Adjustment taxes. Really tricky. The im sure all intricacies will be up for debate today. Who are you going to be speaking to . David the ceo of General Motors. I will get a chance to sit down with her oneonone right after she meets with President Trump later today. Alix i will be speaking with Richard Lefrak. He is cochair of President Trumps Infrastructure Council. t miss the in review interview coming up later. Utures up modestly 105 days without a 1 down move on the s p. The longest streak since 1995. It is a weakerd dollar story. Sessionhighs of the after the Weekly Earnings drop in the u. K. Fiveyear down by two basis points. The fix slightly lower vix slightly lower. Thats a look at your current board trade. The global head of ethics strategy. Heres what he said. The fed is a pussycat that would like to change its spots into Something Like a leopard. Spots it changes its joining us now is george osullivan. D jim that is basically alluding to can they get hawkish height hikes on the table. Obviously they are going to hike. The question is do the three four. O to for dots start four dots . The six officials who are showing moves this year, four of them would have to go to four for the year. I think the chances are that we are still going to have a three dot median. Alix what happens in the treasury market . Given that its coming so close after they just hiked in december it will be very odd for them to come out hawkish. We do think the market is in the right place here. Fair value on the 10 year. We could rally five to 10 basis points if they have a dovish kind of response. Alix what happens in the fiveyear . We are so short on the fiveyear. Is that going to mean lower yields no matter what they do because they are just positioning taking into effect . That has been out there for a while. If they hike today and deliver, they monetize some of those gains. People that are short are running up against carrying. You will see some Short Covering which will trigger some of the rally we are expecting. Alix when you look at the fed do you expect the fed that is still data dependent or that is responding to a broader economic shift and if so what triggered the shift for them . I dont think its a big change. People talk about them going in march as such a big change in policy. They never said they werent going to go in march. They have been talking about going three times this year. They felt confident enough to signal march. It was a combination of the data theing pretty strong and Financial Markets backdrop clearly encouraged them. A year ago when they moved in december and then they backed off. Financial conditions tightened. This time it was the opposite. Said they were not going to go in march. My forecast was they would go in march throughout. The Financial Markets generally were supportive. I dont think they have to change their message all that much. Gdp forecast is tracking 1. 2 in the First Quarter. How can you make the statement that the data has been coming in better . Its not just the confidence numbers but the isn type numbers as well. Even things like jobless claims were recently at their lowest since 1973. Look at more trendsetting numbers clearly signaling more positively. There has been a history in recent years that q1 gdp is have tended to be below trend. As you are seeing all of these other momentum numbers signaling a much more positive story. Help me understand how you would invest over the next 12 months in your world. 12 months is pushing it. Lets go three months. All of these questions are great. Why is the fed leaping to this faster pace . That has beendow created. Financial conditions have been better. Theyre kind of taking a leap of faith. We have had these in job numbers all throughout. They are taking a leap of faith that fiscal policy is really going to come. Given whats going on with oil and in other areas of the economy if we are going to get the financial tightening there hiking for a reason. Go down wellces that push them back into september . Alix you bring up a great point. This is the twoyear breakeven versus oil. If we continue to see oil roll over that puts the brakes on Inflation Expectations. Certainly if oil keeps plunging that a significant and that probably starts spreading to other numbers. Have a specific level. A year ago we got into the 20s. At the end of the day 10 up or down in oil is not big deal for the economy. When it went from 100 plus down to 20 that was a big deal. If oil keeps going down you have to start asking if that is telling you something about global demand. To the extent it is just a little bit of a supply adjustment i dont think its a big deal. In three months time oil would be down to 25 a barrel i would not be forecasting fed tightening in june. Alix the trade was really by tips. Is that the right call still . We probably should be agnostic between 40 and 60. Inflation kerry is one of those things that has a big influence on tips and breakeven markets. They should be slightly concerned if this were to continue. Effectstays at 40 the start working the other way around and we get less inflation. In terms of Inflation Expectations fed officials put much more emphasis on the survey data. The new york fed Inflation Expectations showed an increase to 3 . The have downplayed breakeven numbers as distorted by oil prices. If oil is truly plunging thats a different story. 10 i dontr down think its really driving their view of Inflation Expectations. George goncalves and jim osullivan, you are sticking with us. Andng up, Richard Lefrak cochair of President Trumps Infrastructure Council will be joining us. And later, Matthew Hornbach. We will be speaking to him. This is bloomberg. This is bloomberg daybreak. Time for other stories. Im emma chandra. Are plannings indictments related to the massive hacking attacks against yahoo according to a person briefed on the matter. The Justice Department will accuse four people of taking part in online breaches that compromised hundreds of millions of user attacks. German prosecutors have raided the offices of volkswagens audi unit. Its part of the investigation into the diesel emissions cheating scandal. The maker of 900 prices its ipo after markets closed today. Its the first chance investors have had to buy into luxury Goods Company in almost three years. Raise a goose oats to 237 million. Thats your Bloomberg Business flash. Now to david westin in detroit. taxes are back in the news today. The president s taxes from the year 2005. Overnight we got a look at some of those taxes. The president tweeted, does anybody really believe the reporter you have never heard of went to his mailbox and found my tax returns . We go to Kevin Cirilli in washington to tell us about this story. This is sort of good news for the president isnt it . It is. Ome ways nbc news reporting that the 2005 tax returns from thencitizen trump. He was accused of not having paid any tax returns at all. This shows he did pay money to the government. Tweeting that he does not like this report to say the least. Definitely more fodder for washington. A big story that comes up at midnight tonight when the debt ceiling expires. Steve mnuchin said they should raise it while the way right away. Tell us what the practical effect means. In the shortterm nothing much. They will use extraordinary measures to prolong many negative impacts for failing to make do on paying debt obligations. The federal government has to pass some type of partial spending bill by the end of april in order to avert a partial government shutdown. We are all anticipating President Trumps budget that will be submitted later this week will be the first step or the blueprint for congress to pass some type of spending bill before april 28. This is the beginning of the showdown. The republicans took both houses of congress. We thought this was not really an issue. Could this really drive a wedge in the republicans with some real deficit hawks . Really showing up and saying, we dont want to raise the debt ceiling. Yes. I think the Health Care Debacle is only exacerbating that position. The division will continue to grow because there are a lot of republicans in the House Freedom caucus and the more conservative Tea Party Wing who are more emboldened now regardless of whether health care passes. David thank you, kevin. Alix 2009 all over again. Still with us, George Goncalves and jim osullivan. We had the suspension limit. Whats the impact on the shortterm funding limit . They go into extraordinary measures. They have plenty of time to work things out. Up until now markets have been preparing for this. There has been a scramble for shortterm collateral. Inwill see an increase tbill issuing. It starts to get more hairy as we get through q2 into q3. Fiscal tax reform without a debt ifling expansion, depending there is a partial shutdown in april all of this uncertainty coming from the fiscal side puts the fed on guard. The debtwe dont get ceiling raised that does impact what happens in tax policy and infrastructure stimulus as well. Whats the help of the reflation in the u. S. . They have to deal with the debt limit. They havent actually increased in for a couple of years. Theyre just wanted to suspend it every time. Inevitably its going to happen again. A lot of republicans will not want to vote for an increase. Its acceptable for them to suspend it again. A fewe gone through this times in the last couple of years. Ultimately they do come around. How do you get there in terms of what deals have to be made is up in the air. A big focus on tax reform. We are still dealing with health care reform. Its complicated indeed. This is all very complicated. Its possible it will be 2018 before we get it deals out of this. Deals out of this. I think some of the hard numbers are exaggerated with this q1 gdp problem. There is a disconnect between the sentiment measures which have been boosted why fiscal and regulatory policy changes and may be reality is not going to match up to that. Alix the markets have been trading on that soft data. What is the reflation downsized . The higher the reflation trade goes, the bigger the downside. You have to look at the high yield Investment Grade market. You have yields at 6 in high yields. 