Us to believe that is the man he knows and is more familiar with. Lets get up to speed, a firm tone. This morning a little bit softer, down about 1 10 of 1 on futures, equities treading water, but in the fx market it is a stronger dollar story with yields pushing higher on treasuries. 2. 47 on the u. S. 10 year. Alix the curve is a little flatter, curious when you have the market relating fed expectations. The fix is slightly lower but im surprised it is not at 10. Softer, and oil not participating in any kind of risk on rally. Jonathan apparently it is not the only game in town but a big player, the Federal Reserve. The chief dov signaling they might be ready to move on rates. Brainard said the economy might be Strong Enough for the fed to make a move this month. We are closing in on full employment. Inflation is moving gradually toward our target. Foreign growth is on more solid footing and risks to outlook are more balanced than in some time. Appropriately be soon to remove additional accommodation continuing on a gradual path. Jonathan joining us is lewis exact Lewis Alexander and David Lebovitz. Great to have you with us. What has changed for the chief dov the last six months . Lewis the economy has been doing better. What is striking to me about what she said she said the economy is close to full employment. That has been an issue of dispute. Thealso characterized international risks as being relatively low we are facing political issues in europe so that is one of the things that was surprising. Jonathan we have this classic central bankers line and the risks are looking more balanced than i have in some time. Is that the feds way of saying, we are acknowledging what may happen in d. C. In terms of fiscal stimulus . David l. i think they are doing their best to a what is coming out of washington given the Little Information we have. If i think about the fed of the past few years they have been tuned in to the broader risks, whether the Global Economy or the u. S. Economy or those outside their purview of price stability at full employment. To perhaps there is more inflation coming from these progressive policies out of washington. Alix i am shocked there is gambling going on. When you take a look at markets pricing in two and a half hikes for 2017 but only two for 2018, where is that disconnect . Lewis that whole debate around secular stagnation has not gone away which basically defines how high they can raise rates. I think there still is fundamental uncertainty about what we will get from the Trump Administration on policy. We do not know what we will get on fiscal policy or what the effect of tax reform or deregulation will have on growth. Alix manning we are not necessarily seeing the Market Pricing and rate hikes for the next two years but we are bringing them forward . Lewis i think that is right. Partly it is so significant because you had debbie before and another few fed speakers dudley before and other fed speakers. You have heard that rate increases will be gradual. While they may be likely to go in march that does not mean you should bring a whole trajectory of rate hikes forward. The one hand, there is not any dramatic new Economic News that triggered this onslaught for march. On the other hand, maybe they are looking forward to what is going out of d. C. , but wouldnt that change the terminal rate . Doesnt that extend the curve out . David l. i think that is the question, you made the point that the trajectory for the Global Economy has not really changed. I think what you are seeing across the yield curve is people price in a couple rate hikes this year, two maybe three. In the grand scheme of things, the Global Economy is still in this secular stagnation, still muddling through. We have seen a come back online that pushes Global Growth closer to 3 but we are not talking about a sustained acceleration in the Global Economy. We hear President Trump say he would like to hear 4 growth. The fundamental Building Blocks of the u. S. Do not really let us achieve that pace in growth so i think with the yield curve is telling us is we are going to bring some rate hikes, short breaks are going higher but the Global Economy is still in a muddle through scenario. David so we are looking at a flattened yield curve no matter what . It is another way to say the terminus of potential in the United States, you have to ask yourself do you believe these trump policies will change that . It is a hard case to make. Jonathan is the Federal Reserve still conditioned by the idea that they have a tilt policy to protect against Downside Risk . She called it prudent Risk Management or something along those lines. How widely held is that view on the fomc . Lewis it is similar to what they always do but what is different as you can assume a fiscal downside to scenarios for the u. S. If you go to before the election, the problem we face is if we had a recession the only options were more qe, former guidance. We talked about that at jackson hole. If you add fiscal two that set of options, it is a much better world for the fed that is partly why they are on a better track. Jonathan clearly in the last week or so things have changed the Federal Reserve in terms of when we expect them to hike rates again. For youhing changed when you look at the portfolio and try to put it together . David l. we have been of the view that fixed income is just going to be more challenging. With the Trump Administration and proposed policies have done is brought inflation back into the market, something we have been looking for to navigating fixed income will be more challenging but i think you will see equities price in that inflation, a more optimistic global outlook. When we look at the relation between nominal gdp and earnings, we think equities are positioned to do well. Maintaining balance by tilting a bit toward risk assets because we do think there will be a path from an economic standpoint. Alix you were talking about have a longer Term Growth Outlook is not that good. It tells me youre looking at a 10 year yield not even near 3 . David l. that is a fair point. I would say that economic expansions typically end in one of two ways, they cool with nothing or they go out with one final bang. Fiscalthinking about stimulus this late in the Business Cycle, our view is this will be more like the science fair volcano that we will go out with a bang and we want to be positioned more cyclically, given our view that Interest Rates rise. They are much less sensitive to rising Interest Rates. We should see cyclicals outperform as rates rise and as a result, we are positioned that way across portfolios. Jonathan not very exciting, is it . Alix wait a minute, it is exciting. Who is going to clean up the mess afterwards, that is what worries me. Lewis when we talk about another recession we are not necessarily talking about another financial crisis but it is our view that this Business Cycle will end with your typical year,licy, two hikes this two next year. The market will pick up quicker than the fed expects that will lead to hikes quicker. Lebovitz,david different charts. Alix you are both sticking with us. We want to welcome our twitter viewers who have been watching this morning. Bloomberg daybreak a streaming live 7 00 to 9 00 eastern. Coming up, tom barrick, northstar executive chairman will be joining us to break down everything washington related, and give us some insight hopefully into President Trump. This is bloomberg. This is Bloomberg Emma this is bloomberg daybreak. I am emma chandra. No bonuses for most of the top management at ab inbev after the beer maker earnings missed estimates for the Third Straight quarter. The are hurting from a nosedive vending power in brazil, its secondlargest market. The Company Raised its target for cost savings related to the takeover by sab miller. Exxon mobils new ceo is shifting investments to quick and shale oil. Lling can be shipped turned on or off depending. Shares of the maker of disappearing photo app snapchat began training today. They sold 200 million shares at seven dollars each and they have a market value of about 20 billion. A multiple of about 21 times sales, or about twice facebooks multiple. David for more on snaps big debut today, bloombergs global tech recorder reporter at her century auto joins us along with alix brinker in new york. Lets start with this pricing, we heard a lot of rumblings of how the roadshow have gone, but this is a robust price. Alex it is also above the range. They marketed them 14 to 60 above share, and the valuation is not only richer than twitter and facebook now but higher than facebook when it went public. But the way ih, am hearing the Market Sentiment moving is there has kind of been a split between the folks who are really excited to get in at this moment in the folks who want to hold this company longterm. Right now we have a fairly lofty value for a company that only makes 100 million in revenue. The real test will come after it starts trading today. We will see what happens in terms of the folks who are trying to ride the ipo pop but the real test will probably come in the next year earnings cycles when the Company Shows whether or not it is proving itself to live up. David you specialize in ipos. Put this in perspective in terms of ipos trading and going out at this much of a premium to the original range. Is that a typical, typical . Alex for the Big Companies it is terror fairly typical but this is a big gap. Times, went out at 13 and this was before reality set home for twitter and the stock fell off. This big of a gap for a company that is Consumer Tech that a lot of people know, and is coming in with a very high private valuation that is close to the 20 billion market value at this ipo is typical but snapped is taking it to another level because of it ties, and because investors know what this is. Lewis how do snap alix how does snap wind up making money . Adam is a messaging platform with different filters but how they make money is they have Media Companies posting different content from the sort of the now to the more serious the now banal to the more serious. They are trying to reach the younger audiences who watch these things. They have advertising and they also are starting to dip their toe in the water with hardware. They are selling these eyeglasses and they also have flirted with the idea of some others, the New York Times reported today they thought about doing drones. There is other things they are looking into, in the area of cameras and broadcasting essentially your life. Alix eyeglasses, interesting. How much do you how long do they have to improve profitability . If you look at twitter and facebook day started off in the same boat and one proved health, one did not. I think it is clear the company will be losing money for some time so the investors who are buying in have to have some expectation of that. On the one hand there is a lot of reason for skepticism as the company showed