. Kailey i think what you guys might be trying to get out was the dow index is arbitrary. It is not a like the smt the s p 500. For you, youre making decisions with guidelines. Can you give us insight as to how those decisions are made . [indiscernible] youve got to meet all of those criteria to get into the dow. ,ou have to be a little quicker you have to deal with the profitability of indirectly, the dow does have all of that methodology. Once you get to the actual selection, it is different. Emulateuse you the actual market itself, but the leading issues, the recognizable ones, the ones that are setting the trend and are companiesen as the that are running the country. [indiscernible] there is slightly different intent. [indiscernible] 125 years old. Adding of companies was the easy way to do it. When we launched the s p 500 ex in 1957, it you had 500 issues to add up. [indiscernible] adding machines back then [indiscernible] the ability to use Current Technology in 1896 did not exist. Kailey thank you so much. Howard silverblatt, thank you for joining us. This is bloomberg. The bloombergfor business flash, a look at the biggest stories right now. Best buy is flowing after Quarterly Sales soared. The Electronics Chain benefited from americans splurging on household upgrades. The company says the boosted god from reopening stores wont last. Otis in aeed to buy deal valued at 5 billion. 4. 4 billion will be paid in cash. The british firm was funded in part through a issue. The software is based in california. What could be a recordbreaking ico in hong kong and shanghai. [indiscernible] guy thanks indeed. It is fascinating. They could potentially go for a 10 listing. If they go for more, that could put them beyond what saudi are an ultimately ended up raising. A hongcided to go for kong listing over a shanghai listing. I wouldve thought three or four years ago, this would be something that would have come to north america. Kailey i thought the same. It is clear that with all the scrutiny chinese listed firms are under from the Trump Administration its like yeah, maybe we do not want to get into that. Guy it is going to be amazing to ultimately see how much money they raise. Think it is worth remembering just how much Chinese Tech Companies have come up and how much of a driver they are. Brown, emoryrothy university. We talk taxes, the white house, the rnc. This is bloomberg. Businesses are starting to bounce back. But what if you could do better than that . Like adapt. Discover. Deliver. In new ways. To new customers. What if you could come back stronger . Faster. Better. At comcast business, we want to help you not just bounce back. But bounce forward. Thats why were helping you stay ahead and adapt with a network you can count on, 24 7 support and Flexible Solutions that work wherever you are. Call or go online today. Live from london, i am guy johnson. Kailey leinz in new york. This is bloomberg markets. Day two of the rnc, the Republican National convention. Bloombergs Kevin Cirilli spoke to the chair of the rnc. Here is what she had to say on the message the party wanted to drive home. This isverall theme is the greatest country on earth. We love this country and we went to have the opportunity and freedoms that we enjoy as americans available forever, and that is at risk if we choose a joe biden or a kamla harris. Us, Kevin Cirilli, bloombergs washington correspondent. Is that the message being put across. Kevin it is. I just spoke with donald trump, jr. They feel on the issue of law and order, as well as school choice, that that is going to help them in the swing districts and the suburbs. That is going to be incredibly important if republicans want to build back the coalition. Kailey all right. Thank you. Tune into our coverage of the Republican National convention tonight at 9 00 p. M. Eastern in new york. Speakerst, several portrayed President Trumps tax plan is something that will benefit the middle class. Joining us is someone who has studied these plans extensively, Dorothy Brown of emory university. Thank you for joining us. Dorothy, i want to start with this narrative that is coming out of the rnc this week. Is there any truth . Professor brown absolutely not. For example, President Trump said, if elected, he wants a tax cut for Capital Gains, a 5 thecut, which basically, richest americans are the ones that predominantly own stock and take advantage of the tax benefit. Planas joe bidens tax wants to tax Capital Gains income the same as wages, but only if you make more than 1 million. There are lots of people with less than a Million Dollars of income who own stocks and get a tax cut. Kailey what is the right solution, then, as far as taxation goes, to make a dent in this wealth gap . Professor brown it would go back to the reagan tax reform of 1986, where wages were taxed at the same