Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170517

We have steve ratner, who is with us often. He is one of the advisors. He is about to come here by himself in front of the committee on the tactical issue. We have a lot coming up. On the tax reform issue. We have a lot coming up. Similar story for stoxx 600, down by 3 10. Removing the currency market has truly been unbelievable. 1 buildingr 1. 1 on the rally we saw yesterday. Fourar yield now back by basis point. This is your safety check. Dollaryen down 6 10 of 1 . 112, a huge move. Oil trading on its own fundamentals up 3 10 of 1 . David thank you very much. We will set the stage now. We go to our chief washington correspondent, who is across town. Lets start with the facts. It is fair to say washington was rocked yesterday with this report that supposedly President Trump encouraged fbi director to stop the investigation into flynn. What do we know . Kevin it has been such a busy morning that i have not been able to get to the capital, but and irector james comey, am having trouble with my audio, having that connection with the fbi has raised a lot of questions. I spoke to a senior eight of a permanent member of the public and in congress who says quite frankly there is not confidence in President Trump at this moment. David if you can hear me, kevin, i understand that a congressman, who is head of the oversight committee, is demanding that they seek any memorandum from the fbi. Is that likely forthcoming . Can you hear me, kevin . Ok. We will now bring in our first guest. He of course covers banking regulation. We want to turn to you about the effect of what is going on, the drama over at 1600 pennsylvania avenue, and what that might mean for some of the banking the regulations that are so important the banking deregulation that are so important to the industry. There is the legislative track. That is in mortal danger right now. You have senator mcconnell on yesterday talking about changes to doddfrank. That looks like it is fading fast. Catch a form is in trouble right now. The legislative agenda is being drowned by the steady drip of crisis coming out of the white house. David we did have a majority the majority leader on yesterday who said he would want to have changes to doddfrank, but he would need the democrats. Is that because the democrats just one play or because there is too many distractions right now for the white house . Brian it was already an uphill battle beforehand just as a primer for some viewers who may not be familiar. You need 60 votes in the senate to pass most legislation. The doddfrank changes would require 60. That means republicans will have to get eight democratic senators. It was always going to be a high hill to climb. The current crisis, the current city flow of crisis steady flow of crisis out of the white house makes it tougher. Democrats are looking forward to 2018. They are seeing their chances of regaining Congress Know up every day. Republicans are probably going to be running scared over the next few weeks. 8etting those democrats that you need, that republicans would need to collaborate with them, is probably a bridge too far. David in the end it proves to be too difficult given the climate to get the big changes to doddfrank, are there lesser changes that can get through this congress . For example, the point at which something is designated a systemically Important Institution . Brian i think consciously optimistic for that limited change in doddfrank. I have made an argument that actually a good fit in a reconciliation bill, which is a whole separate conversation. But i think the governing by crisis, the daily flow of scandal coming out of the white changes,es even modest bipartisan changes like changing the threshold tougher and tougher. I am growing more pessimistic that congress is going to raise the threshold. Lot of a negative for a regional atlarge Community Banks looking to break above the 50 billion mark. David you know washington. You follow it closely. What is the chance that actually we are caught up in the moment of the story, which is very hot in washington, in the media . With time, this can be put behind us, and we can get back on track with more fundamental changes. Particularly if there is a committee. Brian that is why i said in a note to clients overnight that talk of impeachment is premature. I dont want to get caught up in the moment. However, we are early in the Trump Administration, but become administration and the president himself has not shown an the ability to learn from past mistakes. They are compounding their mistakes. Yes, we might be getting caught up in the moment, but it is very tough at this point to see a white house that is ready to reorganize, put this behind them, put out a public apology, and then follow the apology with a new course of action and a new modus operandi under which they act in a normal fashion. The president was elected to stir things up in washington, and he surely is, but it is not in a way that is a cop as anything. Ive but it is not in a way that is accomplishing anything. I think we are headed down a path that will lead to a couple of years of gridlock. David go back to the other side of the equation, the regulatory reform. Regulations without the need of congress. How much can be done . Is Steve Mnuchin and gary, are they moving forward . Brian the president a couple months ago mandated a report from the Treasury Department on doddfrank regulations, how effective they are, what changes might be needed. We will probably get that in june or later. It could come out in a series