3 in Investment Grade. Are we going to see more of a rerating in the credit market . To what . The reflation trade was really a threepronged attack. You had equity market, rates market and tips inflation. The dollar has been suffering for the last couple of weeks and that reflation leg has been pulled. We think the fed decision is fully priced in. It really just leaves the equity market and link back to high yield and credit. The irony of all this is the more the fed hikes the further it takes incentive to be searching for more risky assets. That does spell some trouble for highyield. Think of the reasons i the fed will be on the cautious side in terms of their message and probablyn sticking with three instead of four, theyre looking at the disconnect between the hopes that have been raised and the risks that those hopes are not realized. Health care reform is complicated and is going to take a while. Is there disappointment when you look at these sentiment numbers. Fed officials themselves havent changed that much. I dont the guts going to change this afternoon. To get a major change they really should be changing the Economic Forecast. Are quiteink they ready to pull the trigger in terms of changing their Economic Forecast in a significant way yet. The when people come on program and say i still like highyield, what do you do with highyield . You have to be defensive. Elections. European we have a lot of event risks ahead. You have to be cautious and look for the three to five year part of the curve. It wont be as duration sensitive. Alix thank you very much, George Goncalves and jim osullivan. You guys are sticking with me. ,oming up, Richard Lefrak cochair of President Trumps Infrastructure Council will be joining me. 1 00 p. M. Eastern we have full coverage of the fed decision. Dont miss that on Bloomberg Television and radio. Tom keene is your headline acts. This is bloomberg. Alix dutch voters are heading to the polls this morning in an election that will provide a key gauge of how far populism has reached into europes core. The white line is the freedom party. Thats mr. Wilders party. That is the antieurope party that was slipping in the polls. Liberal line is the party. That is been gaining in the polls. Overnight we had yet another poll showing perhaps the Wilders Party is down even more. Amsterdam, take us through election day. Define this asan the rotterdam moment. A significant drop for wilders. The far right freedom party. Dropping to number five in the polls. Turnout is about 15 . Thats ahead of normal. Thats good for the parties that want to go headtohead. Rotterdam moment, this was the fight between the netherlands and turkey. Send ministerso to lobby for the referendum. The Prime Minister here fought back valiantly on the tv. The other thing we have to consider is the trump effect. Wilders went to the polls this morning. He was asked, immigration islam and integration are the issues. What about trump . And we are our own people. I am not donald trump. I am from the netherlands. I believe that what is happening in america can happen all over the world. He think its a global phenomenon. Can the dutch draw a firewall under that rise of populism . This is what it does on the front pages. All of the parties here. The green party. They will be one of the real rainmakers here. Its all about Coalition Forming and the possibilities of coalitions. My dutch is not great. This is the last rush to the polls. It could take more than 72 days to put it together. Alix and six parties. I cant imagine that happening here in the u. S. You have some sightseeing. Did you take a boat tour . Bloomberg philanthropies are great. We just finished our daybreak euro show and this boat passed and asked if i would help clear trash out of the canal. I dont think the crew were too happy. But i came back. Thank you from amsterdam. Coming up, Richard Lefrak. Cochair of President Trumps Infrastructure Council will be joining us. Thiss where we stack up on fed day. S p futures up. Dow jones up by 40 points. Ofove upwards over in europe point 2 . This is bloomberg. Livestream your favorite sport at the airport. Binge dvrd shows while painting your toes. On demand laughs during long bubble baths. Tv everywhere is awesome. The allnew Xfinity Stream app. Xfinity. The future of awesome. Alix this is bloomberg daybreak. Im alix steel. Futures up slightly by five points. A little bit of movement going on in europe as well. The story is a weaker dollar. Your fed board trade. These are the Asset Classes to look at. You want to look at the five year yield. It is the most sensitive to any kind of fed rate hike. Vix pretty much goes nowhere. Boostgetting a nice despite those oversupply headlines that continue to permeate out of saudi arabia. Lets get an update on whats making headlines outside of the business world. Amash andra is here emma chandra is here. Rex tillerson begins a three country tour today. Tois looking for a solution the problem of north korea and its nuclear ambitions. North korea has developed missiles whose ranges are edging closer to the continental u. S. Europe Francois Fillon told voters he is the victim of a plot. He was charged yesterday with embezzlement over his wifes allegedly faked job as a parliamentary aide. He said he is innocent and that justice is being manipulated against him to keep him from running for president. In the u. S. President trump heads to one of the Labor Movement in america. He will be in the detroit area with a message that could drive a wedge between Union Members and their democratic leadership. The president will promise to open a review of Auto Industry fuel economy standards. He says those regulations have hurt job creation. Im emma chandra. This is bloomberg. Alix speaking of detroit, my coanchor braved the storm and joined us in detroit. What are you doing there . David i came home to michigan because the president will be coming here in just a few hours. Theres a lot of expected from the Auto Industry. Im joined by the men who knows all things auto, david welch. Welcome. What is the Auto Industry expected to hear out of the president today . Hes going to say that hes going to give them another crack at a review next year. Probably april 2018 on a few economy standards the Obama Administration had set out to 2025. Those are supposed to get cars up to more than 50 miles per gallon for a fleetwide average. The industry has been saying consumers dont want fuelefficient vehicles because gas is cheap. Is it economically feasible . Should we perhaps rolled his back and stretch out the timeline . Administration tried to form those up and now trump is saying, maybe not. David we are not necessarily expecting new standards that are lower. Has not been too bold on environmental regulation. Trade is a big issue as well. Things like the border adjustment tax. Something likely to come up in the discussion between the Auto Executives and the president . Most likely. They are saying they would lower Corporate Tax rates but have border taxes that would basically make it better if you are exporting out of the u. S. Automakers import a lot of cars into the u. S. And there are a lot of parts moving backandforth across the border. Those taxes hit them pretty hard. Lotanies that import a dont like this. All of the Car Companies do it. It will be an issue. The trade area, theres an auto mobility center. Its interesting there a symbolism about the technology as it is working its way into the Auto Industry. Thats right. This is an Autonomous Driving Center where they are testing the cars. Trump will be at the testing ground for the next phase of transportation. This used to be a bomber plant in world war ii. It has history, it has the future. This is a pretty good place for him to hold this. 24s there were be 2 manufactured here. I will be sitting down with mary barra right after she meets with the president. Back to you. Alix looking forward to that. President trump said he wants legislation to support 1 trillion worth of investments in rebuilding americas infrastructure that is putting theicans to work in process. Richard lefrak serves on the counsel to President Trump advising on infrastructure projects. The council is an unofficial Advisory Group set up to suggest ideas to the white house and executive branch. It does not select individual projects but its a way to improve the process. The man tasked with that, Richard Lefrak joins us now. Autoses the importance of tiein to what you are doing at the white house . One of the great sensitivities of our infrastructure is our road and bridge network. Have invested in tremendously in the last 20 years. The general standard for a developed country that we should be spending approximately 3 of on improving infrastructure and maintaining infrastructure and we have been underspending pretty dramatically for the last 20 years. Alix 1 trillion over 10 years . Its over a period of time. It could be five to 10 years. Even if you wrote a check for 1 trillion tomorrow it is physically impossible to get that amount of work done. Democrats plan was to spend it over 10 years. I think the president s idea is to spend it over an extended window of time period of time. Alix theres going to be a lot of things going into that 1 trillion. , states and local governments are responsible for about 70 of the money that goes into infrastructure. If we have been underspending by Something Like 100 billion per , then the states should be providing about 70 of that. Federal government 30 . I think the idea is the federal government would kick in a little more money. Its not 1 trillion in 1 alix pass. 70 500 billion. Is that tolls . Is that taxes . Is that mostly private . The infrastructure includes lots of other things besides roads. For example the Water Systems in these municipalities is part of our infrastructure. Broadband is part of our infrastructure. The airports are part of our infrastructure. Things itsf a large topic. People probably think about roads and bridges more because there has been a lot of written and spoken about the failure of that maintenance and our crumbling infrastructure and the first thing they think about our bridges and roads and traffic. Alix i understand that. Does that mean that you are not going to look for tolls, gas tax . We going to look for all sources of revenue and were going to make suggestions. We are an Advisory Group. Its kind of an unofficial Advisory Group. Were going to look for all sources of revenue. Pockets of money that can be subjectapply to this and we will see where we go. For example a were speaking and thee gift economy mileage cars get. We havent raised the gift tax in the United States since 1993. If you just adjusted it for inflation and you adjusted it for the fact that todays cars get far more gas mileage, you would be raising Something Like 45 billion a year. That would go a long way towards fixing the roads in this country. True. Infrastructure is everybody wants it. Somebody has to pay for it. Alix that would raise a lot of money, but you have the rust belt which really supported President Trump is not going to like that tax. Im not sure that if people know that the money theyre spending is going to go into something that they are going to benefit from that they are going to be as adverse to it. 40 states have raised the gas tax since 1993. Politicians are very sensitive to that subject and im not proselytizing for one particular form of revenue. It could be tolls. It could be other things. Seen every governor who raises gas tax hung in the town square for it. If they see an identifiable improvement in their quality of life whether its their commute or the axle on their car doesnt get smashed up every time they attempt to drive it i think there will be some more susceptibility to that. Alix its not a oneforone. There is a lag time. Yes. There is a huge lag time and thats one of the things were trying to address right now. For example in other developed countries get approvals in two years. Thats germany, australia, canada. These are all western democracies that are highly sensitive to environmental considerations. Major projects in the United States often take 10 years or longer just to get going. We have kind of run into a stumbling block with that particular subject and one of our charges is to see what can we do to make this more simple for everybody . Respecting the environment, which should be respected. Respecting all of the stakeholders in these discussions on major infrastructure projects. Alix that brings me to the timeline. With the lag is one thing. The Way Investors have looked at was on the