rate as gains from stock. That is the only right answer. There is absolutely no justification for giving a special break to capital that we do not give to labor. Guy how do you tax dividends in that scenario . Professor brown well, before the bush tax cuts, the dividends were taxed the same as a savings a tax break w gave that was absolutely unheard of in unprecedented, and taxed dividends the same way as Capital Gains. Kailey lets talk about bidens policies. You alluded to only raising taxes for people that make more than 1 million. What should that threshold actually be . Professor brown we go back to the obama tax plan, which is 250,000 or higher. Would say lets talk about what an equitable tax system will look like, but if you want to talk cut offs, the obama tax plan was to under 50,000 and higher. Was 250,000 and higher. Kailey real estate is another area where we have seen inequality pop up. What type of taxation would close the divide in that asset class . Professor brown you are correct. , weownership in america have always had a higher percentage of white americans than black and latino homeowners. One would be to increase the homeownership rate, which has nothing to do with taxes. Economists agree that tax breaks do not encourage anybody to buy a home. At the margin, it could encourage you to buy a more expensive home, but it does not encourage you to buy a home. What is really needed would be down payment assistance. If you want to increase black and latino homeownership, you would have proposals, a plan, that deals with down payment assistance. Bit ack up a little guy lets back up a little bit. Carryon. Professor brown you could also taxes toabout limiting firsttime buyers. The stock market, Capital Gains, etc. , what has a bigger impact on inequality, the tax code, or the feds decision to support the stock market . Professor brown you know, i would not pick those two against each other. Pitt those two against each other. Dealant to do with with inequality, you do not pick the tax code or the fed. You do it all. Stock market assistance will have benefits to people who own stock. Whereas tax policy does not impact retirement accounts because they are not subject to the preferential rate. It is not either or. It is how can we get federal tax policy, the federal government, trying to decrease this inequality. Kailey lets go beyond taxes. What about tax credits . We know from the fcic that between blacks and whites, there and lot less credit usage the black community. How do we go about fixing that . Professor brown it would start. Ith the banks so, the problem in my view, and we have seen this in study after study, that high income black americans get targeted for subprime mortgages in a way that low income white americans do not. To me, it is a problem of banking. How do we get the Banking System to reach out to those who would haveit from access and not to resort to payday loans or any number of predatory loans . Kailey professor brown, you have a book coming out next year called the whiteness of wealth. You have spent a stint at an investment bank. There is a discussion in this election about the debate between capitalism and socialism, frankly. Does the capitalist system lend itself to doing exactly what you are saying . Professor brown i actually believe it does. I believe we have never had an inclusive capitalism. We do not know what that looks like. We need to make 2021 hour ability to see what that looks our ability to see that looks like. Not to exploit, but to support. We have seen research that shows employees who are treated better think better. There is absolutely no downside to well, downside to people who exploit, but that is what capitalism in america has been marked by, but that is not what it could be. how do we deal with this a lot of ceos are watching this program right now. They are trying to figure out how to make it work for their company. Becausewe need to do, employment, education, the tax code, all of these have to come together and work. What do corporates need to do . Corporates need to do . How do they work . [no audio] i think we may have lost Dorothy Brown. I am pretty certain we have lost Dorothy Brown. Emory University Law school professor. That does not happen often. 