slower growth. The structure here is very bizarre. You will be buying shares in a company you do not have much about. The competition is very fierce so theres a lot of headwinds. Looking forward, how they are able to, over that and what the ceo and executive Team Explains on these earnings calls to come will be very interesting because it has been a very private company. It has been difficult to suss out where they see themselves going. Jonathan when you get a gauge on a potential user base, investor base, how many are born into this page the pitch that they are a camper Camera Company or some do not want to miss out on the next big thing . Alex investors are not valuing this company as a Camera Company. Thatems like even though is the portfolio pitch that snap is pushing right now, the real cops will be twitters comps will be your twitters and facebook of the world. Potentially amazon and google, that is their goal to be compared to those companies but it will be interesting Going Forward because if you look at the investor base, they are not the users of the platform and they spent a lot of time doing investigation on what snap actually is. Now that we have crossed that hurdle with his company, getting to what the company is calling phase three profitability. Getting there and the patients factor will be key. For twitter and facebook, about a year and a half after ipo you saw twitter follow dish full of the cliff and facebook moved to the right. Basedroved themselves upon what they were pitching at the roadshow. David many thanks. To put the enthusiasm about the snap ipo in a broader perspective, still with us is David Lebovitz. And how of this is snap much is the excitement in the market overall . David l. i think there is a decent amount of excitement around this ipo. When we look at the economy and the markets broadly, the data has been solid. Markets have been on a tear since the elections last november and people are feeling pretty good about the direction things are headed. I think that is part of what drives the pricing outside of the range that is expected and indicates a little bit of excitement surrounding one of the biggest ipos we have seen in a long time. Jonathan excitement is one thing, irrational exuberance is another. David l. i am not sure we are at the level where we are seeing irrational exuberance. I do not really see any bubbles today. You could say equity markets look a little bit frothy, 17 and a half to 18 times earnings is a little much for the s p 500, but if you believe the story that we will see better nominal data and continued Earnings Growth, perhaps that puts these valuations in perspective so i do not think we are in dangerous territory. I think it is a positive sign. Alix do you want to buy snap . David l. i have not made my mind up yet. I am a big believer that editing on one horse betting on one horse is not a good thing. Were for a more balanced approach. Alix i guess that is a no. David David Lebovitz and j. P. Morgan Asset Management to stay with us. This man was the chief Restructuring Office for the u. S. Treasury, Jim Millstein will be joining us, plus later tom barrack. Live from washington and new york, this is bloomberg. Alix this is bloomberg daybreak, i am alix steel. In growth in 2000 17 2017 even possible . Is what Steve Mnuchin said last week, 2018 3 growth. I am skeptical. I do not believe the regulation in tax reform will boost production that much. I think the other question is how much fiscal stimulus are we going to get, what type, and how much growth can that generate . We are mostly talking tax cuts, not spending increases and those tend to have less of an effect. Moreover, they will be concentrated at the highend. That is essentially tax cuts for people who do not spend as much, so i am not as optimistic we will get a big burst of growth in the short run and im skeptical on the longrun impact as well. Alix what about the 1 trillion Infrastructure Program . What about the potential of that stimulus . Lewis if we actually spend 1 trillion on infrastructure over 10 years that would be a meaningful thing to do. I would note there are big contradictions in what trump has been saying. On one hand he talks about the trillion dollars but his Budget Proposal was designed to be deficit neutral. I do not understand where the money is coming from and i do not believe this tax credits game that was flooded during the campaign is necessarily going to be all that additive. You may get a bunch of pipelines that were going to be built anyway being financed through this mechanism but is it going to be marginal, i am not sure i see it. Jonathan the pressure on the long of the yield curve on treasuries, outward pressure, because people think the 50s are coming to the market. If we are going to have a budget that ultimately is neutral, that does not mean more debt. Do you have to strip that out of the equation . David l. i think you do, but i am not sure you are seeing long rates priced fully in the idea of a 50 or 100 year bond. If you take the Building Blocks of productivity and labor force growth, real Economic Growth should be sitting around 2 . I think the thing we are watching very closely is how much of an inflation kicker do we get on top of that, and what happens with nominal growth . Nominal growth has been lackluster but if we take this demand and injected into an economy that is running out us why, that could be inflationary so the risk Phenomenal Growth is on the upside. I think with the Building Blocks of the economy are telling us is 2 is the trend Going Forward. David do you agree with that, you do not think it as 3 you do not think of it at three. Lewis i have a hard time getting above 2 to 2 two and a quarter. I think on the question of inflation, there is no question inflation is going up. I think the economy is tight. The negative effects from past appreciation of the dollar are waning. The question is how much are they going with . I think the phillips curve is flat so while we will continue to push on that, the question is ultimately help with the is inflation going to go up . Jonathan Lewis Alexander, great to have you. David lebovitz is sticking with us. Tom barrett joins us. He is long President Trump in a big way. We will be talking to him in just a moment. Thet two hours away from cash open and some change, futures turning more sense yesterday, the first one percentage point move on the s p 500 since december 7. All time coming into another session again today. We will talk inflation next and the euro, the euro is weaker. From new york, this is bloomberg. Jonathan from new york city for our viewers worldwide, this is bloomberg. Footing, on a firmer retread water we tread water. In the United States, futures pretty much dead flat. Price action in the fx market, the dollar much stronger across the board. The euro weaker by one third of 1 despite Consumer Prices continuing to spike. Rising toion print its highest level since january 2013. Still with us is Lewis Alexander and David Lebovitz. Great to have you with us. First of all, david, it is the highest inflation since january 2013. We hunt back on target for 2 but core is half of that. The euro is weaker, the front end of the bund curve is panned to core. Am i right or wrong . David l. you are right. Inflation just measures rate of change so what you are seeing is the year over year comparisons for energy look far more favorable, whereas the core measure is relatively subdued. When we think about what causes inflation, it is really lack of supply or imbalance between supply and demand. When you look at the Unemployment Rate in europe around six point 9 , there is plenty of slack in the economy so in terms of price increases it is a bit of a technicality. Certainly Getting Better but we are not quite at the point where it is fair to sound the all clear. Jonathan the ecb, did that change the debate . Do they get to go to the governing hawks and say make a move . David l. i am not sure anybody would hear anything that is what the hawks said. Inflation and places like in ofmany is a byproduct policies for the past three years and im not sure how strong the argument would be to reverse course so quick. The positive signs is inflation is positive across all members of the eurozone and to me that is assigned these ecb policies are working. I think they are taking cues from the Federal Reserve. They are not trying to pull the carpet out from the economy. Jonathan you look at the situation in europe, the Federal Reserve, the chief dov saying things are on a firmer footing. For the economy, yes, politically, no. Lewis i think they are worried about it and the fact that the Growth Numbers are doing better, the fact that we are talking about inflation going up in europe helps them. I believe they are worried about the political situation. It is hard not to be. Brexit is one thing, to be perfectly frank, but if you were to see a change in the commitment on france to the european project that is a bigger deal. That seems to be an issue we are dealing with. Jonathan the fourth biggest debt market in the world and france, a president ial candidate talking about redenomination. That is a big tail risk. How much of a factor is that in your positioning in europe, it could be a radical shift in europe but it is an outlier possibility. David l. i think it needs to be part of the set of risks that investors look like look at as well as this situation broadly. You need to be cognizant of what is going on. I think last week when we saw bund yields rally, that was a sign that people were thinking a little more about this denomination risk but they seem to have backed off, so while the eurozone may look very different 5, 10, 15 years down the road our case is that for the time being things will stay together. European equities looked cheap compared to their u. S. Counterparts so if you can hedge i think theres opportunity. Jonathan there is marginal week denomination risk around germany and france and the rest of the markets price it but there seems to be no followthrough through the u. S. Session. At the moment at least there is no followthrough into the United States and does not appear there is any followthrough into the economy either. Experience, people in the u. S. Do not understand europe terribly well and it is hard for us to all went. Brexit, you get complacency and then the vote and then markets go haywire and immediate recovery, there is a bit of that when people look at what is going on in the political calendar in europe and say, it will not be a big deal. In some sense i think that is a mistake in that the issues at stake are bigger frankly than brexit. I think that does creating risk if it goes that way. I think a look 10 victory is still le pen victory is still a tail risk but has potential big consequences and the u. S. Markets are being complacent. Jonathan Lewis Alexander and David Lebovitz, thank you for being with us. Say good morning to emma chandra. Emma in the u. S. , there are more questions about Donald Trumps president ial campaign and its alledge ties with russia. Attorney general Jeff Sessions had conversations twice with the Russian Ambassador while he was a surrogate for the campaign but in his confirmation hearing he denied any contact. If there is any evidence that anyone affiliated with the Trump Campaign communicated with the russian government in the course of this campaign, what will you do . Senator franken, i am not aware of any of those activities. I have been called a surrogate at a time or two in that campaign, and i did not have communications with the russians and i am unable to comment. Emma the white house is standing by sessions, calling the controversy a partisan attack. Malaysia will release a man arrested in the killing of the half brother of the north korean dictator. The suspect is a north korean man who will be free tomorrow and deported. They do not have enough evidence to charge him but two women have been charged. In europe, sweden is bringing back the military draft to counter rationals russias buildup. The country and that the draft seven years ago. Ended the draft seven years ago. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. Alix thank you so much. Oil prices up five months out of the past seven and the question becomes what does that mean for m a . Deals now stand at 95 if you go to ma go on your terminal, with the dollar never so far the highest ever. Joining us now is a man in the trenches. A qamar of the is a credit seven deals worth 400 77 million. Thank you so much for being here. Great to see you. Alix exxon finally getting into the permian ends ending some money. One third of two thirds will go to u. S. Shale or. Is four. . Extensiveobil has an budget so you have to keep that in context. They are certainly making a strong move into shale. The question is how do they do it . The deal was a privately negotiated deal with a private group, not a Public Company, but i think with continued will be morethere and more m a and more and more Big Companies looking, although valuation will remain an issue, and we will continue to see substantial equity issuance. I have been in this business for three decades, and we have by far the largest ibm ipo backlog ever. Aix we will get to ipos and second, i want to ask about valuation. Exxon went into the permian and valuations are sky high. They are valued at 82 times even. Ebitda. Where do we see those deals in the u. S. And that what kind of price . Osmar i think we will continue to see deals that value will remain an issue. If the permian continues on the path it is in terms of valuation i think you will see people looking in other places as well. A number of the companys and the permian desk in the permian already traded robust valuations of a have a currency they could offer that could be attractive to potential sellers as well. Exxon is pretty well position company, they can be very selective in what they do, and the deal they did was a privately negotiated deal. They are not necessarily looking at it in the same terms as a Public Company deal. Basin,ore delaware where . Osmar i think people will be looking at all of them and it depends on what energy and leverage you can get. To enter a new basin people have to be more careful. Alix we have a chart showing were ipos are right now. Really fell off a cliff in the back half of 2016. Oil services picking up now. What do you see for the rest of the year . Osmar ipos particularly on the oil Services Side are not being driven by fundamentals that by what investors seen as future improvement. There is a reasonable percentage of investors who are looking at and expecting a Material Recovery by 2018, and that is what these ipos are being valued against. We do have a record backlog. In terms of deals there is over 20 ipos coming. Oil normal year in the Service Business which is a fairly concentrated business, you might see five. A substantial uptick. Alix will that be dependent on the oil price . Does that backlog get way to down . Osmar certainly it would be impacted by Commodity Prices and volume, or supply. There is no question that we as banker serving our clients will have to manage that carefully, but the expected uptick in 2018 is not driven so much by a significant price improvement. It is really driven by expected improvement in activity. The reason that activity improvement is being foreseen is that first of all, there has been a lot of consolidation, a lot of old equipment taken out of the market. In addition, we spent most of 2015 at 2000 extinct raising tens and 2016 raising tens of billions of dollars. Alix what is the scale of these guys going ipo . They will not be the baker hughes of the world, right . Can they compete when there is so much money looking to buy services . Osmar investors and customers certainly reward innovation, technology, positioning, reputation, and equally as important safety. I do think some of these companies are smaller than the names you mentioned that i think they could be very successful. Particularly if we were in a rising market, customers like multiple Service Providers and they all bring Something Different to the table. Alix they are mostly u. S. Based . International and deepwater has not seen much recovery. Osmar almost all of this activity is north american and primarily u. S. Onshore driven, but those other sectors will come back. Stop does the ipo market the m a market . Osmar theres certainly an impact because it is an area for people to monetize their position and raise capital. If public equity valuations remain high it will certainly impact m a activity, but i think we will see both and the reason is because with oil prices being at a relatively stable period, we see this spread narrow significantly during narrow significantly. I think we will have both. Ipo valuations and Company Valuations do impact m a activity, but m a is driven a lot by ceo confidence and board confidence, and people are feeling pretty good. Alix when you talk to their clients, what is there consensus Oil Price Forecast for the medium term . Inar it is generally a rise all prices because there is certainly demand growing but there is a lot of production coming. That depends on how the opec members operate and the agreement to have announced. There is a lot of things that drive that global Economic Growth. I will also say that in my view, the Current Oil Price environment does not reflect any Political Risk and unfortunately we live in a world that has plenty of that, so we believe it is steady growth but it could be impacted by a variety of factors. Alix thank you very much. You thought we would see 50 oil we would not see these kind of deals but the industry has adjusted. Longhan coming up, he is the u. S. Economy and has remained one of the president s biggest supporters, tom barrack of colony northstar joining us. Later on, the president will the aircraftks on carrier in newport news, virginia. From new york, you are watching bloomberg. Emma this is bloomberg daybreak , i am emma chandra and this is the hewlettpackard enterprise green room. Tom barrack, colony northstar chairman. Jonathan david this is bloomberg, i am david westin. After the president s address on tuesday we have been looking for more details on his economic plan and we are told he may be giving those details when he talks on the airport Aircraft Carrier Gerald R Ford in newport news. Joining us is an expert on public and private finance, Jim Millstein. He served as the chief Restructuring Officer of the Treasury Department in the obama administration. Lets talk about one thing that President Trump adjust, 1 trillion for infrastructure, and that sounds really encouraging for people looking for fiscal stimulus but a lot of people are questioning how we will pay for it without running up a big deficit. What are the options available . Rossthe plan that wilbur proposed is a tax cut plan. They would offer private equity and private Companies Tax odd billionnst 130 dollars worth of investment in public infrastructure. Start, but by definition, if it is private capital they are going to be looking for a return which means the kinds of project that would support our projects that ripped produce revenues, tools on bridges and highways, electrical utilities that can charge ratepayers to pay that the cost of the capital. Should start, and it create significant new investment but it is going to be investment of a particular sort. David that was a plan that was brought out during the campaign and lets assume they will take a look at a blank sheet of paper and look at that. We have gary cohn today reportedly meeting with advisers. Between a blank sheet of paper, what would you do . Jim where we are today, the governor government spends about 100 million a year for water infrastructure, wastewater treatment, highways, public transit. David that is baked into the economy already . Jim it is baked into the economy already so if you want to spend another 1 trillion over 10 years you want to double that. Without putting undue pressure on the dead on the budget, we are already running a deficit. Without putting undue pressure on the deficit you are going to have to figure out how to finance this. David how . Jim private capital, so that is the tax credit. People in washington have been talking about infrastructure bank. This good the a vehicle where the government itself with an effect equity in the bank and raises thirdparty capital. David so sort of seed money . Jim exactly, and puts it in private capital. Again, that bank because it is going to need to pay back its that and provide a return to taxpayers on its equity, also is going to need to Fund Projects that can be told and revenue to. It is a class of infrastructure we need but there is a whole range of infrastructure that unfortunately we have to spend money on. Our roads are in serious need of repair. For civilan society engineers has identified a couple trillion dollars of just repair and maintenance needs to be done. This is the important part of what the government does to promote Economic Growth, to reduce congestion, to see the connections between different parts of the country, to make sure we are drinking clean water and therefore improving our health. These are important public functions. The federal government has really fallen down on the job over the past years. David one area is financing of housing, and there has been essentially publicprivate partnerships that financed housing. We did not hear about that in the speech, why not . Jim it is a really complicated topic. Congress took a swing at the plate three years ago on housing reform and got bogged down in the details. David this is fannie and freddie . Jim fannie, freddie, the Federal Home Loan Bank which has a trillion of its own, but fannie and freddie are the big issue, a big, unresolved issue. We took them over and put them in a conservatorship and there they remain. David