agenda is health care reform, taxes and infrastructure. When are we going to get something concrete . I would hope sometime in the fall. We are not involved in the legislative process or the politics. We are really there to advise the executive branch on how we can make these processes work better, how we can make our dollars spend better, how we can use private capital in the markets and how we can apply todays technology to make our existing infrastructure work better. Alix bringing a business mentality to washington. Thats what were looking at. Thank you, Richard Lefrak. You are sticking with us. Coming up, Matthew Hornbach will be joining us. 1 00 p. M. Eastern we have full coverage of the fed decision. Home is that on Bloomberg Television and radio. This is bloomberg. Mrs. Bloomberg daybreak. Im emma chandra. Coming up later today the fed decides. Dont miss bloombergs special coverage at 1 00 p. M. Eastern. This is bloomberg daybreak. Time for other stories making headlines at this hour. Volkswagen is in talks to return to the Corporate Bond market as soon as next week. Vw has discussed selling at point 3 billion worth of bonds. It would be the first major offering since it was rocked by that in missions cheating scandal. Microsoft has rolled out its team Workplace Collaboration software. The program will complete with slack technology. Microsoft says already 50,000 of its office 365 customers have started using it. Gymboree is warning it may not survive refinancing its debt. The childrens retailer said it is running short on cash. It also revealed a wider quarterly loss. Gymboree was taken private by bain capital in 2010. Thats your Bloomberg Business flash. This is bloomberg. Alix oil below 50 a barrel. Companies and investors are putting a lot of money into the oral world. Oil world. A few weeks ago we sat down with the legendary investor to see where he was putting his money into oil. Invested two days ago in an area called the stack which is in oklahoma. We think the prospects for that are awesome. We just committed two days ago. With us is Richard Lefrak. Aside from all of your other jobs you also look to invest in some energy. Where are you investing . We have a lot of investments in Royalty Companies because we find they are the easiest place to take advantage of the technology. The royalty owner gets the benefit of the fracking, the drilling technology, the enhanced recovery and doesnt really pay any of the expenses. Kind of takes it off the top line. Alix they end up giving money to oil companies. They give their rights to the minerals they own. I have been in the business a very long time since the early 70s. We do have direct investments also and operating assets. We are currently drilling in the wiest n north northeast louisiana. The business has turned into more of a mining business than it was an exclamation business because the Technology Today is so sophisticated its really not about, is it there. Its mostly about how much of what is there can i recover and what is it going to cost to do that . Manufacturer as a Big Industrial shale, they did the same process over and over. Theyget more efficient and move on. Thats a huge change in the industry. Some of these companies are still quite profitable because the areas they are working in our susceptible to improvement theroduction with technology application. Alix where have you increased your drilling over the last few months as oil has recovered . Inwe are involved in a field north louisiana. Its a large natural gas field. One of the most prolific in the United States. We have committed probably 100 million to the program there. Alix is the permian a bubble . No. The land value is basically derivative of what the other aspects of the mining process. At 50 can make money which they can then its not in a bubble. Alix you have exxon coming in, marathon. Thats all because they know what is going to come back. The difference between that and the calculations we saw a few years ago . There is no difference. They get more efficient at drilling. Its a manufacturing business. You are a low cost producer alix even if prices are down. Even if prices are down. Alix whats the level where you call up your guys and say all right, stop . If natural gas gets below three dollars it starts getting pretty dicey. I understand they can make money at two dollars. 2. 75 . What about for oil . We are more gas heavy than oil heavy. Every project we are doing is a profitable project at 50. Alix are you hedging production . No. Alix why not . Im not that smart. Alix i highly doubt that. Part of the issue is when you have oil come down producers were hedging. If it goes to 40, who cares because now its hedging . We use mostly equity capital. Moments in the market dont really affect longterm assets. They just affect trading. If we believe the price is going to be 50 and thats what we plan the project on. Usually we look at the longterm then if theces and then merits the project thats what we do. Alix great stuff. Richard lefrak is sticking with us. Heck out tv you can watch us online and interact with us daily. If you missed any of our interview earlier, you can click and rewatch. This is bloomberg. Alix still with us is Richard Lefrak. Infrastructure, we talked energy. Now we are going to talk about real estate. Which is actually my business. Alix the euro is down. The dollar is up. How does that create opportunities . And pound down dollar up means i should take my money and go over and buy some real estate in europe. We will start looking. Its not as good a market as the u. S. In my opinion. I think it is a little picked over, especially london. Thats where they hide their money. It has certain effects on the United States. If you continue to believe the dollar is going to strengthen, youre going to drive investment here and raise prices here. If you think the dollar has had it and it has peaked, then maybe people will start coming back because they will think theres an opportunity. We operate a lot in miami. Say half the condo buyers in that market overseas buyers. They mostly by for investment. Some by for use as well. They come from either europe or south america. Those currencies are really damaged right now. Obviously business is a little softer down there. Alix where does that create opportunity for you . When the week start yelling uncle. Purchasedhe assets we we bought in 2009, 2010, 2011. Including can i do a plug for my hotel . The one hotel in south beach, best hotel in miami. Alix that prudential opportunity. Where in europe might you look . We are opportunists. We will go over, i will send somebody over. I have one experienced executive who did a lot of work in europe. We will see what she can find. Alix what about rent . They are really skyhigh here. How far do you see rent having to drop . Rents are going to come down 10 to 15 . They started to already. Part of that is we built a lot of new product at the high end. Not the super highend p thats a whole different market. Lets say anticipating incomes that dont exist in this current in the market now. In the have a job Hospitality Business and you can have a job in the Financial Service business. Those two jobs dont pay the same. They both count as a job. I would not use the word affordable, but we need more affordable product in the market. Theres a huge demand at that price point. What we built whether it is in new york or San Francisco or some of the overserved markets will get absorbed because in the end, its jobs. Alix such a pleasure. Thank you, Richard Lefrak. We will be right back. This is bloomberg. Crude concern. Marshall click a done deal, but falling oil is an rate hike at the end of a twoday meeting. Set to expire. Secretary mission Steve Mnuchin raises the alarm. Party, antieuropean population populism in europe. Welcome to you p or i am. David westin made it out of the storm and Jonathan Ferro is off today. The president is coming out in a few hours as you know area a release day hope. Ofwill sit with the ceo General Motors to see what she had to say. Alix looking forward to it. I hear it is where we trade on this day. As of the is up four points on the day. A weaker dollar is the team. Session. Ighest of the oft sensitive to any kind fed rate hike today, down by two basis points. Dollars softer, over 2 . Lets turn it over to matt miller standing by with a special guest. Member am here with a most importantly for you, the basel meetings. How like the is it we reach an agreement and went to you expect that would be . Importantly, it is my they go, we keep on narrowing, keep on discussing things and all of those have progress. It is important we have a global agreement. Good for the banking industry, they want clarity and certainty. We as regulators are clearly. Nder the pressure to have an agreement, we need to a compromise. , veryor Common Ground much looking for Common Ground with everyone else and im confident we will have an agreement, you didnt want output floors. He would to come from eyes on that . Good friends. What we would like is for an agreement to have the following element. Make,sk sensitivity we that is very important. More risk, more regulation and less risk, less regulation. It is a good concept and i very much like it. The longer the incentives you set. The risk is important to us. No specific increases. That is a medium perspective. We have to make sure there are no significant increases. We need people at the negotiating table with a willingness to compromise. With these three ingredients, we. Ill throw out all of these matt the symposium here, he is the deputy coceo of deutsche bank. It is not fully put to gather yet. Do you feel like you have a partner in the u. S. Right now . A colleague of mine was responsible, he put in his right not nominated and by the administration. That is kind of usual and we have to wait for the person to come in. I can only tell you we at the negotiation table and the United States should have all the time in the world to find the right person and put the person in place and then we will be there to negotiate and find Common Ground. We are late anyhow. We wanted to be ready by the end of 2016 and we postponed it to the end of 2017. Matt the trump team wants to really vote back regulation, doddfrank, especially the focus. How do you feel about that Playing Field . An open economy of having webal minimums entered and. Re very much having said that, we also believe the regulation we have in place is at it. In a majorinterested deregulation of any sort. Dont want to speculate but it is an opportunity to meet and stop the discussion. Matt unrelated but in the financial realm, do you feel that gives the ecb a better chance to start a path toward normalization . I will watch the outcome. Matt is this good with the global Bank Community . Wait for what the fed will be doing. Matt thank you so much. Back to you. Alix not moving on the fed call. Good try. Mohammed and Economic Advisor joining us and previewing the fed. Here is where we trade on this fed day. Overall, the tone is a weaker dollar heading into the fed day and a weaker on market. Yields on the fiveyear backing down by about two basis points. Up by over 2 . A big rebound. This is bloomberg. David i am david westin reporting from detroit where the president will come out in two hours. Decision asreserve wells news conference. We have the federal debt ceiling kicking in at midnight. Reporterned