82 of oilround in the place due to hurricane laura. This is bloomberg guy later today on bloomberg markets, Marcus Rucker of rucker will be joining us. T is the president and ceo. He is the president and ceo. The firstk in on word. Kenosha, wisconsin, a second night of violence between police and protesters. A black man was shot by police in an incident caught on video. Police shot tear gas to disperse crowds. The governor called in members of the national guard. U. S. And china leadership discussing the phase one trade deal, and President Trump says progress is being made. Behind itsa is far promises to increase purchases of american farm, energy, and manufactured goods. Tropical storm laura is hurricane laura now. It gained strength in the gulf of mexico and is taking a. M. At the texas louisiana coast. Categoryjected to be a three storm before making landfall Late Wednesday and early thursday. That means wind of around 150 miles per hour, enough to cause substantial damage. Global news 24 hours a day on air and on quicktake by bloomberg ,powered by more than 2700 journalists and analysts in over 120 countries. I am ritika gupta. This is bloomberg. Guy. Guy thank you very much indeed. Lets look at that impact of the hurricane on crude production. A Research Equity analyst joining us now. Stewart, in so many ways, this does not matter. Most of u. S. Crude comes from other places. Is more production important for refining than anything else. Do you see an impact . If we do see a major hurricane making landfall, what will it do . Stewart youre right. There will be limited impacts on all of those facets of the energy industry. The lowest impacts would likely be on crude oil prices. We seem really we see really barely any blip in Price Movement recently. I think the reason for that is, as you pointed out, a lot of u. S. Crude Oil Production is coming from places beyond the gulf of mexico. It only accounts for around 15 of total u. S. Crude reduction. It is only around 3 of u. S. Natural gas production. Back when katrina hit, those numbers were much higher. The impact would have been much greater back then. Now, when it comes to refining, you do expect some kind of temporary blip higher in pricing because roughly half of all u. S. Refining capacity is still based in the nerve center of the texas and louisiana gulf coast. You have to wait to see how much damage occurs, but i would think that you will get a temporary blip in refined product prices after the hurricane moves through. Kailey one estimate on damage came from a disaster modeler. We spoke to him yesterday. He told our reporters that if it intensifies or if the track shifts, it could mean 10 to 12 of Refining Capacity is shut for more than six months. What then . Stewart i would not expect that kind of damage. We have not seen that in the past with other hurricanes. The best example i can point to is hurricane harvey, which hit three years ago. Comeey was like an unwel houseguest. When you had the hurricane hit, refined product prices, in particular u. S. Gulf coast gasoline prices, went up about 20 of the course of the week, but a month later, they were back to square one. I really do not expect a massive prices torefining last in any meaningful way, so what i mean by that is beyond a week or two. This time could be different, but harvey was a major hurricane, i believe, as well. What is the risk like for oil prices, up or down . Line for oil prices, up or down . Stewart i am negative on oil prices. We are of the opinion that there is more Downside Risk than upside risk. The biggest factor in that is concerned that we could end up with a second wave of covid nine cases that makes its way into the economy and subdues a recovery and economic growth. If that were to happen, i think demand that has been moving up in recent months could relapse. That is a concern. Kailey stewart, we have to keep in mind that the hurricane is coming in the year 2020, in which everything that could go wrong seems to be going gone. Including a double pandemic that has completely sapped oil demand. I have to ask you about economics today. Getting kicked out of the dow, what does that say to you about the future of Energy Legacy companies . Stewart it is a sign that investors are not assigning a lot of faith for expectations for crude oil prices and therefore expectations for earnings power for a company like exxon, which, to be fair, still has a fairly strong balance sheet, not as strong as it used to be. They do have onerous obligations when it comes to the dividend. To impact that dividend are dwindling. We still have a hold on eggs on. If you wanted to be a bull on exxon, you could point to a lot of longterm growth starting in the 20232025 timeframe with International Gold projects oil projects that will start throwing up production then. Asking, what are can you do for me in 2021 . And the oil space is kind of just betting down the hatches in trying to preserve their balance sheet. Exxon ifd you buy we got a vaccine . Stewart if you told me we had a vaccine that is available and everyone is comfortable going back to work, that will put the a lot of wind in the sales of oil demand. Ails of oil demand. But i think there are companies that would benefit more from a rise in oil prices. Ironically, the names they have the weakest Balance Sheets right now would probably benefit the most. Kailey so i vaccine could potentially bring some upside, but what about