will we spin them around . Jim the new secretary of treasury talked about that earlier on and then when crossexamined on the hill he dialed it back a little bit. Right now, given the impasse on the hill it may be the only practical alternative, is to recapitalize them, we regulate them more heavily than they were regulated before, and reprivatize them. There is a lot of resistance to that but i think legislatively and administratively it is probably the past is resistant. David without the implicit full faith and of the government . Jim they were just undercapitalized. They were able to operate without significant capital. David Jim Millstein, thank you very much. Alix if you have the bloomberg terminal, you can watch us online, click on our graphics and interact with us. Tv on your terminal, this is bloomberg. Alix this is bloomberg daybreak, i am alix steel. Dow futures aging into positive territory. Kicking it off with ab inbev, earnings missed on weaker brazil beer sales and this is the seventh straight quarter. Analysts say that will probably be the trough. Earnings missed consensus by about 7 . Taking a look at kroger, earnings and revenue both had it beat. Sales, Gross Margins also a bit light. Walmart putting pressure on packaged Food Companies to reduce the costs they charge to walmart but the company reaffirmed their longterm Earnings Growth about 8 to 11 . Monster beverage, seeing a monster rally, heading for the best day since april. That flew through to the bottom line, income up 25 . We keep getting caught between the better earnings for some of these companies and better Earnings Growth, and you could say in death was about brazil in bev was about brazil. Jonathan how much is left on the table at snap and what will a oneday pop look like . That is a nosebleed valuation by many people. David a lot of people are very nervous. Alix today miss money at the end of the day or do they wind up losing money on the table . Jonathan facebook, the big lesson. Coming up, do not miss this conversation with tom barrack, colony northstar chairman. Tomorrow we will be launching a new program. Each friday at noon new york time, 30 minutes dedicated to fixed income. 5 00 p. M. London, do not miss it. Here is the situation in global markets, about 90 minutes away from the cache open, future stable, stocks come in at record highs. You are watching bloomberg. Mark snapped ipo delivers a. Nosis evaluation strives markets higher. Dorset another rate hike. The u. S. Economy is on a much firmer footing and back on target. Desk eurosformation inflation of highest growth since 2018 2016. Ism new york city, this bloomberg daybreak. I am Jonathan Ferro alongside david westin and alex neil. Alix steel. We tread water on futures. Negatives, not even two points down. Not even 8 10 of 1 . Treasuries on offer again. Hell tire. The twoyear yields up by one basis point. You do have the vix off by about half of 1 . A little softer with expectations heating up. Downsides up by over 1 . David the big news in companies is snapped trading on the New York Stock Exchange later this morning. Above theced shares market range, the company is going public at evaluation twice that of facebook. Companiese tech debuted. It is a multiple revenue earning. Alix they have no earnings. This is a company that loses 500 million a year on 400 million in revenue. That is a gap between topline and bottom line and they love pricing because it is not profitable yet. Still a very young company. Any investors getting in our basically betting that they continue growing and that eventually they reach profitability, not like the twitters or groupons of the world. David how much is this remarkable price really cold hard calculation and how much is fear of missing out . There is a lot of fear of missing out right now at the ipo. We havent had a tech deal since december. We havent had a big text deal since alibaba. When you think about folks who want to have some impact in their portfolio and they are looking for new names this is really the first sizable offering. 200 million shares is a lot more than the typical 10 million that we saw for the smaller Enterprise Last year. If you are chasing some returns and the equity market and you want to that on the next big thing, this has basically been your only option. As facebook has matured twitter has floundered. Jon we had several conversations about how the roadshow is going and you said it was mixed. Others said it was bad. Some people were excited. Why are we here on the morning of the launch of this Company Going public at this valuation . How did we get here . It is the fear of missing out. Think that is driving a lot of what is going on with the valuation at the moment. If you look back to facebook, they went out on sales multiple at 19. 4 times per sale. Now they are trading closer so as the company has matured that has come down. It would be interesting to watch the trading over the next couple of months because i think there could be a lot of shares in hand, it a lot of volume, potentially volatility. You remember the nonvoting shares. Formal recourse for investors and as they start to hit their earnings they say youve got a 26yearold as ceo and he needs to continue to impress investors and show the risk on betting on a company that might never be profitable is worth the return. David thank you for being here. Joining us now is tom barrick, executive chairman of colony north star. A supporter of donald trump and chairman of the committee for Donald Trumps inauguration. So you are a successful shrewd investor which is a great combination because we are looking at the markets setting new records day after day. How aware is the president of those records and how much response ability to they feel to deliver support to that kind of evaluation . And iy are keenly aware think the responsibility is overwhelming. It is multifaceted because there are so many pieces to building a platform based on hope, predictability, transparency and im confused expectations. Expectations. His White House Team is established but the agencies are still unfulfilled. The confirmation process is complicated and difficult. The hope is that the market is voting with its beat everywhere in the world. It is exhilarating and frightening because to sustain that moment tom takes a multifaceted approach across all of these agencies. A global perspective, a consistent Foreign Policy, and understandable budget and on bad ,nfrastructure, these are huge unbelievable concepts that have complicated details and of limitation. And in limitation. They will feel the burden in overwhelming way but hope in the financial markets, i think is a great contributed sign. This is a multifaceted job. David the president said his first goal is jobs in the economy. He has to get to obamacare, he says, to get there. It would not necessarily be his first choice to get the economy growing. To some ofn he get the underlying growth policies . How fast he gets to obamacare, we are going to find out. This is a complicated process and the budget will be his first legislative initiative in going through this consensus process which would be a challenge for everybody. The great news is he has the best partner imaginable in Vice President pence. He understand legislative process as conciliatory, he is a great budget director but obamacare will be a challenge for sure and i dont think that impediment to the other processes. Shrieking government, getting rid of tax policy, Steve Mnuchin and gary cohn will get that wrapped up and congress will embrace it. To the middle class, that will be a boon. ,n increasing military spending it is a noteworthy cause and what money comes from this is a challenge. The big themes of where you take it out of the rest of the budget will be the details he put together with this lego set which will now be less than adamant. You will see the science part of it now take place. That the president did an unbelievable job in showing compassion and a leniency to other points of view in his last speech. Alix we are going to get to the budget and drill down deeper in the next segment but the dow at 21,000, the s p over yesterday, they believe you, they believe that hope. The treasury market does not. You had a letter curb yesterday. Ladder curve yesterday. One side said we were buying a road and the other side said they want. Two different investors did this. Alix true, but if you have a growth story and banks are buying into it, but the rate market doesnt keep up that does make a difference. Maybe it does. Maybe it doesnt. What you are doing is selling , expectations and transference. Or you are selling fear. That is the way markets work. At the moment we are in hope and without any geopolitical interference there is no better proxy in the world for any men america. There just isnt. There has never been more liquidity in the world. If you take the middle east, china, the Asian Countries and japan now and outlooks the capital from japan that we have been seeing in the last 20 years, where does it go . Do you hit the liquid market . . O you need information you need consistency. There is nowhere else to go. Equity markets are continuing to be buoyant. And on snapchat, which is a and so old investors like me it is difficult to understand but around the edges, what they have created is a phenomenon because the Real Estate Market has gone crazy, not just on the residential side hotels and cell and thend cloud hotels proliferation of what is happening as a result of all of that, it is all good. Jon the address to congress, it was kind of like the tom barrack speech. Most people consider the steve bannon speech. If you take the titles of those speeches, they are two different people. As an investor as you look at this, for guidance from the president and his state of mind and the people around him, which one is the truth . Because they were two different people. I think the great news is that they are both the truth but the speech that you just heard is the donald trump speech. I think that is what the world has to see. You have an unbelievably bright engineered a campaign that focused on a constituency that was undiscovered. So when you got to the inauguration the delivery of that inauguration speech in a vectorial manner was to that constituency. We talked about the man who has compassion, the man who is conciliatory and the man who understand the art of negotiation and you havent seen much of that. What you saw this week was really the man. That was donald trump. Whose speech was that . That was donald trump. Of whathe expectation is in front of us is he put this team in place, which is quite complicated. What he has now is a White House Team which was mostly his campaign team. Very bright guys in addition to gary cohn. Steve bannon, jared kushner, reince priebus, you cant do any better than the president Goldman Sachs. The agencies are getting the top people in place. What people dont understand is that process is like