by our fed and our chief washington correspondent. Talk to us about this. We heard about President Trumps texas. The focus has to shift to what it does politically. I have talked with a couple of sources sources in the Tea Party Movement and i can tell you they have several concerns about the Budget Proposal we will get within the next day. As one of the second steps, Government Spending, the national debt. Steven mnuchin will use extraordinary measures to make on itse u. S. Makes good set obligations, they have concerns about the april 20 deadline, that you could pass the bill to avert the government shutdown. All of this is exacerbating tensions already because of concerns with health care. Now worse, with Government Spending in the budget. In the obamar administration, there was brinkmanship going on. Is it really possible they would take it right to the brink of shutting down the government or worse, defaulting on u. S. Debt . If you look at what public said even in our officials have said publicly they dont want brinksmanship here they want to avoid brinkmanship. This is a political reality. The House Freedom caucus has these concerns. It would appear Republican Leadership does not want to have graced the ship but it will come down to tea party and whether or not President Trump can build the bridge with ultraconservatives members. David i want to throw it back to alix. Alix there is longterm drama. Matt basel or is with us. Breakatching oil prices how does the fed factor that in today . Taking all of that on board, as long as the stock market does not put down, it is a different situation than we had a year ago with oil prices tracking down stocks and broader sentiment in general. As long as we are not seeing that reaction in riskier assets, i do not think the fed cares much. Priceht be the lower oil boosting the consumer. We had all the negative effects associated with it. Retail sales and cpi, what are we looking for . In the cpi, it is interesting because last month, we had core inflation, a lot of components like big standard deviation move that probably will not be repeated. Moderation a bit of and medical services inflation, really the big drivers for cpi. We want to see if those rebound and retake the lead in terms of getting higher inflation and see if we can get up to the 2 inflation target. , we gettock market retail sales. We hold up the retail sales out rising, and so far, it looks like it has been accelerating in the past several months. Inflation is looking pretty strong. It seems that the consumer is taking things in stride and holding up well since the election. February, we will is more of if that the same for the rest of the category that we will see at 8 30 or if it seemed there is a bit of a convergence, with people buying other things. Six hours later, we get the fed. Joining us now is the head of global Interest Rates and strategy and what it once of meaning for the yield curve. This is basically the fed Fund Target Rate versus the 10 year yield. Every time a hike in the last few years, they represented a peek. Repeat this today . Andhis is exactly the issue what the fed does not want to see repeated again. Code back to 2007, the Federal Reserve hiked Interest Rates if you times and the 10 year yield basically did not move throughout the entire time. Financial conditions, broadly defined, listens over that rate hiking cycle. It is not something the fed wants to see repeat. As the fed raises Interest Rates, they will be focus on overall financial conditions and if they dont tighten, they will have to take a different approach. They will either have to hike rates quickly or they are going to have to look at the Balance Sheet a little earlier than perhaps otherwise. Alix does that mean the short in the treasury market is still ie right that . For now, think it is. As a strategist, im am very focus on the intermediate sector of the yield curve mostly because that is the part that is most sensitive to the pace the fed is hiking Interest Rates. Today,fed hikes rates and it up five or 10 , i can pretty much guarantee we will have a couple more rate hikes delivered by the fed during that time. That is something the market is not yet price for an something that will definitely impact the sector of the Treasury Curve. Which brings it back the your world market not necessarily priced for. I think that is what we all waiting to see today. The discussion about the Balance Sheet affecting the Interest Rates because on the one hand, people think it might lead to higher in just rates and on the other hand, to the extent it slows the fed on the rate hike, how do you balance those two . There are a couple of interesting questions here from my perspective. How will the fed go about reducing the size of the ballot sheet . With they focus just on Agency Mortgages or will they include treasury in the mix . We think the fed will just focus on the market portfolio. This is the work we have done and to the extent the fed wants to take a passive approach to the Balance Sheet reduction, we think they will simply focus on their mortgage portfolio. Wrong andent we are the consensus is right, the question becomes how is treasury going to make up for the loss . That will be an important determinant of how treasury yields move. To the extent the treasury just issues treasury bills to make up willhe lost funding, that have a different impact on the yield curve then if the treasury decides this is the time to issuanceultralong bond , something we do not think is particularly likely but it could increase the bond issuance or a new issue by twentyyear coupon bond that would help stephen of the yield curve a decent amount. We still think the curve will flat. As we make your way through the process, to the extent financial conditions do not and obtaining much, i think they will get rates up several more times in the cycle and then will focus on which wece sheet, think will be a supplemental tool for the fed. We dont think it will be a separate entity for policy. When they get confident about the outlook and think that the risks are skewed to the upside, they will they on the Balance Sheet as a supplementary tool. It is not something we think they will use by themselves. Alix great stuff. Today, donter miss the special coverage of the ed Rate Decision at 1 00 p. M. Dont miss it. This is bloomberg. Heading to the polls this morning. How far has populism rid itself into the heart . How are we stacking up . The last reading i had, two or 3 relative to the last election. The Prime Minister here moved up in the polls. On the right, dropped in the polls to number five and running. For is the wrong time populism, that was the message this morning. Trump delivered robust signed messages. Talk about the coalition of five particular parties, this is on the far right, greens could hold the answer. And thenin the polls you have others coming to the fore. This will be a coalition which could take 72 days. The Prime Minister is up in the polls. Many people have the power in their head who will go to the polls and they will have the privacy of the curtain. How many people are saying one thing and doing Something Else . We learned that quite well in the u. S. Matthew, head of global interest rate, you have got the never the netherlands, here is what it is doing to the market. This is a 10 year treasury yield spread. How much wider can we blowout here . Depend on how far the marketplace p market rates. There is certainly nearterm possible upside but as the fed makes its way further into the race, you get more yield curve expansion in the front end of the curve relative to europe, you could see fiveyear treasury yields continue to move higher but at some point, as the fed rates,duced reduced closer to the level they are targeting here, i think what you will end up seeing is the back of the Treasury Curve calmed down. I am assuming the ecb will be to winding down there Bond Purchase Program and i inc. You will see the yield spread compress a different i think you will see the yield spread compress a decent amount. The curve is not as steep in the u. S. Points,d 100 basis t is the call for that . The curve will continue to steepen. We dont believe the ecb will be hiking rates before the end of the Bond Purchase Program. We get to 100 basis points . At this point, it is not what we are forecast. We think we will get through the without asn europe much commotion as what we saw last year. We are not what forecasting, we think yields will gradually rise in europe as an asian actually rises and we get closer to the end of the east tv extraordinary accommodation measures. You talk about value in terms of the bond market, your thoughts like it has a lot more value to be gotten from shorting. Year boone is today relative to yields outside of the euro area, i think it is a good Value Proposition to remain short and we like to express that, that is what we are recommending to our investors. Alix great to hear your perspective. Coming up next, we have got cpi and retail sales ahead of the fed winding up today meeting. City present bank global chief strategist will join us. Get the data and Market Reaction and the trade. This is bloomberg. Alix the s p is higher by about four points. Board, a weaker dollar in the fed meeting and wage data coming out of u. K. , disappointing off the highs of the session. Nonetheless, the weaker dollar story in the fed, down by about three basis points on the 10 year. We have advance retail sales month on month coming in in line with estimates. 6 . Ry revised higher by the other big data point we are watching, core cpi. 2. 2 y coming in at increase in february. Month on month, just an increase on one percent and year on year, 2. 7 of estimates and arise from january as well. Resale to control group coming put januaryting revised higher and double what we had been expecting. , weeklyhourly earnings earnings lower thigh. 