of reports. The banking regulators, once trump nominees are in place, and follow up on some of those regulations. There is an opportunity to make additional changes to the stress testing regime. Former governor already set the motions. You can see some changes in the role. A rule. I think you can see some changes their. There. There are positive changes for the Banking Industry that are possible at the regulatory level. For that reason, i am still modestly optimistic that the Financial Sector is going to benefit from a trump presidency, but certainly on the legislative side, it is tough to see what relief is coming from. David you said something critical in that answer, which is when the Trump Administration gets their regulators in place. Of the problems were having right now involving mr. Comey actually interfere with the possibility of a Senate Confirmation of the vice chair of the fed . Brian the vice chair of the fed may have a residency problem because one of the people being floated for that position may come from the San Francisco Federal Reserve bank, where janet yellen already represents, and there is some legal questions about whether you can have two members from the same district. But getting the rest of the nominees in place, thanks to harry reid last year or a couple years ago changing the senate rules, you need a simple majority. I think republicans at this point can still hang together to get the president s nominees across the goal line. It will take longer. They will probably need to be there will probably need to be a little more handholding. I think those people will be in place overtime, but it takes time. The chairman of the Federal Reserves term does not end until february 2018. There will not be a trump appointee running the fed, and that is a critical spot, until early next year. David sounds like overall, you are cautiously optimistic on the regulatory front. Brian yes. That is a very fair way of putting it. I remain cautiously optimistic that the trump regulatory agenda remains on track. The legislative agenda is being derailed. David brian gardner, thank you so much for joining us here in washington. Back to you. Alix thank you so much. Coming up, more on our top story. A full line of guests to react to washington this morning, including a key member of the house Intelligence Committee. In the market, here is where we stand. It is Political Risk that spreads to the u. S. Dollaries and the broadly weaker across the board. Money flowing into the annex. Vix up. Gold up. Oil up as well. This is bloomberg. This is bloomberg daybreak. I am emma chandra with your Bloomberg Business flash. Comparable sales analyst unexpected at a discount estimatesand it beat coming of a target some muchneeded momentum. In refurbished more that 600 stores and introduced new store brands. American businesses will cash in one President Trump visit saudi arabia this weekend. According to people familiar with the matter, the oil company will sign agreements with at least 10 American Companies. Among them, general electric, halliburton. The deals call for the companies to open manufacturing parts in saudi arabia and train local workers. In the u. K. , a completely privately owned bank once again. It was mailed out in the middle of the financial crisis. It has sold its last remaining shares. The treasury made more than 1. 2 billion on its original investment. That is your Bloomberg Business flash. Alix thank you so much. In the market, the move is what the dollar. Joining me now is mark mccormack. What do you make of the dollars slide . Mark i think it is a mix of a lot of things. We have d. C. , a trump premium being built into the dollar. U. S. Dollar is trading below where it should be from interestrate differentials of the u. S. Versus the rest of the world on a two signal move. The u. S. Is creating this high level of discount around the dollar, but it is coming at the same time that they are Getting Better data out of europeans and outside of the rest of the world. What we are seeing is a lot of a headline risk people were focused on in the beginning of the year in europe is subsiding. Europe seems to be moving in a different state. The economy has grown twice the level of potential gdp. Seeing the same thing out of japan. What we are seeing is the negative tone for the u. S. Dollar is building up. Alix fairpoint. We were talking in break what if what happened in d. C. Happened six weeks ago or eight weeks ago . When we see the same kind of stress in the dollar . There is that worry in the market as well. Mark i think the focus has been on the buzz with people talking about the divergence of soft and hard data. When those things get reconciled. Soft data moves to where the hard data is that. We got to the heart data last week hard data last week. Guard. Lot of people off the big deal with inflation is there is a lot to parade factors in that report. You have telecoms changing the way they price out their business models, which created a huge downside move in the way people have to pay for their cell phone services. The way we are looking at it is domestic prices in the u. S. Are running well ahead of the feds target, labor costs, those kinds of things. Alix today, we have eurozone cpi. Corp. , 1. 2 . German court, 1. 