Transcripts For BLOOMBERG Bloomberg Best 20170408

Where in the world you should put your money. European growth looks soggy of the next 18 months. When the fed has taken the football the accelerator or slammed on the brakes, somebody has gone through the windshield. It is all next on bloomberg best. Hello and welcome. This is bloomberg best. Your weekly review of Business News, analysis, and interviews from Bloomberg Television. Lets look at the top headlines. Political turmoil and south africa continue to undermine confidence and that nations economy. President zuma may face a confidence motion. The rand is lower. Some top officials are speaking out against the cabinet reshuffle, saying he did not consult them, and speaking out against the firing of the former finance minister. It seems it is critical as to whether this motion of noconfidence will succeed or not. Do you think he should step down . Yes, i do. They have charged him to have breached the oath of office, and that makes it difficult for him to command respect which would rally and unite various sections of the South African population. S p has cut south africa to jog, Political Risk front and center with growing pressure on jacob zuma to resign. We are concerned about the impact on the fiscal and economic story. It puts policy continuity at risk. There is an increased likelihood that Economic Growth and fiscal outcomes could suffer. Jeffrey lacker resigning today. He says i regret that in this instance i cross the line to confirming information that should have remained confidential. In 2012, like conduct was inconsistent with those policies. He is saying he is not the leaker. He was presented with information and sing he should have entered the conversation then and the risk is by not doing that that it infers the information was correct. It is a nuance, but a significant one. It is a serious breach of information. Sensitive information was given to analysts on wall street, who passed it along to clients who may have made money from it. I would say there is more to come. The fed released minutes from its march meeting that show the fed favors plans to shrink the Balance Sheet this year. The minutes indicate their general attitude on rate hikes for 2017, for dissipate anticipated a gradual increase in the federal funds rate would continue and judged it change the committees reinvestment policy would be appropriate this year. What is your big takeaway . The markets were looking for the possible start of the Balance Sheet unwinding, q4 or next year. The minutes provide that guidance of it being pushed into 2017. If were getting Balance Sheet unwind, that is like another rate hike almost into 2017, some more hawkish can may be too much push from the fed. You can see the reaction in equities and treasury yields. How do you calculate how many hikes the Federal Reserve will deliver in 2018 on a good day, never talking about normalizing the Balance Sheet. The context is obvious. The fed is slowing going to raise rates and address their Balance Sheet. For years since the great recession, we have had the fed as a tailwind for the stock market. They will turn it around and eventually become a headwind. That is what investors need to know. President trump is about to open a high stakes summit with resident xi jinping in florida. We have a lot on the agenda, north korea, tensions over trade, hanging over the meeting between the worlds two largest economies. They have been saying they are proud to have both president xi jinping and chinas first lady in town at maralago. Tomorrow looking ahead, that is when the hard stuff comes. For example, they would talk about u. S. Jobs and the export of u. S. Jobs to china. One other thing is the trade surplus that china has with the United States. It totals 347 billion in 2016. When they get to the substantive talks tomorrow, donald trump will be trying to figure out how he can get china to buy more u. S. Goods and services. We do have breaking news crossing the bloomberg. There have been u. S. Missiles launched against targets in syria. It was a targeted military strike on the airfield in syria from where the chemical attack was launched. To be honest, this does not change the balance of power in syria. It was a targeted strike. They knew the assets they wanted to get. They warned russia it was going to happen. The next steps will be crucial. This has catapulted tensions between the u. S. And russia the highest since trump took the presidency. Where did they go . Do they ramp them up more . Is it a potential point to deescalate . 180,000 is your estimate for payrolls. Here is the payrolls report. Have you spend this one . Just 98,000 jobs were created. 98,000 jobs in march. The Unemployment Rate falls to 4. 5 , the lowest since may 2007. I would not say it is a weak job report. Wage growth was unexpected, so this tells you the economy is gradually transitioning from job creation to higher wages, and it is in line with the gradual recovery we have expense for a number of years. Overall, we are pleased. And you look at the unemployment number going down, the 4. 