3 . In the market, we stand pretty much where we were at. Points,out to basis looking at some weakness throughout the session here and read around the lows of the. 1 . On the twoyear market, the shortterm rate hike here in the , there is a a look on the day. Nged us from morgan stanley. A lot of data. Help me understand it. It looks like were seeing this continue to move higher and retail sales coming in strong. Am i reading that right . It is nothing like the data we have seen it we have seen the 230,000 jobs on average in the data could support investment but the retail spending data come long before there are any tax cuts. Strengthening and real incomes will come later. The oil drop has eroded income rates. Moderate. Cpi, i was talking about two point 2 , slightly lower than what we saw in january. You know january we saw a big spike. The idea was that would not be repeated when it comes to the core data. Terms of we in inflation . Gradually,ving up because of move down Competitive Forces in the world, weakness in manufacturing, other things are going away. Alix you take a look at the reaction in the bond market, it seems flatter on the board. And buyingthe short on the long end, would that be appropriate . I think the data does not , inflation looks like it might continue to move higher. Careful,ve to be something they have not been typicallyrrect, what boosts components of cpi in the First Quarter every year, the data does not really change much from the fed perspective. Today andthem to hike we expect they signal a faster rate hike as we move forward. Market will be more focused on that than this piece of data which does not change much from the fed perspective. Alice that is fair but you still have the revised number for january down. Rise you are seeing in wages is getting eaten up at this point. Sure. When you are measuring a nominal number and you kick out real data from prices, you will have downward pressure on real wages. I think ultimately what we will have to see come through is the actual fiscal stimulus, the tax cuts the Trump Administration campaigned on and markets and investors and consumers are this point to come. Hrough later this year we will have to see that come through. Upafter the base affects go down a little bit, after that is out of the way, you will see strengthening in real incomes. I think the Federal Reserve will be quite comfortable, despite saying that will have a faster pace in tightening with one quarter in tightening per year. This will be an historic,. Oderate hiking cycle the year is not a usual amount compared to past cycles. We should see what we have seen in every cycle in the past, and that is that the yield curve has flattened when the fed is tightened. That is despite the fact we are in a moderate tightening cycle. Were not going to have an outofcontrol surge in bond yields. Look at real yields and that is my question. Five real yields approaching the over zero level we have been waiting. What happens to real yields if we have Oil Prices Moving over, the breakeven below 2 . I think the fed will be sensitive to the inflation market, it is something we have seen in the past and something oftioned recently in terms confidence that inflation will get back to 2 . If we see the rates move substantially lower, it could be toething causing them reevaluate. Lets remember the fed has hiked pretty much three times since they began the cycle, and financial conditions broadly defined, you can look the equity market as may be the ultimate financial conditions are looser than when they began the hiking cycle. The extent and moderate decline in oil prices helps real yields rise, that will act to tighten financial conditions, the goal of the hiking cycle. That is the point. I get it. Great stuff and great to see you. You will be sticking with us. Ets get an update President Trump heads to one of the last strongholds of the Labor Movement in america. He will be into choice with a message that i could drive a wedge between Union Members and democratic leadership. The president promised an open it in review and said those regulations have hurt job creation. President trump will also meet with executives and david westin laterave an interview today. In the middle east, at least 25 people were killed in a suicide armor attack on the main mask,al building into syria. In syria. Is ready tohe eu ratchet up the pressure on theresa may. Stall brexit toss until june. Starting the clock on a twoyear negotiation, the power shifts to the european union. Bal news 24 hours a day global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Cpi year on year coming at 2. 2 . Retail sales coming in in line with estimates. Point. 1 . This is bloomberg. This is bloomberg daybreak. Today, the fed the sides dont miss the special coverage at 1 00 p. M. Eastern time. This is bloomberg daybreak. Time for other stories making headlines at this hour. Ipoda gives prices its after markets closed today. Canada goose hopes to raise 237 million. Volkswagen is in talks with banks. At least three . 2 billion of bonds according to people familiar with the matter. It would be their first major offering since they were rocked by the omissions scandal. And a ceo may be fully his hand in las vegas. He has spent the past decade trying to expand his powerhouse. Business shopping the around to gauge interest. It is said to be losing money. This is bloomberg. You. Thank one topic i am following closely, what is happening with oil . Stephen is here as well as the president of mark locke trading. You believe downside or upside . Range since probably the beginning of the year. A big load up of loans from hedge funds. I was looking for a breakout but what happened was a group such psychiatric kind of clinic. All the big guys and ceos were wringing their hands about how we are going to stop and make sure opec continues production cuts in may, and how do we make sure we dont overproduce and rep the oil prices again. This is from guys who never had a problem with overproduction before. Hamm, and all he wanted in life was to get a president who was pro energy, and now he is for a nothing will work out for him, i think we have seen that for the last two or three days. Take a look at the bloomberg here. Fed fund hikes versus oil. We embarked on a tightening cycle here, oil has also been rising. It is the same thing we saw earlier over here as well. 2000, you saw the same kind of thing that now oil is rolling over. Can they do it . He fed does not we have real booms and busts in the petroleum market. , 6 decline in expiration over the last two years will restrain it one way or the other, and we are just figuring out the middle ground where the u. S. Gets a larger shale larger share. I do not think we were in that position we were in january of last year. I think we will stabilize and move modestly higher but ultimately, these are real. For me, when the ceoss do not panic is when the market collapses. I think this is a grand opportunity to get into some players at a very cheap price. I dont think oil goes much below 45 in any case number what. Opec has to continue production cuts for the saudis for the sake of their ipo next year. This worrying about u. S. Production, it will at may 500,000 barrels a day into global supply. We have got them saying to mantle go up this year alone and we also have the saudis and the rest of opec, at a compliance rate of 98 . You have the eia coming out and saying in april, one hundred thousand barrels of oil per day. In 2000 14, that was 90,000 barrels of oil per day. We dont know we can trust the numbers. Just saying the more efficient you get, we just dont know. I think they have pushed efficient sees as far as they can. Very impressive. The numbers still work out. Happened sometime in the second half of this year. The numbers seem to say it will work out that way. Pioneer, you can go , anybody wholayer has got good positioning in the permian, and going to deliver the best gains, i think that is where you concentrate. You stay away from the other players for right now and concentrate on permian players. Wewe like energy and i think want to move past the notion that it is all upside for the oil price. There will be a lot of volume in the u. S. Will get a bigger share of it. Still printed plenty of restraint from the last couple years of restraint. So you like it . What does that mean . We want to enjoy getting paid and Interest Payment from a company that can actually make its payment and profitable at this level. It is not just expecting futures contracts to be dramatically higher. I think risk reward is skewed to the upside. 65 by the end of this year. But it is not where we were in january of last year. Oil prices dramatically low trend. Tied into a reflation cmp or oil movie high was part of the reflation trade we saw. How do you square that with Goldman Sachs coming out saying they are more him neutral on more thecause the reflation rallies, the more the downside will come. Everyone wants to say it is all about reflation or it is ultimately about the failure of all of that and we have these and we will move around a lot over the next four months just around the let your calendar. An enormous amount of decline for things to shake out the way they do. We just got past the best quarters of the year. But we want to be in for longer than that. Want to be fully allocated to u. S. Equities. There is a lot of u. S. Credit we want to be involved in. Corporate credit on the u. S. Side. I will tell you where exactly. Alix we have got to go to commercial break. Thank you. Good to see you as always. Check out tv. You can watch us online. Interact with us directly. Talking about oil, you can see us do that right here. This is bloomberg. David this is bloomberg. I am just outside of detroit. Cbo did the scoring, there may be as many as 24 million americans over the next several years who could lose their health insurance. Joined by someone instrumental in drafting obamacare. In the house of representatives for 28 years now, and he has strong feelings about what is going on with health care. Thank you for joining us today. On health care. You have made no secret of the fat that you think what is being proposed by republicans is very troubling, maybe worse than troubling. Now we have the cbo scoring. Does this make a difference or is this a train on the track that cannot be stopped . I think it makes a big. Ifference concerned about the republican repeal bill from the beginning because of its impact on whether people will be able to buy insurance. The cbo report is even worse than what we anticipated. David what happens in the timing . It is through your committee and the house ways and means committee, wendy do you expect this to be put to the full house . Speaker ryan says he will put it up next week. I would seriously doubt that he could bring it up next week because i dont think votes are there. Will lose americans their insurance in the next year, 24 million in a few years after that would actually bring our numbers in terms of the uninsured back to even worse than before obamacare. I know for fact a number of republicans are very concerned about it and i dont think he can bring it up next week. There are also republicans concerned about taxation issues. Is it possible there could be a rough coalition, real deficit hawks on the one hand and your party with some moderate republicans . I think that is likely. I do not agree with republicans on the right because they do not want to help people at all. Cbo is saying the we will lose all the peoples subsidye is because the to pay for people on the individual market is not adequate and the cuts to medicaid will mean the states will drop a lot of people from medicaid. Those on the right dont want to provide any kind of tax credit. But yes, it is very possible the coalition could exist to basically take this repeal down. Your Committee Also has jurisdiction over the environment, particularly the epa. Will be coming out and there are reports he will talk about extending the time for reviewing fuel efficiency standards. Do you have a point of view on that . It is absurd. I dont even think detroit wants to do that. Carmakers understand people want more fuelefficient vehicles. They are more than willing to do it. They are not evens justin they cannot do it. It is absurd. This president is so opposed to Environmental Protection on so many fronts, and i dont really understand why he just doesnt work with detroit to have these fuelefficient standards put in place. It is not like they cannot meet them. At the same time, the epa has a fair amount of authority in the area. You had called for the Inspector General of the epa to look into the relationship of mr. Pruitt. What do you think they might find in the investigation . The problem with the both sot is they are aligned with the fossil fuel industry, the oil and gas industry, that there is a real conflict of interest. Pruitt is the Oklahoma Attorney general who did whatever he could to oppose any effort by the epa to have some Environmental Protections with regard to extraction of oil and natural gas. Im concerned he is so intertwined with the industry that there is no way in the head a fair arbiter as the of the epa, it is a must as if he was sent there to dismantle it. You are a member of the loyal opposition after this election. At the same time, President Trump won the election and the senate. Isnt it only the way democracy works for them to have their go at a different policy . Problem is he was not running on a platform saying he was going to take away peoples insurance. On a platformning that set i will be less protective of the environment. He may have made some suggestions in that respect, but i dont think thats why people voted for him. They dont expect that they will tear up all the Environmental Protections and have people lose health insurance. David ok. Thank you for joining us today. Alix thank you so much. This is bloomberg. Alix recruit concern. A crude concern. Falling Oil Prices May have to cloud on fed rate hikes at the end of the twoday meeting. Debt dilemma. Treasury secretary mnuchin raising the alarm with implications for the future of the president s spending plan. Cool and calm, or overpriced . Is one chartterans is raising some red flags. A very warm welcome to you on this wednesday, march 15. 