running a railroad. You have another 2000 jobs to fill that happened started to be filled. About tax policy, Steve Mnuchin is going to treasury and he needs somebody to implement policies and practices. The live people there are Civil Service but they are not politically oriented so they cant take those policies and implement them. Take that time between the connection between white house ides. It just takes time. I think what you are going to see is that the speech that was andn this week is the man that man will continue to become more conciliatory and more clear and more transparent as his team is built up and the agencies allow him to have efficacy on his politics. David finally, put your investor hat on and try not to try to put aside the friend hat. Are do you believe the odds of getting 50 done of what the president has laid out and based on that are you a buyer or seller of the dow at 21,000 . I am a buyer because i am very well aware of what the options are elsewhere in the world and i dont see any good ones. If he getslieve that less than half of the five things that he has promised america, just in action not necessarily in place than for the next two or three years we will have a growth cycle and expectations of productivity that we havent seen. Alix the budget is up next. Note,k programming tomorrow we will have special coverage of fed chairs Janet Yellens speech. All eyes are on the president of the Federal Reserve. This is bloomberg. Alix this is bloomberg daybreak. Crude is rolling over a bit by one half percent. The headline a little while ago was saudi arabia is cutting its selling price to asia, the u. S. And europe. In a tighter market you raise prices. In an overnight market you lower them. Can the dowell hold its gains in the future market with crude rolling over . With us is tom barack, chairman of northstar. Wessel. H us is david what is the name of the game. 50 billion when it comes to defense spending. One trillion when it comes to infrastructure. David, where do you cut to get that money . That is the big challenge for President Trump. He has made clear that he wants to what we call the nondefense discretionary budget. The annually appropriated spending. Of the budget4 and it is not clear how he is going to pay for this increase in defense, let alone the tax cuts. The president seems to be unwilling to tackle what everybody in washington knows is a big part of the problem. Of entitlements programs, social security, medicare, medicaid and Health Programs that are growing up as we have an aging society. The budget director, paul ryan and the speaker of the house have been talking about having to do this. Now we have a president who so far has refused to touch that. It looks like youve got the border adjustment tax, tackling entitlements, raging the budget deficit grazing the budget deficit. The point of view is enlightened. This president is saying the key is growth. Growth, jobs and productivity. You have growth at 4 . If you have a funding mechanism that will work, when he is 54 billion oring 640 billion to the military away 25nd taking million from the state department, the balance of these things it is not a trillion dollars in interest, it is on balance. Infrastructure already has subsidies. Bonds. Ady have qpi a there is a thousand kinds of financing techniques. The Regulatory Framework is the problem. Lookingthe president is to say i wont touch entitlements, i will find my way out of this and we will balance the budget in this process. Tween the Budget Committee and his own budget group, the growth solve the problem. You have more than just the budget problem. David but you have to have realistic expectations. Go back to the ceo. You can fix your income statement quickly if you fiddle around with the discount rate. At what point are you really running the risk of being overly optimistic in building in costs that you cant afford . The biggest driver is supply and demand. It is not in the Balance Sheet because you can adjust the Balance Sheet and at 20 Interest Rates people were making a fortune. It wasnt just the industry. We are in the financial, passive frame of mind where everybody is just searching for yields. They are not worried about making money. They are making money on the money they have. This is the misnomer. Going back to an economy based on making money is supply and demand. Theave easier access to lending process for small and mediumsized enterprises. Risks, yout taking have more snapchats more inventions in the garage, more exporting of American Intellectual property that is protected elsewhere. China is our friend, not our enemy. That balance of what we do in this bilateral trade negotiation could be huge. Notltilateral process to criticize anyone that was in there it just doesnt work. This process on what they are doing on trade and finance and what they are doing on unwrapping the regulatory n, iters and businessme was the worst day of my life. It is the best bank in the world but the worst day of my life. We spent eight hours. As far as ceos trying to create a mission providing this bank for it is just in wrapped in a regulatory morass that serve no purpose. David how do you respond . Back in the 90s we did have a time where we were running a Budget Surplus because of growth. That was a pro because of the growth over the economy, partly because it got the borrowing costs down. The cost now must be low for the u. S. Government. Why isnt it realistic to express expect we grow our way out of this. Rack is right, it is going to be hard to lift the fortunes of American Families without faster growth. But two things. 4 growth is ridiculously optimistic. Given the rate of growth of the workforce of about a half percent for an aging society and given that productivity growth hasnt been anywhere near 1 likely, it is a great aspiration. I hope that President Trump has a program by the end of his term is 4 but that is imprudent for our budget. Secondly, growth is not enough. It is necessary but not a sufficient condition. We are an aging society, we have a debt 75 of gdp. Years or so we5 are going to have to raise taxes or cut spending and the president simply is saying to us you can have your cake, eat it too, it will taste wonderful and you are not going to gain any weight and that is a responsible. David so how important is the deficit issue that david just described to the president . It is critical and david is an expert in some of the parts which is key. 100 of gdp is not unusual in the world. In america it is startling but in other countries it is low. Way, using debt to grow your way out of a problem, you cant take the issues that are in front of you you need the Brookings Institute to solve all of this which nobody is really capable of. So the first step is growth. More toave to borrow get your way out of that problem, i think it is sensible. It is what people have done throughout history. It is a combination of one hand on the break and one hand on the accelerator. Jon so the Brookings Institution will try. Thank you for joining us. Thank you for talking about banks in regulation. If we had not had that that day we will be a whole lot worse. In france, Francois Fillons legal problems left his voters wondering where to turn. Centrist front runner Emmanuel Macron could be in line to benefit. He sets out his campaign promises, one of which is to defend the european single market. The International Executive editor joins us now. The troubles of Francois Fillon are who is in line to benefit. These conservative voters, where did they go . If you go out as we have done over the last day or two in utah, the theme is generally a sense of disgust and unhappiness in him. There is a deep sense of despair to it have come to this but but they are going to voting against marine le pen. That goes right back to the a jury in war of the 1960s where the french had this bitter split between the center right and the far right. Le pen might take up some fillon seems but right now it they are talking about macron. Jon the latest twist, le pen losing parliamentary immunity against prosecution. What does that mean . I think she will brush this off. Her line in all of these things is that this is another sign of the political establishment asging up against her what you said at the top of this, the real news is macrons residential platform. He is right now the front runner to be the president of france. It is important to pay close attention to what he has to say. His message is very middleoftheroad, very proeu. , even of the candidates the most important point, he is the only one who is actually pledging to stick to the eu so he is presenting himself as a fiscal conservative as they enter the final stages. Jon this is an absolute mess. Is that the four biggest debt markets in the world potentially facing risks and across the channel you got the political ramifications of brexit in the u. K. We talked about the house of lords. How much of a headache is that going to be for the Prime Minister . I think is a glitch. There was some talk that she would like to have this done by early next week where she could trigger article 50 as soon as the end of next week but this is a glitch for her. She certainly doesnt want her hands tied by the house of lords and she is going to try to overturn it. Looking at this, you are still looking. She is on course to trigger article 50. Again, this is sort of a westminster parlor game right now. Be blowns going to massively out of proportion. Jon tom barrack is sitting around the table. Thankfully he is Running Companies in the u. S. And not europe. A whole host of data in the United States. Bloomberg will bring it to you. We are watching bloomberg. Jon this is bloomberg daybreak. I am Jonathan Ferro. The day pop since december 7. If you are looking at a 1 point move, that is the last time we had one on the s p 500. This morning is that flat. We tread water with record highs in the United States. Thing. S doing one price action elsewhere. Yields high by two basis points him the 10 year. Jobless claims coming in at 220 3000, lower than estimated and lower than the week before. Individuals filed last week. That is a fall of 19,000 better than estimated. Im used to having a jobs report tomorrow and not used to having a week and a half between that they are saying that yesterday, we are nearly at full employment. A big statement. Jon the payroll is like muscle memory for you. Alix and tomorrow we get the officials. Jon alix steel, thank you very much. In todays morning meeting, the head of inflation portfolios at blackrock joins us now from his office in new york city. Weve got a labor market in the u. S. And eurozone inflation. Target . E we back on martin, great to have you with us. The market, though, is kind of rolling over. It hasnt been this long inflation since middecember. Does that change for you . I think you phrase the question in an interesting way. I think is the market long inflation . The market is currently grappling with the base of effects weaker Energy Prices 12 months ago. They are now feeding into headline prices. You had european flashes this morning. 