7 number going down and the u6 number coming down by. 3 , then you put on top of that what we know is coming with the jobs being created by the companies we have talked to and moving manufacturing back to the United States, we are excited about what is going on in the future here. David still ahead, exclusive conversations with the president of argentina and jack lew. Plus, sheila patel sees investors searching for emerging markets. Coming up, top business headlines. Would you believe teslas market cap blue past forward this week . David this is bloomberg. David this is bloomberg best. I am david gura. Lets continue with the shift in u. S. Immigration policy that resonated worldwide, especially across the tech industry. The h1b fisa application process has opened despite President Trumps plan to reform the program. New guidelines were issued late friday that require Additional Information for computer programmers. Are you still expecting it to be oversubscribed . Yes, because we were expecting tougher rules out of the administration. We have not seen that. I would expect a lot of Technology Companies will use this window to fight for as many as they can. When we talk about tech employees from silicon valley, who exactly will be hurt by this . You could see a tightening, particularly for the outsourcing companies. It would reduce their use of these work of these is, and that leave more for american Technology Companies. The idea when it was set up three decades ago was to bring in workers from overseas that companies could not find in the u. S. , and it may go back to more of that original intent of the program. Teslas shares shot up 5 after the carmaker reported deliveries that exceeded estimates. Teslas market by you is 2. 7 billion more than ford motor company. How is this possible . You have tesla sang their sales were 25,000, but any good news sends shareholders into rapture, particularly those bullish on the stock. On the other side, you have established automakers march sales that were softer. It says we are at peak auto. There are more incentives to keep sales going. Inventories are rising. Its not a bad market, but it is headed south and tesla has growth. Lets turn to the latest on Credit Suisse, facing a tax invasion and Money Laundering investigation that could involve thousands of account holders. Who exactly is being targeted, and is Credit Suisse cooperating . The evidence suggests that the bank is not the target in this investigation. This is about account holders, individuals, who may have held a counselor Credit Suisse and there might be Money Laundering involved. The bank said it is looking into the matter and pledged that if they find wrongdoing that they will take measures against it. In a letter to shareholders, jamie dimon address concerns about europe and of negotiations and factors causing damage to the u. S. What did he have to say about brexit . What did he say about how the process is unfolding in what he hopes to see at the uks its down to the table with the European Union . He said the bank is preparing for a hard brexit, which most banks are, which would mean the loss of passporting and having to adjust their businesses to serve eu clients. He said he is not expecting a lot of job movement and next two years, but after that, they will face pressure from the eu to move things into the trading block and not do everything from london. Jamie dimon said government and pose Capital Requirements are holding back lending, and relaxing them could spur Economic Growth. Neel kashkari responded saying those assertions are false. I know jamie dimon and like him. When he says things i believe are incorrect, it is our responsibility to speak out. Too big to fail has not insult. The biggest banks are still too big to fail. The American People and Congress Need to know that. We have offered solutions in the form of higher Capital Requirements. The white house economic adviser was to take banking to the old days. The Goldman Sachs president said he would like to separate banks, Consumer Lending businesses from its Investment Banking effectively bringing back the depression era glasssteagall act. The bloomberg story set everyone was surprised. He has had a long career as a traitor, and it goldman, mostly as a broker. Its history as a full Bank Holding Company is relatively short since 2008. If you think of the trade mentality, goldman might have an advantage given its exposure to Investment Banking. I dont see why he would not be opposed to that idea. What we are worried about is the one size fits all regulation. We have these regulations bill to regulate banks as if they were equal. If we come up with the modern glasssteagall, we can tailor regulations, and that would allow banks to lend more aggressively to small and mediumsized companies. Lets focus on france, a platform to all 11 hopefuls last night, but allowed room for fiery exchanges between the two favorites. We need clever protectionism because we cannot accept we are in competition with products that dont respect the same norms. Nationalism is war. I come from a region filled with cemeteries, and i dont want to go back to that side of the black line. April showed far left candidate outperformed expectations. Everyone turn their fire on marine le pen. She was attacked by those who want france to stay connected with europe. There were two candidates much further to the right than her who attacked her for being soft, saying they are the real ones in favor of frexit. Macron managed to avoid any mistakes. You would have to say that he came out on top last night. Shares of a narrow surging after it was agreed to be bought. It is a much bigger premium. It is a huge price. We knew it was going to command a high