30 minutes to the opening bell. I am alix steel alongside david westin. Jonathan ferro is off today. You made it. The snow did not stop you. You are too hardcore. David there is not much snow out here compared to new york. President trump is on his way in a few hours to talk to automotive executives. They will expect them to take a look at the fuel expectancy standards. Alix what does it mean when you have a border adjustment tax . No doubt it has to make carmakers extra nearly worried. David gm has a lot of parts and cars across the southern border. She has come out and said she is troubled. We will get a chance to sit down with her right after she speaks with the president and asked her about what she had to say to the president what the president had to say to her. Alix looking forward to that interview. Here is where we trade with 30 minutes before the bell. By one point,s up but it is a weaker dollar story. All throughout the session, 1. 21. The pound a little softer. Nonetheless, moving higher on the day. The selloff in the bond market continues. The 10 year down by two basis points. When you have the Inflation Numbers, retail Sales Numbers in line with estimates. Crude oil up almost 2 . Capital Bank Financial is working with advisers to explore a sale. They received an unsolicited approach. Now, they will begin reaching out to potential buyers. Talks are at an early stage. No final decisions have been made. A market cap value of 2 billion. A florida retail bank has about 1000 employees. We will watch that story. Other movers on this day. Julie good morning. We have another potential deal brewing in the index industry. Sci expected to reject a merger offer from s p global, but the shares are trading higher. The company is said to be holding out for 130 a share. We will be continuing to watch that stock and this story for further developments. You were talking about the boost we were seeing in crude oil after recent declines. We are watching southwestern energy, which is a more natural gas company. Is getting upgraded to buy. Valuation is the reasoning behind this even though the price target is being lowered to 10 from 14. We will be watching southwestern as well. Finally, snap. The current tally on Analyst Recommendations on snap, zero buys, 4 holds, and the equivalent of five cell ratings sell ratings. The price target is 18. It is at 20. 11 right now. Analysts are citing over evaluation and slowing growth for the company. Needham initiated coverage of the stock with an underweight as well. Alix thanks so much. It is fed decision day. 2 00 p. M. Is where we get the dots and economic projections. This is a historical look of what we have seen over the last year and a half. The red line is the market pricing. They have tracked each other lower with the exception of september. That is when you start to see the media line start to move higher and markets went with it. A rare convergence between markets and the fed. Joins us nowrian from newport beach, california. Always a pleasure. We may have converges now, but when you walk out the dot plot two 2019, what are we seeing . Wifemed first, it is focus on the dot plot. That is where the insurgency is with the decision and what comes out in the press conference. It is not about whether they will hike or not. They will hike. It is what do they project about the path. What we will see over time is a convergence led by the fed. I expect Market Expectations to converge up to where the fed is in 2018 and beyond. Thoseestion in my mind is the reference the process now or wait a little bit . Alix what do they do because of the end of the day you can make the argument that you have gdp tracking 1. 2 for the First Quarter. If they upgraded their mediandot forecast, they have to update their gdp and inflation forecast. You see them doing this at this meeting with the data they have . Mohammed i suspect they will wait. The reason why they will wait, they want to see what comes out of congress and the administration. They want to see what happens to tax reform, physical infrastructure, deregulation, and trade. I expect they will wait, but do not underestimate that this is a change in the way the fed is targeting rates. It is going from being highly data dependent to being more strategic. Is going from following two markets to leading the market. It is hoping for the beautiful normalization of rates. Alix what changed . What was the trigger that changed them from that data dependent to the holistic view of their rate half path . Mohammed greater confidence about the domestic economy. Greater confidence that the international risks are coming down. Possibility of finally getting scalical stroke fidc Structural Reforms in place. The fed feels comfortable about being low for so long. In my view, they are looking for an opportunity to normalize, but normalize in a gradual fashion. Beautiful normalization is what they want. They dont want to stick around low for long if they dont have to. Alix fair enough. One snag could come from financial conditions. They eased quite a bit. If they hike and financial conditions dont tighten, that puts the threat of a stronger rate hike on the table path on the table. Mohammed i think that is right. Financial conditions have loosened, and that gives them the opportunity to hike. It givesking has of sensibility in the future should the Global Economy fall. Two, it lowers the cost and risk or Collateral Damage of artificially low rates. Yes, it turns out the financial conditions if too loose, they will hike further. This is a different fed, one that will lead the market rather than follow. Alix is the market price for that . Mohammed not yet. Probabilityago, the in markets of a march hike was 30 . All it took was coordinated comments to raise it to about 90 . No, the market is not fully priced yet, but it is getting there. Alix take a look at the markets, for example, and this is a great winter show, the u. S. Fiveyear net positions. We are so short in the treasury market. That potentially is priced in. What is the likelihood we could see some Short Covering rally in the treasury market despite the fact that the markets have not caught up with the . The fed . Mohammed blood of the reasons we have settled into a new range on rates is because there are three distinct factors going on. One is domestic developments pushing rates higher. Two is technical positions capping that move. Three is International Conditions that are also acting as a counterforce to domestic conditions. You have is very balanced tugofwar right now. It is interesting to see whether statement and press conference changes what has been a very finely balanced tugofwar. Alix what area of the market is underpricing a more hawkish fed . ,ohammed the key issue is those the fed hikes involve a handoff to tax reform, higher fiscaland deficit . Yes or no . It is less about the fed. It is more about, what do you expect the administration to be able to get congress to do . Alix we just heard from one say they are neutral on theties because the longer reflation trade goes the more asymmetric risk that is to the downside. How do you adjust a portfolio to encompass Something Like that . Mohamed we have come a very long way on the reflection trade. We have come a very long way on announcements rather than redesign and implementation of philosophies. The market is pausing and waiting for the transition from policy announcement to Detailed Design and implementation. Alix great stuff. We will keep you and say more about the credit market. Mohamed elerian is sticking with us. Coming up later today, do not miss the bloomberg special coverage of the fed Rate Decision at 1 00 p. M. Eastern. Check out these two stocks moving ahead of the open. Netflix raised to a whole from underperform hold from underperform. Intel falling after downgraded shares for the first time in 10 years. Moving to neutral from buy. This is bloomberg. Alix if the fed hikes, what do you do with corporate credit, particularly high yields . Of maryland saying they underway to ideals for the First Time Since 2008. Issuance sorting ou outflows. Week aslion last outflows really ramped up. Joining us now is lisa. Still with us, mohamed elerian. If we start to see the fed hike on a steeper path, what happens . Lisa this is the big question mark. Points seen a number of of evidence that suggests a broader weakness in credit. Retailers going bankrupt. Below thatdip lo 50 mark. You see all of these signs of weakness in addition to the subprime auto situation. People are wondering, does this signal a broader weakening in credit ability, ability to repay credit . If this is the case, that means the credit markets are not going to be able to withstand a faster than expected pace of rate hikes. That is the question. We have this aging credit cycle. This could be a natural weeding out of the worst players in the market, right . Alix also higher Corporate Bond with 57 basis points. There could be some repricing on that. Mohamed, where do you see it . Mohamed are you being paid enough in highyield for the risk you are taking . We have come a long way in terms of fed tightening. The reason why these markets have done so well is the volatility overall has been very low, and the lower the volatility, the more people are encouraged to take risk, and i dont think we will stay at low because the economic paradigm is changing, and civil rights are less willing and able to repress unnatural volatility. For me, is the right thing to do to take some cash off the table and wait for better opportunities. Alix what is the opportunity you would say now is the time to go . Mohamed first, i would wait a little bit. I would keep energy on my radar screen. Inhave a supplyled declined oil prices. That will have consequences. You will see attractive entry points down the road. Not right now, but down the road. Alix will we have also seen, leverage loans are liked because they are high yields. Mohamed, everyone seems to be telling me that. They like the leverage loans. How