6 . That is still below here. Differential should tell you the dollar is moving higher. Is that a cue to buy the dollar . Mark our strategic view is we are sellers of u. S. Dollar rallies. The way we are looking at it tactically is we have these models we look at that we look at interestrate differentials, equity prices, those kinds of things. All of the major european currencies are trading two sigma models,es on those which tells you there is a lot of euphoria around the story in europe. A lot of the brexit stuff is priced in right now, but there is this big dollar discount, which is coming off of the back of what we are seeing in washington, but when you are also starting to see is there was pentup appetite for people to move back to the european markets now that we have the benign outcome of the french election. The way we are looking at the next few weeks, the fed will hike in june. We think they will hike in september. There is more ways of heightening financial conditions in the u. S. , which is generally beneficial to the dollar. Given hothe other thing to add o it, the entire Hedge Fund Community are short u. S. Dollars. Anecdotally, we have conversations with clients. The conversation is long emerging markets. Everyone is extremely pessimistic on the dollar. For me, that is usually the signal when we start to see the technical positioning of valuation moving in one direction. Essentially, we are starting to say when does the rubber band pop and the dollar starts to rally again . If you have a onemonth tactical view at looking at fx, it is a good time to buy the dollar. Alix buy dollar into the fed and sell rallies. Mark european currencies will move higher along with the yen. Our thesis is the dollar bull market is winding down. The drivers that lead to that is we are starting to see the rest of the world accelerate deion the capacity beyond the capacity of the United States. There is much more pickup in terms of growth expectations, growth potential, and when you start to look at harvard earnings data, europe, u. K. , japan, always countries are growing at twice the level of potential gdp, which in terms of is only looking at x, it growth coming from outside the u. S. You probably will see a drawdown of the currencies if we see a more risk off tone. We want to belong in euros, sterling. But also, we are looking for a big downside in dollaryen over the next year. Alix pivot into the shortterm , you are seeing the eurodollar futures move up a little bit as well. Conditions are tightening ever so slightly. Is there risk that the fed gets derailed again . Mark i dont think so. Alix why not . Mark what matters for the fed is the fundamentals. Where is the Unemployment Rate . Where is the expectations . If you look at monthly payroll growth, we are looking at a run rate of 170,000. Breakeven is 89,000. Youstic wage pressures, have unit labor costs, the strip median fed indicators, wage growth, all these things are at or above the 2 inflation target of the fed. You start to think of how a works, once youhillips curve are at full capacity to bring past that, all be domestic indicators move higher. Unless there is an extreme event in washington that changes the entire landscape, i think the fed is comfortable knowing that the fundamentals for the u. S. Economy is the potential is at 1. 5 , u. S. Economy is growing relatively close to 2 , and that keeps the inflation moving higher and probably hiking rates this year. Alix extreme event . Havent we got enough . Coming up, we are following all the development out of washington with a full line of guests, including Democratic Congressman mike quigley, the key member of the house Intelligence Committee. Dont miss the interview coming up in the next hour. This is bloomberg. Alix in the market, crude trading at 48 ahead of the opec meeting next week. What does that mean for market currencies . Still with us is mark mccormack. Traditionally, you would see oil currency sort of move in tandem with oil prices. We are not seeing that right now. Goldman sachs says they see a breakdown in correlation with oil. Mark the market has been focusing on the china story. China has taken the opportunity since the economy is going pretty well. It is going pretty robustly. We see is going around 6 . What i think they are trying to do is they are taking the option while growth is relatively stable to try to reduce some of the leverage in the shadow banking system. They are tightening monetary conditions at the same time they have allowed fiscal stimulus to work through the economy. China has now its to slow down because the tightening of the Monetary System is working through a little bit, but they have essentially tried to close the capital account and limit the amount of off low so you are starting to see the reserve go up. The story is about whether china is develope the bellwether. Markets piling into a onesided trade, which i think markets have kind of contemplated the two. We have hired citations we will get an opec deal later this month, which will lead to an oil rally. China is going at a relatively decent pace. Alix what about the Canadian Dollar . I feel like that is still leverage to oil. Some say the u. S. Dollar can be in oil currency. Mark yes, there are links to both of those things. What is interesting with canada what we have seen th last couple of weeks, canada with everyones hated currency. You have the nafta rules where we saw tariffs on lumber and every. We saw the Credit Rating downgrade of canadian banks. The Canadian Dollar went from one of the worlds favorite currencies three months ago, and everyone thought the bank of canada will hike rates this year, to now it being the most hated currency. When you look at over time, the beta of oil to the Canadian Dollar has changed dramatically. We have broken almost half the level we have seen in the beta. Essentially for a time from 2011 to 2014, the beta was negative, which meant Oil Prices Went up. That benefited the u. S. Dollar. Now we are starting to see the beta stabilize but it is well below the level we have seen historically. There is debate whether shale has priced out western canada and what impact will oil have on the Canadian Dollar. Alix real pleasure to have you here. Thank you very much, mark mccormack. Thanks very much for joining us. Take a look at target. 