price, 19 times is astronomical, so puts it in line with popeyes, louisiana kitchen was bought by the owners of burger king. It is expensive, but it is a huge brand with enormous presence across the country. They have paid to get access to that. Steve bannon has left the National Security council, been removed rather in a shakeup today. Why now . This was an exclusive by jennifer jacobs, the chief strategist to President Trump has been removed from the National Security council. This comes just two months in which general h. R. Mcmaster has taken over as National Security adviser. One of the first hires that general mcmaster did was bring over deana powell as his deputy to the National Security council, a former Goldman Sachs executive was previously working in the administration for first daughter ivanka trump, so what you are seeing is a restructuring of President Trumps inner circle. We should underscore that steve bannon still does have significant influence on a host of policy areas, including infrastructure and politics. Samsung reported higher than expected profit. Shares have been on a tear, close to record highs, despite the bribery scandal and the exploding phone note 7 debacle. What is important to look at is the profitability of the company, all time profits in the first quarter, up meaningfully, and that is powered by the strength and components, particularly memory, and that is the most important thing for the stock, the earning power of the company, and surprising everyone to the upside at the moment. The senate has confirmed neil gorsuch to the u. S. Supreme court, 5445. Neil gorsuch will be the next Supreme Court justice. The senate needed to have that vote this morning. Thats right. Everyone knew this would happen. Senate republicans voted to change the rules and remove the 60 vote threshold for nominations for the first time in american history. The senate advance the nomination to a final vote with a simple majority of 51 votes. The Supreme Court confirmation is a huge win for conservatives. It is a big win for President Trump who had a troubled start to his presidency and has not gotten any major legislation done. David welcome to bloomberg best. Erik schatzker travel to argentina for an exclusive interview with president Mauricio Macri. Argentina has a cordial relationship with United States, but now Mauricio Macri must establish ties with the new administration. He ask them what will be on the agenda. Discussing about the future relations between both countries. He believes that we have started with the obama administration. It is the base. We should believe we have a space to deepen relations and find out ways of Mutual Benefit and future cooperations. Erik he is a protectionist. You are a free trader. I leave him globalization. I believe we can find ways to increase relations between argentina and the states a lot, because we have very weak relations. Erik where does argentina fit in and America First Foreign Policy . First, in spite of relations between argentina and the states, we have to talk erik so you need to have a united front . We need because we are members, so we will Work Together on future relations. I expect we will find a way to improve and increase our commercial relations together with any other space of cooperation. For example, against drug trafficking, against terrorism come in favor of peace. There are many ways we can cooperate. Erik there are many ways you can compete as well. America wants some of the same export markets you want. That happens always. We focus first on harrys and which we can be complementary, than to compete, there is always time, no . David we have more exclusive interviews ahead. I went oneonone with jack lew. We gathered a wealth of intelligence about sectors and market trends. Up next, frank talk from some prominent ceos. Peabody is back from bankruptcy, so is the Company Banking on trumps promises to bring back . We think there is benefits and call in a scalability and reliability. David this is bloomberg. David this is bloomberg best, im david gura. A number of prominent ceos spoke with Bloomberg Television this week. The most interesting conversations with aols ken armstrong, launching as they prepare to absorb yahoos internet assets. How is it going . How is this merger going to work . The main question i always ask, can you run up against your old shop of google and facebook . First, let me start with verizon. Verizon has a longterm strategy in the media space. We are going to touch over a billion consumers. I think we are in a very good position to launch what is a house of trusted ran in the digital space. We are focusing on a Business Model on brand advertising. I have done advertising for 20 years. I see an open lane in the space of advertising. Alix is Marissa Mayer going with you . We are planning all the executive outcomes that will come in terms of leadership which we will announce in q2. Marissa will stay through the next phase. I would expect half the executive team to be from yahoo . Talking about bringing back coal mining jobs, you employ 6700 around the world. How many more coal mining jobs can you create around the united dates . The actions of the administration today, we have seen sweeping statements, the actions we have seen have been targeted protecting jobs. We are currently recruiting across our operations in the United States, but i also believe that the foundations