do you square a potential risk versus the need for yield in these kind of markets . It really matters what you are buying when you are going into that world. I would say go with someone who has a history of picking the right names. This has to be very made specific. Lisa one thing i have been struck by is investmentgrade credit. This has been a safe stop for many people. You have seen leverage ratios among companies in the u. S. Rise to the highest level since 2002. This is alarming because this is a good economic backdrop. We are seeing this leverage tick up. You think Investment Grade credit is poised for a downfall . Mohamed i think what you are seeing more generally is a lot of Financial Engineering going on. The trade has been issue debt and do things with the money in the hope that that improves your capital structure for your shareholder in the hope that recent version from money abroad may ease the situation later on. I think it has gone too far. This Financial Engineering has gone too far. I would also be careful here. I would run below your risk budget in general. Alix to your point, corporate issuance has been like going gangbusters. The biggest for investment credit on record. Is pulling it forward to get ahead of a rate hike . Lisa both because you are seeing some big m a transactions. People issuing debt for that. Another suspicion people have is companies are worried about tax changes that would make the payments that they are making all this corporate debt not eligible to be good article from the taxes they pay so they hope to lock in the debt structure and grandfather in the ability to deduct interest from their taxes. People are pulling for with their schedule, and they are increasing the net issuance. Yes. Alix moving that to highyield as well. Trade a few months ago was going willbbbs, and now, cccs do better because they are not exposed to high rates. Lisa lets back up for a second. We have seen an interest in triple c issuance. People are going back into the wrisrisk. You have a bigger cushion of extra yield to rate to absorb any rising benchmark interest rate. That you really works if the economy continues to accelerate. If there is any pullback, that does not work anymore and we are in uncharted territory so they that may not be the case. You see the narrowing of the spread between triple c yields and ample b deals. This makes the risk more vulnerable. Not to mention the fact that energy debt is there, retail debt. There are a lot of dogs buried in the debt. Alix it all depends on growth and where we are in the credit cycle. Where are we in that . What is going to put an end to the credit cycle that we see . Mohamed i totally agree with lisa in terms of be careful of the worst part of the credit because they are incredibly vulnerable at these spreads. Simply not being paid enough for the risk taking. As to the end of the credit cycle, and it is a big what if. It is going into a recession, that would be really ugly. You dont want that to happen. Secondly, if it turns out congress cannot get its act together on the progrowth policy, that will also hurt. Alix thank you so much. Mohamed, a pleasure to talk to you on that day fed day. Thank you so much, lisa. Will be joining us to break down the market open. This is bloomberg. David this is bloomberg. I am reporting from detroit today because the president of the u. S. Will be making his way here in little over two hours now to meet with automobile executives to talk about some of the fuelefficient standards. We are joined now by david welch, who knows everything about automobiles. What do we expect to hear from the president today. Heid welch he will say wants to review the economy standards that go out to 2025. Review them next year. The Obama Administration just wantedthey left had everyone to 50 miles per gallon. Maybe we need to take another look at this. Whotime next year, trump, has not been a fan of the Global Warming theory, is going to have another look at this thing and say is it economically and technologically feasible . Should we be doing this . Maybe the industry will say give us a break. David aut automotive executives thought he jumped the gun. You sort of turn the clock back a little bit. David welch thats right. Januarye done this in instead of waiting for april of next year to do it. The industry wants more time. My guess is they want a review done by someone who will probably be more favorable to their way of thinking. David entirely coincidentally, General Motors came out with an announcement about 900 jobs. What is that announcement about . David welch maybe there is a little bit of politics here. 680 of the 900 jobs were retained. People were already building vehicles and will continue to build a new version of it. Not really new jobs. 220 of them are new. I am guessing these are jobs that were already planned to be there because they are going to the making tensely speedtions 10 transmissions. David so we may get a trump sweet about it. Twee about itt. David welch i would not be surprised. David once it is a traumatic given the amount of transport across the southern border backandforth frankly in the supply chain. What is going to be discussed today about that . David welch Auto Industry executives will say they dont want this to happen. It will lower Corporate Tax rates but i just taxes going across the border to encourage exports and discourage imports. The Car Companies bill a lot of vehicles in mexico. They sent a letter art over there and bring parts back. Parts overd a lot of there and bring parts back. That will be a problem for them, and they dont like it. David talk about the symbolism. They are meeting at the automobile mobility center, which is just outside of detroit. Tell us why it is important that the president picked that place to meet. David welch this is where they are testing Autonomous Vehicles and doing studies on self driving cars. It is the future of the industry. If you go back to world war ii, this is an old plant converted to make bombers. Future,e past, the uniquely michigan. David all of these executives talk about mobility. Is important. It is important. I will get to talk to mary barra in a few hours time. Alix very much looking for what to that interview. Excited to see the interview in detroit. The opening bell is next on bloomberg daybreak. This is where we trade on this that they. Futures softer but not a lot of transitioning to the fed meeting. 2. 7 on the headline. Core. N it is a weaker dollar story across the board. Cable, 1. 22 as you have yields moving lower all throughout the market. This is bloomberg. Here is where we stack up on this fed day. Up, s ps futures futures up by five. Solid Inflation Numbers coming in at courses core cpi at 2. 2 . It is very interesting, the dollar has been pretty much board all across the despite chance of a march rate hike happening later today. You see a little selling earlier in the twoyear. Crude getting a relief rally after getting hammered by about 1. 6 . Julie has our watch. Julie essentially reversing some declines we saw yesterday, almost ignoren most of the day until we get the fed decision and fed commentary later on. It is priced in that the fed will raise rates but what is the future charge a tree of rate increases . What is it look like around inflation and the job market . It should be interesting to see the direction of stocks and bonds after we get the news. We are seeing increasing up here now. We have got david and the president out in detroit today. Theyre are not much changed even after the accident were talking about General Motors, the company adding and retaining jobs. 1 , so we will see if they also move if we get any kind of headlines coming out. Step back and a look at interesting calls we have gotten recently on stocks more broadly. Recently expressing caution about evaluation for u. S. Stocks, likening the time now to potentially like the. Com bubble, talking about a big blowup we saw in tech stocks in 2000. Adjustedhe cyclically pricetoearnings ratio for the s p 500. Here it was during the. Com bubble. Bubble. Com we got cautious comments from Goldman Sachs this morning, they lowered the threemonth outlook for global stocks to neutral in part because of the fed raising rates. Various cautious notes coming out this morning. Really interesting from Goldman Sachs, the downside, the longer the reflation theme goes on your love it or joining us on the chiefis investment officer. Tech overvalued, s p overvalued . It is not. If you want to look at a short timeframe, you could argue there is an xl coming from for a variety of reasons. If you are looking at it we 12 months, earnings should heat up into the premium we see in the evaluation. Much of the Earnings Growth should come from the tech arena. Other places like financials will still participate and they have a ways to go in terms of Profit Margins and numbers overall. Energy has been a major headwind overall and will probably flatlined for the rest of the year. Industrials, manufacturing, pmis around the role really kicking into high gear right now. It is a synchronized Global Expansion we have not seen in a while. Lets talk about tech specifically. The nasdaq versus volatility, the nasdaq 100 is the blue line. Volatility is right around record lows. Tech is insulated from any rate hike increase versus Consumer Credit discretionary and consumer staples. That diversions . Will have the kind of growth in the kind of innovation to help tech companies. We have been bullish on facebook, a company with at least 30 Revenue Growth in 2017. I think you want to stick with winners and that stock has been a winner. We see the relative value versus its peers. Infancy in the Advertising Market they commandeered, they really dont have shared revenue from any of the top 20 or top 100 advertiser. Is headedcebook toward a 155 dollar price target. If you wind up seeing a faster rate increase hike past the fed today, what kinds of opportunities do you see if we see a rope it rotation into the bond market and into areas like tech . It is a great point. I think tech will show that kind of growth because there is that kind of revenue in Earnings Growth. Orleeper is here in biotech, a huge conference in washington this week, you can see surprises on the upside. Newsan probably see more and that will not be afflicted i higher rate market. The second like has been energyby not necessarily industrials and materials. I think you still have to stick with more cyclical areas. You want to do a small bar bill within equities. Four parts to it should peers through any rate hiking cycle. Growth, value, and the day. When you think about repatriation, health care does not have a lot to it but it does have components that value growth and it should benefit from rate hike cycle. Highyield really rolling over at that point. Transportation average down 5 warning sign . I think small caps are taking a backseat because of potential delay in some kind of tax reform. In terms of the warning signs, the it is way too thin and rich at these levels. Would be buying on pullbacks for small caps for example. Give it to me. It is a great question. Stymie in congress we are starting to see with Health Care Legislation and tax legislation. You can see that between not only the white house and his own party but the democrats. You have one or two unforeseen events, we will see those. It is historically low and we are probably going to get a little complacent here. The market has been a nice range for some time. This congress will have a hard time with the president ss end that will at some point blowup and you will see it at that time. The Goldman Sachs calls that the longer you play the trade, the more downside you will see because volatility will pick up. You have got Commodity Traders coming into the market and they will get shaken out once volatility winds up taking up. How do you hedge that . It is difficult to hedge overall. You want to have a little more cash, you still want to spend your budget in equities. In terms of the trade being over owned or over talked about, tell me about it. It is over know if owned. We are seeing health care and utilities over perform. It is hard to say reflation trade is over owned. I think you have got a couple years left of that being the core part of the marketplace. You have not seen rate hikes in other parts of economic zones. You are seeing a small rate hike here. Back to your baby, Facebook Trading right around an alltime high. How do you wind up hedging that . Hedge facebook to be honest. Feel you will have that wed of volatility, have had a deflationary trade for a decade or more. Rates are historically low. You do not see the tenure at 3 right now. I dont think it is a huge concern even if it goes up 50 basis points here. It is still low and still tells you you ought to be in cash equities and that will not change any time soon. 3. 