7 in premarket. Earnings were bad but not as bad as expected. Sales only falling 1. 2 . Coming up, we will speak with john allen. This is bloomberg. John fallon. This is bloomberg. Alix this is bloomberg daybreak. Here is where the markets than as they digest news overnight about another issue for the Trump Administration. S p futures software down by about nine point but off the lowest of the session. At one point, we were off like a religious. Euro stocks down. The 10year getting a big move down by about three basis points. Buying all across europe now spreading to the u. S. The dollar continues to get hammered. Big for the yen. Big for the euro. Gold moving slightly higher on the safe haven bid as well. Political risk now spreads to the u. S. Now to an update on what is making headlines now to what is making headlines outside the u. S. Mma regular pay adjusted for inflation was down 2 10 of a percent. In washington, President Trump disclosures of classified information to us an foreign diplomats cause risk. Intelligence professionals to other countries may be worried how much to share with the u. S. The New York Times says israel was the source of the information the president passed on. Another political prices for President Trump. James comey wrote a memo about a conversation with the president saying he asked comey to drop an investigation into former National Security adviser Michael Flynn. That is according to aperson who was given a copy of the memo. The contents of the memo have not been confirmed by a number of news organizations although the memo has yet to surface publicly. Democrats say it to be considered obstruction of justice, an impeachable offense. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Im emma chandra. Am emma chandra. David that story that perhaps President Trump encouraged fbi director jim comey to drop the Michael Flynn investigation. We will go to our Senior Executive editor in washington to bring us up to speed on where things stand. What have we heard out of the white house or out of the republicans so far . Actually, what is interesting is we have heard nothing. It has been the history of donald trump to aggressively start tweeting when he is under attack. We have heard nothing from the white house this morning. I think that is interesting. Radio silence from the hill on the public of leadership. We heard plenty of democrats called for a special counsel, but nothing from the gop leadership. David explain to us how important that decision of special counsel or a perhaps be. Te committee may marty if they really want to convey independence, they will have to appoint a special counsel in order to ensure the impartiality of that investigation. Now that we have this allegation that donald trump tried to influence the russian inquiry, it is almost imperative that they get a special counsel appointed. Jeff sessions has recused himself from this process, so it is rosenstein who would have to make that decision. He is supposed to come to the hill and give testimony tomorrow behind closed doors. That will be a very interesting conversation with congress tomorrow. David as you suggest, there is a fair amount of tension around mr. Rosenstein. If he does not appoint a special counsel, who would investigate even the allegations the president may have tried to intervene with the investigation . There is no one running the fbi. Who would do it . Marty it would have to fall through congress. Has gottenngress very little cooperation from the white house on the flint investigation. The Michael Flynn investigation. We do not have an fbi director, so it would have to fall to congress. That would raise questions about whether they have the ability actually to conduct that kind of investigation. David ok. Thank you so much. I think you have breaking news for us. Alix this coming from president Vladimir Putin of russia. He is talking about what is going on here in the u. S. And says the political schizophrenia is developing in the u. S. Over russia and that russia is ready to give recordings of talks if the u. S. Agrees. Youre looking at a live shot of russian president Vladimir Putin discussing the turmoil of u. S. And russia relations in d. C. Ov did not. Lavr share secrets with him or the secret service, and he appreciates the results of the talks. Russian president Vladimir Putin saying political schizophrenia is developing in the u. S. Over russia. Some strong words from the president of russia. David something when the president of russia is trying to diagnose us as having political schizophrenia. We are joined now by a very important promise. She represents the state of washington. She is a democrat. Delbene. Usan thoug saxophone,talk about but it has been difficult because of the development out of the white house and what is going on. Is it is starting to the point that we will not get to tax reform or health care . Since this administered and has been put in place, that has not set an agenda, but we are having our first hearing on tax reform tomorrow in the ways and Means Committee so that will give us a first indication on whether or not we will be able to move forward. What is critical is that we