have been laid to enable clear signals to occur around the generation environment, to either delay, the for, or turn around but we see about 50 gigawatts of planned capacity in the next five years. If we can get exports of coal going forward, that would be future increases. We think there are inherent benefits with coal, its scalability, affordability, and reliability. The it has been shrinking over five years and the president makes remarks. I think we have seen 2017 being higher than 2016, that is the way the current projections are. That is largely a story of natural gas. I think the competitive environment for coal is much better today than it was a year ago. There is no more Global Industry than the aerospace industry. Our supply chain is completely global, has been for years. Airline customers, their job is to fly people on a global basis and the passengers job to promote global trade and international business. We are totally intertwined. In the case of airbus, around 40 of our airplanes come from the usa airbus is the largest export customer. Our competitor boeing, about 40 of their aircraft come from global suppliers. The Global Aerospace industry is very intertwined and it is going to be difficult to unwind that. Do you see more pressure coming from this administration to source components locally . We are not sure yet. We have not seen that pressure. If that pressure does come, what will you do on the margin side . Will you just suck it up or do you have to do something on cost . We are not ready to take a smaller margin. We are always adjusting our cost and looking to be more cost competitive, and encourage our supply chains to do the same. Would you be willing to source components in the United States in exchange for no that tax . We already source from the United States. 40 , does that go to 60 or 70 . When we go to source our supply chain we look for the best deal, quality, price, and ontime delivery so we are not planning to trade that for border adjustability tax. David another important guests was former u. S. Secretary treasurer jack lew. I sat down with him for his first media interview since leaving the government post. Something that came up numerous times on the campaign trail has come up less when the president took office, the issue of currency manipulation. Here you have china with a trade deficit. Is that enough to declare china a currency manipulator . How cautiously should the treasury proceed . If you look at the criteria, the key issue is, are they taking actions to drive down the value of their currency to gain unfair advantage . The way you look to measure that, are they intervening in order to devalue their currency . For the last year china has been intervening to prevent the devaluation. That makes it challenging to look at the Current Situation and reach a conclusion that there is currency manipulation. Clearly, there is a transition underway from a very managed Exchange Rate to a more market oriented Exchange Rate, but it is not a pure market oriented Exchange Rate. Right now, the interventions are in the opposite direction from what you look at in terms of measuring manipulation. David you have a president very keen on implementing tax reforms. The white house is adamant that they are driving the train. How much of that would fall under Treasury Department . Offices are empty, positions are unfilled and names have not been named. How deficient are they . What you do not have is your policy leaders, your emissaries who can go and represent you the way you would if you had a full complement of deputy secretary, under secretaries, and an assistant secretary for tax policy. It is not a perfect situation but i think it would be a mistake to think that treasury comes to the tax reform debate without very substantial resources. The question is where the decisionmaking in the administration will fall and whether the policy of leadership will be at the Treasury Department or elsewhere, and within the white house, which camp will make the recommendations and shape where the president goes . They have a lot of support for Business Tax Reform to clear out loopholes, lower rates, but if you want to do something even bigger, we proposed going to 28 , it gets expensive. You see Congress Looking for ways to pay for going to a lower rate, particularly the border adjustment tax, and that is problematic for policy and politics. Do they do it on a revenue neutral basis or do they create a big hole in the deficit rate at we are at the point where we ought to be thinking, what do we do when the baby boomers hires are in full force . It would not be good for the economy. It would put an enormous amount of pressure on cutting programs like Social Security and medicare. I think the right answer is to stick for a paid for approach. We can get to a rate that can provide real relief. What you cannot do is hard things in a completely partisan way. David you are watching bloomberg best, i am david gura. Throughout the week, investors and asset edgers offered insight into Global Markets at a moment when fiscal trade and Monetary Policy seemed to be facing a host of potential inflection point. Here are some highlights. Give me your sense of what is going on in retail right now. Retail is a mess, to say the least. From a 10,000 foot view, this trend, these retailers have had declining top line for a number of years. This is not a cyclical issue. The economy has been good. Consumer sentiment is good. Unemployment is coming down. Oil prices are low. This is a secular issue, a forever trend. How things look 10 or 20 years from now, our parents will be dead, our kids will be adults. Do you think more people will be shopping online or less . This is forever. To get along these credits they are trading in the dissent distressed debt role that is not a declining business. We are not long any of this. They are overvalued . Yes, they used to trade at three to four times. When we say they we mean those that people are familiar with neiman marcus, macys. Most of these retailers are smaller so you listed the larger ones but there are about 50 companies that could file for bankruptcy. 