2 ,ently, the target of core still came in at 0. 9. Which, if you heard anything from mario draghi recently, it is focused on core inflation and trajectories Going Forward. Jon if you look at the base affects, in the next couple of months they are going to drop. I wonder what happens from there and how much of the move we see in the United States as well is about this affects . Base affects have had a meaningful influence. We expect headlines in the u. S. Are about 2. 6 or 2. 7 in the next couple of months but then they drop back down in the second half of the euro. As i said, in europe, we had a flash of two this morning. If we take a step back and look at the core metrics, core at 2. 3on in the u. S. Is in the latest cpi print. That is roughly the level where we are going to head into the end of the year. The base effect may fall of headlines but the inflation dynamics in the u. S. , as todays job data jobless claims data points to, we are running on flat. Core inflation is going to be 2. 3 to 2. 4. 2018 it is north of two and a half percent. Europe, 4. 9 has a long way to go for the inflation target but the one component of todays flash that i think is somewhat interesting is that Services Inflation within that number jumped from 1. 2 to 1. 3 yearoveryear. In the developed world, that is the Building Block of cpi. Jon to forget to how you invest, i want to finish up about how you are thinking about the market currently and the Federal Reserve. Antsy. A little bit what do you make of that . Does it change the destination . I think the word antsy is a very strong word. Was speaking to tom keene earlier in the week and we have been perplexed by the lack of probability priced into march and the march meeting. We are obviously surprised by the recent rhetoric from stanley and brainerd yesterday that they put march firmly on the table which we think is warranted. , basically, full employment and we are close to price stability and when you look at prices in the market, the real fund in the next couple of years were really basic, which is inconsistent with an economy at full employment and close to price stability. Is that nowresting that mark has been put on the table, what does that do to Market Pricing not only for the remainder of 2017 but going into 2018 . I think the fed has had a window in which to tighten. Financial conditions have eased and i think that makes a tremendous amount of sense. Jon i will use the antsy word. Lets wrap things up by looking at your trade and investments. That is the framework. What is the price currently . How do you think about the World Investments currently . We still think that riskfree rates globally are probably at the risk of moving higher. From iteration perspective, we are trading from the short side. With respect to inflation, we think that they are undervalued. Ini said, we think or cpi the u. S. Is at risk of moving to the north of to an a half percent next year and yet when i look along the inflation curve of the u. S. We are still pricing in the cpi in the vicinity of 2 for the next 10 or 15 years. I think that risk premium is somewhat mispriced. Jon great to have you with us from blackrock. One of President Trumps policies where he provided some detail was infrastructure. To launch our National Rebuilding i will be asking congress to approve legislation that produces a 1 trillion investment in infrastructure of the United States, financed through public and private capital, creating millions of new jobs. Alix the idea is if you get one trillion over 10 years, the hundred Million Dollars a year. Bloomberg intelligence crunched the numbers and that is just about 1 10 of a percentage point in growth each year. That is not enough to move the needle. It is not enough to move the needle. It is enough to put some fuel in the vehicle. So if you think of infrastructure, the federal government which is basically subsidizing municipal projects, this is the confusion. Not the federal Government Spending money, getting jobs building bridges and roads. It is the federal government providing this very complicated credit enhancements or bonds. They go through a complicated process. And states and municipalities could put these projects on their Balance Sheet. Public partnerships at least talking about the United States. Bonds andnicipal state bonds and all of the state engineering unions on the Balance Sheet. We will pay for it over time. So what happens is the whole process starts being stimulated just like housing. We were talking about fannie and jenny may. Action. Imulate private it is not just about what happened with a hundred projects. Interested in a partnership, three or four big ones that have a capacity to do industry a fledgling as is engineering. They will spend 20 million for 10 years just trying to get on the bid list of a project that doesnt go so once you provide certainty, if you overstate municipalities, you have investors in this new fannie mae infrastructure, then you will start getting efficacy and moving all in the system and it is not just the bridge or the water project. Alix david, industrials czar. It is gas in the car. David but when does the car get moving . In longterm growth, we had huge Infrastructure Investments in the 50s but it didnt show up for 20 years. We cant wait that long for 3 growth. I dont think it is going to happen. Drawing in 15 agencies to the federal government to solicit their opinions. What can be done on a regulatory basis to move the system quicker . You have 590 or so problems in the apartment the department of transportation and then you take roads and then you will through this and it can happen quickly. There is so much money for infrastructure development. For info structure bonds, the funding all over the world is a mess because it is a 20 year contractual payment. It is not the money that is the problem. It is how do you influence municipal and state governments . How do you create an incentive for them and join us in this process . We have one place you go to expedite this. Take the first hundred and 50 and you do it in the next six months and the planning is done. We have these on the drawing board for 10 years. David in the real world explain how the transmission works. Tomorrow, say they win a magic wand and improve infrastructure. Do you invest in more real estate . Absolutely. Infrastructure is key even talking about mexico and immigration and trade. If you have an antiquated system , you cant move goods and services so if you look today at real estate, Shopping Centers are under attack. Right . I come home and it looks like a disbursement center. The Shopping Centers are turning to the film and centers. Last Mile Delivery is what happens. In the process of how that gets done, it is critical in how people live and what they do and where they go. Because traffic all of the world is impossible, water is impossible, delivery of gas and cable is impossible. Delivery of bandwidth is impossible in most suburban areas so once that starts, then you have entrepreneurs form around it. So, tesla goes to nevada instead of california and you have a 500,000 acre Industrial Development boom around a subsidy which includes getting the infrastructure which is power, water, utilities, people, Residential Housing around it. It can only be beneficial. Alix the feedback on the biggest question turns investments. Looking at caterpillar, not a record high but in a huge runup. Do you start betting on this kind of infrastructure during a time where targets are dealing with robaxin regulations for banks. Is that the right question for infrastructure . Caterpillar is a little harder. Ut yes, for sure for engineering and the delivery of Pipe Manufacturers and concrete manufacturers and the rebirth of all of this. And in emerging markets. Caterpillar, 60 of its business is driven by emerging markets. It will come back. Great ift can only be that stimulus has the federal government coming up with an economic subsidy of mostly the Regulatory Burden in municipal permitting processes. This is a difficult industry. We will take care of it. In canada and europe they are run by public programs, not on the Balance Sheet. Go out on a limb. Give us some sense. 18 months from now if this works the way the president hopes it would work, what is the change in gdp growth . Thank i am not an economist. It will be up. David but you dont know how much. Ok, thanks. Alix oh, come on. Up later,ing President Trump will deliver remarks toward the Gerald R Ford Aircraft Carrier out of newport news, virginia. We will bring you that live at 2 30 p. M. Eastern time. Tomorrow, coverage of fed chair Janet Yellens coverage in chicago. This is bloomberg. This is bloomberg daybreak. I am emma chandra and this is the hewlettpackard enterprise greenroom. In the next half hour, ed yardeni, chief investment strategist. Time now for other stories making headlines at this hour. I am emma chandra with your Bloomberg Business flash. In china alibaba reiber rival is stepping up competition. It is extending its finance arm and it will retain a share of future profits. That sets up another battle with alibaba which has sparked its own finance unit. D. Com is backed by walmart electric carmaker tesla says revenue from china tripled last year to more than 1 million. The company face problems in china including slow deliveries and concerns about charging stations. Now the country accounts for more than 15 of teslas total revenue. Tyler and cameron with the loss will learn within days whether they can start operating offering their Bitcoin Exchange fund. They wanted to discuss their proposal. The decision is due by march 11 and an approved etf would make bitcoin investing simple for Small Traders and institutions. That is your Bloomberg Business flash. Of the big risks markets have seen in the trump has been his approach to trade including with our neighbors to the south, mexico. Tom barrack is working closely with mexico and has a prospective investor close to the president , Michael Mckee joins us now from mexico city. You have spent a lot of time on the new mexico on the mexico question. How do you express the risk of pushing mexico to harden these negotiations . I think there is a real risk, a dangerous risk. If you look at north america as a unit, we have always been protected by sees. Militaristic lee, the sea has been our greatest advantage and that alliance is critical. Trade, you have two of the three best trading partners aside this with the proliferation of labor, the proliferation of capital, the proliferation of resources, and combined they are powerful. I think mike can comment on it on the mexican side the immigration issue which is causing a backlash socially, you have a Political Movement boiling up that is really dangerous, it can cause a reorientation to other foreign