5 . It i think the 3. 5 handle is probably where youre talking about it. I just dont think that is as worrisome as some do. We have been talking about the rate rise for six or seven years. People thing i told you so, looking for this for half a decade, i am not that worried about it. It is still historically a low level and you still have tax legislation and other avenues for growth and overall markets. Plenty of equity capital. The world is looking for ideas. It is somewhere around the 3. 5 level. Looks like that is a little too low. Considering what will happen with the 25 basis point hike, the thing i will worry about is the fed having to play catchup more than now. They said three this year and three next year a little while ago, and they were data dependent, and they shift, is it for an for . That is what the marketplace probably wont like. Thank you so much. Good to see you. And you are sticking with us. Here is where we trade on the fed day a few minutes into the opening session, s p up three points. Of the fedsoft ahead meeting. The dollar continues to grind around nowhere. You have 10 year yields backing down by the two basis points. Energy, materials, and health care, that is the trade into the fed. Coverage, the special at 1 00 p. M. Eastern of the decision. This is bloomberg. Coming up, bloombergs special coverage of the fed Rate Decision 1 00 p. M. Eastern time. Retail sales in february posting the smallest gain in six months rising 1 10 of 1 matching estimates. Are delayed tax refunds to blame . We will dig deeper. Merrill lynch and u. S. Trust cio , a Bloomberg Intelligence senior analyst. In auto sale members we got february, take a steeper behind the numbers, strengths and weaknesses. To be expected given the results from home depot and lowes. 2. 8 . The category is probably the first to be threatened after the category. Closing remains weak and you are seeing that again across the sector. Online remains very strong. A ton of Consumer Confidence coming up. Data just crushing it. Is that corresponding to the numbers you are seeing and retail . Know. I think february was a deceleration. January was strong. It is the first month of the retail calendar for q1. Still i dont think you are seeing that and i think people despite what the numbers are on whatit will depend will happen with costs and other costs people have to spend on and then we will see what happens to consumer spending. A littleer staples are bit to on the defensive side for me overall. ,ome parts of retail particularly those leveraged to the entertainment part of the business, a great point, when you talk about the winners and losers in the strengths and weaknesses, you look at Consumer Electronics and what is happening there is the phone is taking over. Think about where a lot of the watching and streaming gets done, and even though Consumer Electronics will still be needed and you will still need the 70 inch 4k tvs in whatever they are, you think about the millennial generation, and the propensity to watch things on their phone, that is what is taking over. You have got to look at the chips that go into phones that allow faster streaming and that is what you are also seeing in tech land, a tremendous amount tohim a day to get exposure sensory chips but also the areas that allow for faster downloads. You havesue becomes the money to wind up downloading, watching, and spending. 3 age Weekly Earnings down p are in our incomes rising fast enough to keep pace with the retail sales we need to see . I think a lot of wage andings are more parttime fulltime employment. I dont think you are seeing an overall rise in wages that are enough to support the spending people expect to see. Were which retailers concern for the most from that . Great, target is not will be suffer more from that right. Categories across the whole. Probably discretionary categories or apparel, things that are maybe nice to have but you dont need to have, and i think Building Materials and Home Improvement remains strong with what home depot and lowes are doing. It is like a flip question to you, chris. Some areas we are seeing wage increases. You can make an argument that even the Profit Margins of those companies versus retail, we are not seeing the wage increase . The question is can they the marginrd depletions . Can they at the Pricing Power to all of us . We are starting to see some of that. That is part of the argument we are talking about. We are not going back to the days you can easily price on or pass on the Pricing Power. We are certainly going closer to the days where you could pass on some of it. Seee are the key areas you right now. Labor costs are going up. At the same time, they are passing that on to the buyer. That is a good area of wage increases you can handle as an investor. Same question for you in your area. Cannot pass that on . Restaurants have a tough time with more people eating at home. I dont cover that here but i think that is what you will see with a minimum wage increase. It is a very competitive environment for most categories. With the move to online where they are basically eating the cost of free shipping, it could be a pressure for margins. It would be hard for them on price. A little deflation in other areas and still that push in full. Thank you very much. Great to see you, maryland jet u. S. Trust chief investment officer. Coming up is vonnie quinn and mark barton. Is fed day. Markets are going nowhere but we are pumping the john. It is very exciting. We began to see if the fed will actually price markets in any way today, whether it is potentially nonrate hike, it does not look like that will happen. Later we will speak about bond yields before the decision and we have an ipo today, the maker of heineken bottles and packaging and Raw Materials around the world involved in different countries. We will ask them about the 7 ipo. The chairman will be coming on to talk about how you go public when you are highly levered and what it means for the ipo market now. Donald trump us his administration and any potential changes in trade around the world. Be a fascinating conversation. Potential trade, very cool. Looking forward to it. Check out tv , watch us online and click on charts and and send us questions on the go. This is how we trade on the fed day. The dow up by 45 points, the s p up by five and the nasdaq up by six. A relative calm into the fed meeting with the dollar a little lower and a rally within the bond market yields down by two basis points. This is bloomberg. Alix this is bloomberg daybreak. The two big events today, the fed decision in d. C. And President Trump meeting with Auto Executives in detroit. David westin is there. What do you most want to hear from when comes to Auto Executives and President Trumps meeting . Thingthe most important is what happens with fuel efficiency standards. He says he will have a new review. They wrote him a letter saying please review this thing. As you go out, there is an overall number and it is putting pressure on them and what i will at what point, if you do not have the change in regulations, will this hurt your business . We are talking about fuel efficiency standards, you know we should do is jack up the gas tax. We have not raised the gas tax in the United States since 1993. If you just adjusted it for inflation, and you adjusted it to the fact that todays cars get far more gas mileage, you would be raising Something Like 45 billion dollars a year, and that would go a long way toward fixing the roads in this country. You asked the right question, which is, will people put up with that . They see the benefits and i said sure but it is not like they get a gas tax hike here, what the patients will be for consumers on that. Around capitol hill for a while. My world of course, i am looking at what will happen with the fed. I spoke earlier about his call and his take and here is what he had to say. A few advantages. It gives them flexibility in the future should the Global Economy hit a pothole. It lowers the cost and risks or Collateral Damage of artificially low rates. So if it turns out financial conditions remain loose, they will hike further. The key issue i think is that this is a different fed. Alix a different fed. Will we see a dovish or hawkish statement . How will this play out today, david . Fed when theferent president s disappointing different numbers. An excellent point. We dont even know if janet yellen will be there at the end of the day, with the idea that financial conditions, if they dont tighten, is actually a hawkish risk when it comes to the fed, you are supposed to see a titan and if they dont, will they embark on a tighter cycle which them market is not pricing in . Are we getting any clarity on that yet . A very good point that higher rates make people have better decisions. Not actually a bad thing. A fascinating conversation. Great to see you in detroit. Trade, nearlywe 26 minutes in the trading session, this is where we trade on the fed day. Not a lot of movement the taken on ahead of the fed decision. A weaker dollar is the story. Off the highs of the session but the weaker dollar continues nonetheless. Buying him a fiveyear, yields are moving lower in the fed decision. Vix down 3 , crude getting a nice boost up over 1 . Wait for the fed, 1 00 p. M. Special on bloomberg. Vonnie from new york, im vonnie quinn. From london, i am mark barton. Welcome to bloomberg markets. Vonnie we will take you from new york to london this hour to cover stories. Here are the top stories were following on bloomberg and around the world. We have got perspective on what projections the fed may make, apparently a Cornerstone Macro and of jpmorgan. In markets, on oil, due at the bottom of the hour. Weekly inventory numbers reported. Will falln stockpiles and that has oils rebounding today. U. S. Politics, President Trump hits the road today to meet with executives and union representatives. What is the goal of his auto agenda