50 retailers. American apparel is already gone. Thats filed twice. Its liquidating. Think about Companies Like rue 21, claires. We talk a lot about energy and whether that has been played out, we talk about retail. Talk to us a little bit why europe and where. In the european credit space, the800 pound gorilla is very much in the room, the European Central bank. They were buying 80 billion euros of credit of credit a month, now they are buying 60 billion. That is a big move and we are seeing that in the credit face. Lets take highyield, specifically that Credit Suisse european highyield in next it is about 4. 6 but if you take out the u. S. Dollar denominated bonds, it is closer to 3. 5 . To us, that does not sound like highyield. When you look to the investmentgrade space, the european investmentgrade index trades less than 1 yield. U. S. 10 year treasuries, 2. 3 and change. I think on the long side we are looking for opportunities, shorter duration, defense and less correlated things to do. We are looking for smaller and under followed capital structures, and staying idiosyncratic on the short side. It feels like e. M. Is a little bit more stable than developed markets. Are you hearing that from investors that they want the yield and a little bit of safety, they will go to e. M. Instead . A number of investors say emergingmarket feel more stable. They are saying in many cases em is decoupling from dm. It is not about how much china trades with the u. S. They trade with europe and around asia. It is not what india is doing anywhere else. India is almost purely a domestic story. You see people investing in things like the msci etf, but taking a step back and redeploying that money into more active strategies, because if you look at the indices in em, they are backward looking. In emerging markets the growth is an internet, mobile banking, things that are forwardlooking. In the msci etf, when that winds up moving does it move to specific regions or sectors . In some cases, looking at country specific allocations so if they are in more of a broad e. M. Allocation, what country do i have confidence . India is one, china, they are cautiously optimistic. I have seen more clients saying they are on a trip to latin america in the next month or two over the last two weeks, and ive heard in two years. European growth looks to be pretty soggy over the next 18 months. I thought we were Getting Better pmi, core inflation came off a bit so where is the soggy . Compared to the u. S. Growth rate which we think will be well above 2 , you will have more subdued growth in europe and this year we are more bearish on the ecb. Importantly how the ecb, there is no inflation. If you look at a place like germany, if you were to get inflation in Europe Germany would be the place to see that but the reality is we are not getting any wage gains even in germany. In italy and spain where there is still a lot of market slack you can see how difficult it will be to get inflation. Inflation will be stuck at these low rates and continue the Quantitative Easing Program. Have the bundesbank president is this the rhetoric we are going to see that is not really Material Change . It is not unusual to hear the german contingent. The northern europeans talk about taking off some of this easing but you have to look at the fundamentals. I think mario draghi is going to sit there and say we cannot take our foot off the accelerator too soon. I think the Quantitative Easing Program continues into this year and we will talk about tapering in 2018 but there will be a lot of quantitative support through 18. Last night we saw a real shift from the fed. They are talking about a passive and manner to reduce the Balance Sheet. How do you interpret a passive and predictive manner at pimco . I think there is if they go about it very cautiously, phase out the reinvest it gradually and do not put the market out cold turkey. I think the risks are rising that they are making a hawkish policy mistake. The debate this morning on the bloomberg, can they really stick to three hikes and reduce the Balance Sheet at the end of the year . What do you make of that . Is there a potential interruption in the hike half . I think they will probably pause after hiking two more times and will probably announce in december they are exiting, reducing the Balance Sheet. I think you will get a slight pause in the rate hike cycle but i think they are quite keen to get away from the dreaded zero bound for interest rates. And again, i think this raises some risks because whenever the fed in the past has taken the foot off the accelerator or slammed on the brakes, someone goes through the windshield. The biggest whipsaw