have to have tax reform that supports middleclass families and Small Businesses, and we have to have something that is bipartisan. It is not going to move forward or be longlived if we do not have a bipartisan process. David there is this talk about a special counsel. From your point of view, is there any alternative to that . Is there any other way to get to the bottom of this one way or the other . Rep. Delbene the most critical thing is an investigation needs to be independent. An independent commission, which is something democrats have called for, an independent counsel, the keyword is it needs to be independent so we can get to the bottom of things and we do not feel it is influence from the administration on the investigation. David lets turn to the hearings you start having tomorrow on tax reform. We have had chairman brady on, whose that it has to be revenue neutral because he wants a permanent longterm set of tax reforms. Do you agree with that . The you agree it needs to be revenue neutral . Rep. Delbene i think it needs to be revenue neutral. Clearly that seems in opposition to what we have heard from the administration. Their plan has not been revenue neutral. Far from it. Is unclear whether or not the administration and the chairman and House Republicans are on the same page. David how could you get to revenue neutral . That is a lot of revenue to come up with. Rep. Delbene that is why we need to have hearings, and this needs to be a detaile discussiond. We should be sitting down in bringing an expert and talking about what is working in our tax code, what is not working, how we will address certain issues like making sure we are supporting middleclass families across our country, making sure we are addressing things we agree on like the challenges we have with incentives for inversions or money being parked overseas. These are issues we need to jointly address. Lets bring in experts. Lets talk about what is working , what is not working, and the changes we can make. Challenge is that a challenge . Absolutely. People came together and worked hard and we had something that came out of the Senate Finance committee with unanimous support in a bipartisan fashion. That is what we should look at in terms of the goal we should have with looking at tax reform in this congress. David we dont have a detailed plan from the president right now. We do have an outline. It includes a substantial doubling of the standard of deduction. That would help middleclass families. Is that something you could support . Rep. Delbene i think the concern on the president s proposal has been that the majority of benefits go to the wealthiest americans. This is not about supporting the middle class and making sure we support Small Businesses. We have a onepage outline from the administration. We need details. With you to talk about exactly how things would work so that we really understand we need to talk about exactly how things would work so that we really understand. Our priority is to support middleclass families, making sure we are supporting jobs across our country, addressing the issues we have that we need to address with appropriate tax reform. David would it help the middle class . Just the one part of the outline. Rep. Delbene in terms of families, sometimes they are not itemizing or taking all the deductions that wealthier families are having. The specifics are going to be very important when we are looking at the proposals that are out there and the details that will be behind them when we get more of those details. David finally, congresswoman, can you agree with the administration and some of the Republican Leadership that the primary goal here should be growth . That will create jobs and help middleclass families. Rep. Delbene i think supporting Small Businesses, we have a tax code that is incredibly complex, making sure that if you are a Small Business that you dont have the tax counsel on staff that can help you with that complexity. Usually do not get to take advantage of things that larger corporations do. Same is true of families. Middleclass families do not have the countie accountants and attorney that wealthier families might have. We need to measure we have a tax code that supports and allows for growth that supports middleclass families that allow Small Businesses to grow and thrive. That will be quickly important in any plan to have bipartisan support to move forward. David thank you very much for joining us. Back to you. Alix thank you so much. In the market, take a look at qualcomm and apple. Qualcomm is bringing in the assemblers of the iphone into court. They are claiming they are failing to pay royalties. Companyies are being sued. Qualcomm says, look, they are not paying their distributors, their contractors money. Those contractors are not paying royalties to qualcomm. That in essence is the issue. More on that throughout the next few hours. Coming up, you have oil paring losses of more than 1 . We will talk to ed morse. He will be joining us with his outlook and what to expect from opec next week. This is bloomberg. This is bloomberg daybreak. Coming up in the next hour, senator david of georgia on the latest news and washington and the prospect of tax reform. Up by nine dollars. A little bit of safe haven trade in the commodities. Is it a time to buy. . Oinin joining us is ed morse. Do you want to buy gold . Ed i think it is risky, a shortterm bid, and then it should dissipate. Another rate increased from another boost in the dollar when we get over this little hump, so cold is not a perfect by. Alix if this happened 10 years ago, we would have been talking about it in the cards. Turning to oil because it is moving on its own fundamentals, what happens on thursday next week when opec meets . Ed opec is almost certainly going to have an agreement. It will be the 24 member an agreement. The other opec countries collectively are not going anywhere. We have a boost in libyan production, continued decline in venezuelan production. Iran will end the year at a lower level than what they started the year with supplying the market. Requirements are higher revenue, which means a higher price, and they think they can do it, and i have to agree with them. They are well poised to see a rally in oil prices for the rest of the year. Alix before we get to the rally, what kind of cut . 