the election . See kind of affects what we in the energy space should we get a biden presidency . Stewart i think there is a risk there. Harris administration does raise the risk of possibly eliminating fracking from federal oil and gas leases. It does not apply to the gulf of mexico, which is more conventionally drilled, but there are pockets of land on shore u. S. , particularly in parts of new mexico, parts of the Colorado River basin, where you do have a lot of companies have federal exposure. If he did ban fracking, that would be a risk factor. One thing that would mute that effect is a lot of these companies, names like contra resources or devon energy, that we like, both of those companies, have in hand Something Like three or four years worth of federal permits already. That is risk longerterm you would see a shift away from federal drilling and development to more state land or private land, but not an immediate effect on those acres if you have them. Guy inflation does not feel like it is a realistic threat now, but a lot of people are debating whether it will become a realistic threat. If we do see a pickup in inflation, where does that put the Energy Complex . Where does that put Energy Stocks . And are there monetary stocks you are looking to buy if you are looking for an inflation hedge . Dowart historically, if you get inflation, then commodities look like a safe haven. I think that would push more for swornwho have energy or reduced their exposure to energy to start moving back in. I think the names that have the most exposure to Rising Oil Prices would be your smaller, more Indebted Companies that could really use a boost from, call it 70 or 80 oil. Im not suggesting we get there. I am not anticipating enough inflation to do that, but if you did have accelerating inflation, then i think oil prices certainly would move higher. Kailey 70 oil is a far cry from where we are now. Stuart glickman, thank you for joining us today. This is bloomberg. Kailey time now for futures in focus. Joining us is vincent voice ofa, bloomberg audio squawk. I want to talk about the dollar. In the yen. We have rolled over in the equity market. What is driving the dollar weakness . It is just a really heavy short dollars. People are leaning on it, going chairackson hole, that one of the things the fed did point out was they did expect the federal government to come back with another stimulus plan, the lack of which may be giving traders push to of an extra send the dollar lower, but on a purely technical basis, it is actually starting to look like it may be facing a little bit of a bottom going into this. If any disappointment comes with powell along with technicals, we will see a decent dollar bounce. Guy how is positioning, vincent . How stretched is the current position . Vincent i think it is pretty stretched. Data, but fan of cftc if you look at the futures dollars, the cash market is similar. You have a situation where it is august, a little bit later liquidity ratings, so you could see a bigger move either way, to be honest. A bigger move if there is a bit of a disappointment and what comes from powell, or if he adds on to it. They aremarkets already so positioned short dollars, that if he says what they expect him to say. Weaker where does a dollar show up most in another asset class . Vincent i think it would look at it in gold. You have seen a pullback in the metal space. The dollar is trying to find a bid as we speak, but that is where i would say you look, to the metals. Guy ok. Vincent cignarella, always a pleasure. What we have coming up. We will talk to this man, george buckley. Some it couldve been worse. Worth mentioning as well is that stock. Seeing and we will talk about that as well. This is bloomberg. Hike Simon Pagenaud takes the lead at the indy 500 coming to the green flag, racing at daytona. Theyre off. In the kentucky derby. Rory mcllroy is a two time champion at east lake. He scores stanley cup champions touchdown only mahomes. The big events are back and xfinity is your home for the return of live sports. Guy live from london, i am guy with kailey leinz in new york. We are counting down to the european close on bloomberg markets. Lets talk about what you need to know about europe this hour. European stocks were starting to turn around. We saw data coming out of germany. Sayingsident of the efo the economic recovery in his country on track. Shares under pressure, lvmh saying it reserves the right to challenge the deals new deadline date. Whether they will actually walk away is something the market is beginning to think about. And more turbulence in travel. Oncks generally higher today positive vaccine news. Looking to cutes jobs. We are waiting for news out of the United States on that front as well. We have, as you can see, turned around on the s p. We are now negative the stoxx