in equity market yesterday in 14 months. From a risk perspective from the bond, equity, fx perspective, wheres the biggest risk from this potential policy mistake by the fed . The biggest risk is for the riskiest assets equities, high yields because they benefit a lot from qe. We had the term premium compressed. Investors went out of bonds into higheryielding assets, into equities, so when the fed reserves is just reverses the biggest threat is for equities and highyield. In the bond market, one of the biggest movers has to do with south africa, downgrading the rating to junk. Not only dollar denominated debt but local currency debt. This is the market reaction. You can see the jump in yields we saw on that. Two schools of thought, too much risk and bank of america says you might want to go in and buy. It is a question of, there will be a time to buy south africa and i think we have to give it a little bit of time to digest. The political situation is a bit difficult to ascertain, where you can pick up 9 plus in brazil where you know inflation is coming, you are getting an awful lot of yield with inflation coming down. Mexico in the seven. I would rather take that risk at this point and give south africa a bit of time to play through. There is Political Risk in south africa and mexico. How do you factor that in . Is it fully priced he in . Do you hedge against it . There are a series of metrics we look at when you evaluate, where do you go into a country or company, and that is a big one in emerging markets particularly. The politics usually is a bigger driver than anything else and you saw that play out in argentina for years, brazil four years. You have got to be acutely focused on policy. You can get spiked moves like you just saw. I am looking at one of my favorite options on the bloomberg. It does supply chain analysis, and one of the reasons it is so relevant today is that imagination technologies, a u. K. Based company that does chips discovered that apple, which pays them for their Chip Technology will no longer be using or licensing their technology. You can see on the right who a companys biggest customers are, and at the top, apple accounting for over 50 of revenues. David there are about 30,000 functions on the bloomberg and we always enjoy showing you our favorite in the hope they will become your favorite. Quic go will take you to our quick takes for you can get important context and fast insight into timely topics. This week explores Climate Change. Two was the hottest year on record and the previous 17 years have been our 16 most scorching. Scientists overwhelmingly agree, Global Warming is the culprit and the carnage is just getting started. Extreme weather, wildfire, droughts, and the hits keep coming. What are we doing about it . In 2015, the world took its boldest step yet to stem Climate Change with a historic accord in paris but now comes the hard part. Nations must change policy and invest huge amounts of money, and it may be without the United States. I am taking historic steps to lift regulations on american energy, to reverse government intrusion, and to cancel job killing regulation. 68 days into his new administration, President Trump signed an executive order that stops just short of withdrawing from the Paris Agreement. Decades in the making, the Paris Agreement united the United States, china, and other countries to unite in the fight against fossil fuels. The emissions trap heat in the earths atmosphere. In order to avoid rising disasters the climate models predict. The globe is expected to warm by as much as 3. 4 degrees celsius this century, more than the target of well below two degrees. Governments will have to offer incentives for clean energy, make emissions more costly, and reduce deforestation. The deal will require here is the argument, unlike past climate pacts, each country set its own paris target and promised to revisit and improve it. The u. S. Was primed to play a lead role but Trumps Energy independence order encourages increased production of coal, the dirtiest fossil fuel. Mr. Trump my administration is putting an end to the war on coal. Clean coal, really clean coal. The resulting policies make it hard for the u. S. To keep its commitment to reduced emissions. Businesses, cities, and u. S. States such as california are investing in wind and solar, and taking steps to make it work. Mr. Trump i have actually been called an environmentalist, if you can believe that. David that was just one of the many quick takes you can find on the bloomberg and also at bloomberg. Com, along with all the latest Business News and analysis 24 hours a day. That is all for bloomberg best this week. Thanks for watching. I am david gura. This is bloomberg. David you started out, your father was a stockbroker. Had you ever considered go into banking . Jamie i knew more what i didnt want to do. I did not want to be a doctor or a lawyer. David you chose to go work for sandy jamie it was a of a run. He fired me. David you had a lot of jobs, offered the ceo of home depot. Jamie i am not a hired gun. David do you think the country is better off for having doddfrank . Jamie the system has completely recovered. Part of that is doddfrank. David you would never consider running for office, would you . [laughter] would you fix your tie, please . David well, people wouldnt recognize me if my tie was fixed, but ok. Just leave it this way. Alright