powers. Filling very astute at where our Foreign Policy leads. It is already in the energy sector, bolstering large Infrastructure Investments. I think this balance of where you go with them and on the border, most of the mexicans agree that the border is to be adjusted for passporting, for fees and allowing both labor and goods to pass in a more responsible way. If that happens, if you have 2 admissions and a billion dollars a week, if you took 100 billion of just passing remittances and were more efficient by 3 you have paid for whatever virtual law you have to everybodys benefit. I think it is critical and it is dangerous. David you interviewed the man who would be negotiating for mexico. He had a fairly aggressive tone. What kind of pressure does the mexican president feel . Enormous political pressure. He is in his last year. Next year there are elections which puts a timetable on it, making it important to get something started once donald trump get some people in office who can negotiate. But the mexican people are really united and they made the point that you cant humiliate people at the negotiating table and that has been what the u. S. And ministration has been doing. To toms point, i have a chart and if you can pull up migration to mexico, into the United States, you can see nafta started manufacturing jobs in the u. S. Went up, not down. When china joined the wto we had the great automation of 2000 on that we saw manufacturing jobs start to leave. In terms of migration, you can see migration prevention has dropped off. More mexicans in the u. S. Are leaving than coming in. So they dont understand what the problem is. They dont understand why donald trump is so firm on the wall and why donald trump called nafta of worst trade agreement in history. I asked them, do you know what he was to fix this . We had no idea. David you know the ministration well. Is there a willingness, and openness to climb off of this parapet . Is there a way to come down off of that so we can really come to terms with mexico . For sure. When we need our steps and those steps are people in place. Rex tillerson, and unbelievably are, theylighthouse dont have a staff. They can run down and do a softening, meaning they are putting a Team Together to look through nafta and really what is the issue or how we make your life simpler in light of where we are today. This immigration issue is the simplest part in the president is starting with streamers and how severe is the immigration piece of this, pales in light of what happens if you have an unsettling political process in mexico. That border, the protection of that border and shove as like politics that could happen as a result of this being overzealous , you could recognize that. David thank you so much to mike mckee. Tom barrack you are staying with us. Alix you are giving us the easier line. We have bloomberg terminal, you can check out tv. Click on charts and graphics and interact with us daily. It is a cool tool. You might have missed something in the program. This is bloomberg. David this is bloomberg. Before we let you know, tom, given all you know, what you see in the future, what is your strongest conviction trade . I would say firstly in things they know and understand. Generally, real estate is going to be an unbelievable beneficiary. Everything that is happening on the domestic front, i think, regional banks will grow and prosper as you unwrap some of the harshness of doddfrank. Marketsink emerging will ultimately be the beneficiary of a stronger more transparent david and buoyant event. Would you event in mexico would you invest in mexico . Absolutely. As china has retrenched and stopped the outflow of money, it is causing confusion. I think that confusion is by opportunity. Alix you have President Trump and Steve Mnuchin, who is much more aggressive. I think that is all going to in the chinese confusion process of conciliatory dialogue. So they are going to wind up moving to meet china . Currency manipulation today has gone the other way. I think when you get teams in place, once they start bilateral discussions, there is no option except for china and the u. S. To have a prolific and profound and understandable trade relationship. This is just dialogue. David thank you so much for sending so much time with us. That is coming in north star executive tom barrett. Chief investment strategist, the original guy that coined the term bond vigilante. That takes us to tomorrow. Yields each friday at noon, new york time, 30 minutes dedicated to fixed income weekly. From new york city, we count you down to the opening bell. Stocks at an alltime high. You are watching bloomberg. Snapchat delivers a nosebleed ipo and drives market higher. The Federal Reserve and endorses another rate hike as its suggested that the u. S. Economy is on a firmer footing and banking on financials banking and financials are the highest performers in the market. A good morning from new york city. This is bloomberg daybreak. Are counting you down to the opening bell this thursday morning. Big gains yesterday, the biggest on the s p 500 since november 7. Futures are kind of treading water this morning. Treasuries are off and its a stronger dollar dominating the g10 space. Thats the situation across assets so lets give you the details. It only took 24 days toore the dow to go from 20 21000 and is tied for the fastest move ever. Terms, its a different story. If i percent gain versus 10 and the 10 gain was the run from 10,000 dow to 11,000 dow back in 1999. You have to have some context there. Of 30 downe out stocks hitting a record high yesterday. Adding oneing hundred 59 points and apple adding 139 and Goldman Sachs adding 134 points on this journey. Will that continue . s earnings are trickling out. In that has seven straight m corners of earningsi9sses. Kroger is having an interesting morning. It was up over 1 earlier and now its down by 4 . You had earnings and revenue that had a beat but samestore ofes came in negative, 7 10 1 . The company reiterated 2018 Growth Outlook is in line with estimates. Nonetheless, a rough day for kroger so keep an eye on this. Anid we are less than half hour away from trading on the New York Stock Exchange and the big news is snap. Joining us from the floor of the exchange is caroline hyde. Tell us what we should expect in 28 minutes question mark exactly, the opening will be a little bit delayed as some of are involved. Ers firstl probably get the trade at 9 38 a. M. For snapchat. Share, its up to 19 per shower per share. They want to leave room on the table for the market to pop up higher. There is a hope this ipo will go smoothly. They have that ghost logo. There are a lot of expectations so when will we know whether it was the right price . Sometimes it pops up at the beginning and a week later comes back down. Think of twitter in its trading debut. Running about four times future revenue right now. Sometimes the expectation can decrease. Hope but theuch pricing is pretty expensive. Facebook trades currently at 10 times future revenue. Billion valuation on snapchat is 21 times future revenue, more than facebook and more than twitter. Theyve got to show that revenue stays up and how much more can they keep booming . Its not just the investors, you seem enthusiastic as well. We will check back in to see how it goes. Jonathan its at the top of the range. We aree on the markets, joined by eddie yardeni. Begin with exuberance. Is it irrational . I dont think its a rational just yet. It clearly feels that way when you look at valuation of the bowls. 17,have these multiples now 18, 20 times forward earnings and thats close to some of the nosebleed levels we had in the tech bubble. Something has changed since november 8, the market expects there will be cuts in corporate taxes and personal income taxes so the market is may be getting a little bit ahead of politics. Trump has to deliver on these tax cuts and if this happens, thats what the market is anticipating. Jonathan is the fear of missing out gripping investors . It feels like a melt up. Before the election there was secular stagnation. There was a new normal and then something happened november 8. Suddenly people forgot about that and out looks like the old normal has come back. Normalize in a normal fashion for a change. Anybody who gets in at this point, misses the entire move since march of 2009, its fair to say they are getting in a bit late. Alix fair enough but the point is timeline. Lower tax reform and repatriation, what is the timeline . How patient will markets be. You started off in a great spot because maybe its not irrational exuberance but it is extreme optimism. And washington, d. C. Dont normally mesh together. There is very aggressive timetables we hear out of the administration. They want to get tax reform completed before the august recess. We dont even have legislative language yet. It has not been vetted and we have not seen the intense lobbying that will occur. Is that the market reacted well to the speech because the president actually looked president ial as opposed to a reality tv star. Everybody is saying hes president and he will get this stuff done and our concern is that the market will soon realize that its actually very complicated and it takes time and these aggressive deadlines just cannot be met. Play you see that conflict out and markets versus treasuries, right . Yields are going nowhere and they are not talking about 3 growth. How does that reconcile . I read an article that said timing isnt everything. If it looks as though we are heading in the right direction Everybody Knows that and doing is a swamp a drag race in a swamp just doesnt work. I think the markets are realistic about that. The important thing is that we get the tax cuts. I dont think it will happen until this summer or maybe the fall. The question is whether it will be retroactive but it doesnt really matter. Untilf it doesnt happen 2018, as long as the market thinks it will happen, that will be all right. Was a surprise to me. I wouldve thought that with all going on with three rate hikes possible that the bond yield would be higher already. I think we are heading toward 3 on the 10 year. David how realistic are any of these expectations . Has this ever been done before . There is difficult to because of the possible filibuster and record and you have to get past Health Care Division revision before you do that. Has that ever been door in washington . As a proud resident of the swamp, getting stuff done quickly is tough here. Obama care repeal is a giant hurdle. Immigration is behind that, tax reform is behind that and we have to fund the government and a couple of months for the rest of the year. That will invite a fight over the border wall. The debt ceiling is coming back. That fight will have to occur this summer. Has a view that somehow or another, trump has paved over the swamp and suddenly, things will be able to move quickly. The reality is that there are all