69 months seems to be a relatively done deal. Ed they will talk about the original 8. 8 million barrel a day collective. At a minimum, they will keep that same number with great confidence, i think. They may add to it. Discussions we are hearing about, they may add 300,000 to 500,000 barrels a day to that number. Against the baseline of last year, it would be over a 2 million barrel a day cut. Alix going back to november of last year when the cut would into effect between november and january, you saw opec pump, and then they reduced during maintenance season so it was not a true cuts. I cut. If they cut, is a real material cut off the market . Ed actually, there was a cut of oil out of the well head. Ae overproduction by about million and a half barrels a day triggered by the politics of having an agreement came into the market as the cuts came into the market. That was largely a firstquarter effort with an impact in the First Quarter that kind of balanced out cuts. We saw oil received in the consumer markets going up. In addition to that flattened, curve they stored oil at a profit in large tankers. Also, no longer was cost benefit related. We saw a movement away. A dramatic drop in floating inventory also coming into markets in the First Quarter. Now with maintenance season over in the u. S. Just about an soon in europe and soon after that and soon after that in asia, we will see refinery demand for crude, the real consumers of crude, refineries, really increasing dramatically. We are seeing the impact already. If you take the highfrequency data month to date, there has been a draw of over 22 Million Barrels of oil. Alix it goes into product . Ed but total inventories are down. The point from the Group Perspective is that we normally see a build in may of some 12 million, 13 Million Barrels. So far, we have seen double of that in the data today. Alix talked to me about your back half of the year forecast. Tight . We get ed like tomorrow, next week. We are all because of tightness because the market is not absorbing yet that this 2 million barrel a day drop in , the market will have to absorb that at some point. The financial part of the market will come into play. We had a dramatic drop in net length of managed money in the market. It hit a record in late february or early march of about 920 Million Barrels. It reduced by half. The length is fleshed out. Flushed out. We are sticking comfortably with our forecast going into the mitts these by the end of the year. Production . S shale ed shale production is going. We have production out of the market. We have some nonopec production out of the market. We have largely u. S. Production rebounding. We think it could be about one Million Barrels a day exit exit or half a Million Barrels a day. We will still going to 2018 with the inventory draw situation so there will be a bit of room for a for the runup in u. S. Production, but to be sure, whatever gains the producers are now getting in terms of price will come off when we see u. S. Production growth into 2018. Alix fair point. Good job. Everything leads back to oil. That is my thesis. One of those testifying tomorrow will be steve ratner. He will be joining us ahead. This is bloomberg. 62 a percent of investors rejected the ceo and the company is planning deeper cost cuts in the process of pulling out of u. S. Education publishing business. Joining us to discuss the companys turnaround efforts is the ceo himself, john fallon. Great to see you. Starting with the shareholder revolt, how do you deal with you are trying to grow revenue and cut costs at the same time and they are still lining up . I am thest thing, son of the teachers i know how privileged i am to have the job i do and income i do. The controversy was over the bonus i was paid that i used to buy shares in the company because i am completely committed to the future of pearson. This has been an incredibly frustrating time for shareholders. We have seen five years of declining College Enrollment in america at the same time as we are seeing huge disruption in our College Textbook business from the growth in rental. By think it is also an incredibly exciting time for the company. We are investing 1 billion in Digital Transformation of the company. The 250 textbook is on the wane. Courseware, all that content of the textbook but with more adaptive, much more personalized, much more useful to students, much more helpful to teachers is with us. We are going to win in that world. We have to also completely reengineered the cost base of the company to ensure that we can provide greater value to students at that lower price and create Growth Opportunities for our shareholders. We are in the middle of so far we have taken 1 billion of costs out of the business. We are planning to take another 400 million of cost. That is all to mcpherson a