these speed bumps and what is finally produced in the end may be more like the bush tax cuts that are temporary and more limited than the broad tax reform we saw under ronald reagan. Out workinged closely with tip oneill, the powerful democratic speaker of for bipartisan tax reform. We have not seen that cross the aisle effort yet. Without that, you really cannot get permanent tax reform. David how patient are they . You are into another Election Year when you get past the second half. May beink the market given credit for having a pro business administration. Whether you like them or not, we have dealmakers running the government so its extremely probusiness. The president met with ceos and may be that for now is good enough to know that washington is not going to just keep adding more and more regulations. Its quite the opposite. We dont really need legislation to reduce legislation. The president has put lots of foxes in a hen houses in terms of people in various departments. They will be cutting back regulations and thats a big deal. Jonathan please, stick with us, thank you very much. Program, on tomorrows special coverage of the fed chair Janet Yellens speech in chicago. Minutes away from the market open and futures are pretty much dead flat in the United States. You are watching bloomberg. Alix do you like the banks right now . I like the financials broadly speaking and i think financial banking is the best area. One 2 trillion comes back to the United States, not all of that will be used to buy back shares. M a of it will be used for activity. Alix net chargeoffs are slowly rising. You look at the fed officer load survey, the demand is not been in there. If you read between the tea leaves, there are some issues. Andoan growth has been good deposit growth has been good. I dont see that slowing down. Its single digits, its not riproaring double digits. Banks have become sort of universal banks despite all the regulation. They have Investment Banking and toe of them have exposure retail customers coming in and buying the market. I think they will still do reasonably well. U. S. 10 you said the year will be 3 , what does that do for the u. S. Market . I think the transition on november 8 from the new normal back to the old normal, we could have a Business Cycle buna. I know the administration would like to create more jobs and stimulate the economy but we are at full employment. Its hard to imagine where you will find people. You talk to Small Business people and they say we would love to hire more but we cannot find them. If you get Wage Inflation and price inflation, 3 bond yield, i think at some point it will be a negative for the stock market. It might be another 10 higher in the stock market. It might be tomorrow. Is, janet yellen is the key fed official and she will have a speech and if she , im changing, i really do want to raise rates faster, by the way, i hope she does that and i hope the market corrects some because i dont like this going straight up. Morgan stanley thinks we see a march hike, three this year and for the next year and they were one of the most resident reticent on the street. The fed isets say showing some leadership or wants in a sense that they have owned the Market Expectations instead of the market owning them. Thats where it stops because they have told us again and again that they will wait to see what happens in d. C. Upsideas a speech about risk and sentiment and equities. They are letting the equity market and the sentiment in the survey lead them when the spread between the soft data is there and the hard data is somewhere down here. Is that a prudent approach to Monetary Policy . I think theyve gotten to the point where they realize they have achieved their mandate. Inflation is around 2 . Why did the penny finally drop in the last month . Question. A good only a few months ago, they were saying it would be nice to have fiscal stimulus and now they save maybe we dont need the fiscal stimulus. I think you have to give some credit to the november 8 election and the Sentiment Index is going straight up and the fed has to be concerned about a melt up in the stock market. David not only for the upside protectionally for of the downside. If things start to go sideways, we are likely to get fiscal in for to save us. Can they monetize it . Can snap . That is the challenge for them. This valuation here, this Company Really has to right outofthebox hit on all shoulders. They have received a huge valuation here. The upside is they are just in the early station of monetizing their user base. What is unique to them, they really have to rely on the good going to madison avenue, to say listen, we have the audience you are looking for. Younger, millennial demos. Even some of the Digital Media are missing. Allocating dollars with a little bit more on a per user basis. You mentioned that media was fair value and that tech was fair value, we are looking for a bigger valuation for snap. Is echoing to hurt m a . Considering the role the role that paul was talking about . It still wide open. The capital structure, debt versus equity, might change as far as policy goes. Your starting to see it fire again. It has been somewhat anemic. Cap x spending, all of that is starting to get a groundswell of optimism that i think is healthy. I want to bling and cory johnson from san francisco. What is the story with user growth and this company . Making the excellent point that the evaluation determines that this company cant stumble out of the gate. Its impressive, especially given how much time they spent on the site, and the intrinsic users, toy are young whom advertisers cover. You can see the slowing growth there. Sequential basis, thats better than your over year. Its a dramatic change over a short time. In terms ofehavior seasons, look at this, look at those numbers coming down. I go up until what happens . Until instagram launches a complete ripoff of snapchat called stories. Growth slowschat to a crawl. The company is rushing out with its ipo just as we receive metrics about how many people coming to the service to medically slow down, a anyone who thinks this is a stock you want to jump in and buy. Its a rare feat these days. Company. Nterest in the might not get much better and thats the concern especially with this valuation. We will bring you that on bloomberg as it comes. A short seller. Take us to the mind of a short seller. Is this a company that are short seller would be looking at in doing this . If you like it at 20 times, you can like it at 30 times. Negative, you can like it at zero. It has some at hair on it as it is, its not the kind of thing you can look at with the valuation standpoint saying it at some level going to make sense. Its a momentum stock where Something Better is going to occur this isnt happening. If you look at the number, its the revenue side that would be longer or shorter, understanding how the businesss work, its not generating even gross profits, let alone operating profits. The momentum belief stock, is market atentum belief the moment . It does have momentum right now, jonathan. Whats interesting, i went back and looked last night, september 9. Unprecedented and unheard of. Its a slow, methodical grind higher. We have averaged 50 basis points moving higher. That is actually a healthy sign. When you get that resetting of the market, the pricing of the market based on those forwardlooking expectations without these massive move hires in a few trading days, if you will. Speaking of, not a lot of move in here in u. S. Equities, getting you caught up on where markets are trading. The dow is relatively flat, the nasdaq is off by 13 as we await the ipo. That price, 17. Individual indices, utilities barely in the green, major indices in the red, materials leading the way on the downside. The dollar, continuing to grind level, up the highest since early january on the dollar index. Yields continuing to move higher. Take a look at the 10 year, up by three basis points. Quite a move, the twoyear is also catching up over there as well. The marketstate of here. Still following the snap ipo, when will it open and what will be the price . Cori, back to you here for a second, couldnt you make the argument that yeah, you made a good coys case for being skeptical, but there has to be some leeway for slowing growth . But is absolutely true, think the change in the growth rate is notable. In the absence of competition you might say that is thatesting, but knowing their big competitor, instagram, has launched an exact copy of the service and that instagram has more users, by a large shot, then snapchat does, its disconcerting to see that headwind. The other thing thats interesting about the law of large numbers, you would expect, like any business, the more customers you serve, the lower the cost of serving them. I put together an interesting chart that shows the cost of serving each user, the cost per user, its really simple, take the number of views they have an divided by the cost. Whats really interesting is the number has gone up, not down, and up dramatically. Its curious, you would think that the more users that they serve on an existing technology platform, it would go down. We know the cost of computing is going down, the cost of using google or Amazon Web Services is coming down. Get the snapchat cost for services is going up a lot. By 57 over six months. Metricse a lot of inside the business that arent working, in a fundamental income statement basis. Snapchat is very exciting, lots of people use it. Loving the snapchat filters. As Warren Buffett would say, sell a dollar for . 50 and you will be quite popular. The Revenue Growth has been showing remarkable momentum. That is exactly what they have been saying on the road show, we service a smaller demo, so we wont be giving you the facebook kind of audience and we think madison avenue is going to jump all over it. Thank you to all of you. Investors brought bought into the idea, didnt they . Company, given the evaluation of about 20 billion. U. S. Markets on the u. S. Stock exchange, the first prices, we will bring you that right here on bloomberg television. Much. You very our coverage continues with bloomberg markets, thats next. You are watching bloomberg. Its 11 00 p. M. In hong kong, from new york, im vonnie quinn. Mark let from london, i mark barton. Welcome to bloomberg markets. Vonnie we are going to take you from new york to london in the next hour cover stories at a san francisco, madrid, and paris. Here are the top stories we are following. In markets, the u. S. Dollar is extending gains as investors eye the fed. Two weeks from now, we may get a rate hike. Equities are trying to extend the records after yesterdays huge rally. Risingnflation picks up in the fastest pace in four years. How will that impact the ecb strategy. Snape snapchats parent is pricing its ipo at 70 per share. How much demand whether being
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