simpler more digital leaner make pearson a simpler, more digital, leaner company. Frustrating for shareholders. With a tough couple years ahead of us, the rewards in the next three to five years is an exciting one. David a highly thought of ceo. Where exactly are you in the process . You said three years . What will increas pearson look e at the end of that . Pearson has been in the business for 200 years. Growth does not always go in straight lines. It has been a tougher time certainly than i thought it would have been five years ago when i took on the role from marjorie, but i do think we are making progress. One cannot be certain, but i really think that if we can get through the next 121 month8s, the longterm prospects look better. I think what we will be is more direct, much more directly engaged with students, and much more digital. A much more Effective Company in terms of the outcomes we deliver. From a shareholder point of view, we start to look rather more stable, rather more reliable. Much greater visibility in terms of the earning streams we can deliver each year. David in a word or two, what will determine success or failure for your plan . John i think success is getting pearson growing again, delivering Better Outcomes for teachers and students across a much more getting stable earnings stream so we do not have the shots and surprises that we had over the last few years. Creating some really exciting partnerships working with ibm watson to create a cognitive tutor, bringing the benefits of augmented reality to the next generation of our nurses and surgeons and how they are trained. Alix get to see you. Thank you for coming. Coming up next in the next hour, senator david perdue joining us on drama in d. C. This is bloomberg. Alix d. C. Bombshell President Trump reportedly asking fbi director james comey to drop an investigation into former. Congress taking accent. The chairman of the house. Versight committee the dollar gets of it gives up its trump bump. The dollar call begins to mount. Welcome to bloomberg daybreak. I am alix steel. David westin live from capitol hill. David, a great day to be down there. David is a Beautiful Day overlooking the capital dont become me capitol dome behind me. We have congresswoman read a lowly. She knows how to spend the money here. Steve rattner talks about the budget and tax reform. Quigleyngressman mike talks about what is going on with mr. Comey and mr. Trump, all of that coming up. Back to you. Alix here is how the markets are taking the information from d. C. Political risk spreads, s p futures off by nine points. Softer in europe as well. 1. 11ollar, look at that, extending its rally from yesterday. Gold, safe haven continues. David . David thanks, alix. We are turning back to this question, what happened it did not happen between at the eye director james comey and donald trump. Several lawmakers broke out on the subject. Mr. Comey is alleging the president did something toppropriate, i do not want read a memo, i want to hear from him. Schumer i was shaken by the report from the New York Times that the president tried to shut down an act to fbi investigation into a close political associate. We are to ask the directors come in to testify. That ought to the first step here to we ought to ask if there are notes, notes taken around become a station, i think it would be very powerful evidence as to what to lays and the conversations. David we are now joined by congresswoman nita lowey. She is Ranking Member on the Appropriations Committee in the house her and she was my congresswoman until they redistricted her out. Reactthe news, we have to to the reports overnight about the president. We heard from several of your colleagues saying this is a serious matter. They want to hear from james comey. This takes precedence over anything going on here today . Rep. Lowey this is so shocking to me, david. This is not about comey or trump, this is about the United States of america. This is about our democracy. We must have an independent prosecutor, we needed areas investigation, and it has to be done now. It is time for the republicans to join with the democrats in a bipartisan request with this investigation. David do you have a sense whether your republican colleagues are moving in that direction . Rep. Lowey slowly. I think most of the republicans are really afraid to speak out, and i would hope that they understand that they have a responsibility to the United States of america, to the people who elected them, so i think it is essential that we do this, and we do it now. David congresswoman, lets talk about other items on the agenda. You are the Ranking Member of the appropriations. You figure out how to spend the money that we are taxing. Tell us about what happened when we almost shut on the government for the 17 budget and then looking forward to 2018. Rep. Lowey i appreciate that question because when i got on the Appropriations Committee, we used to say there are democrats, republicans, and appropriators. I am working on the 2017 budget. It was so successful and so bipartisan, i would like to say i did such a great job, but we all worked together. I mean, to get a 2 billion increase at the National Institutes of health went the white house requested age a deduction of just under 2 billion, to get pell grant you know how important y are for schools afterschool programs, head starts, and a Strong Military treated with a real bipartisan effort. It was quite extramarital now we are heading to the 2018 budget. Houseall it at the white the skinny budget. It is dead on arrival here i cannot leave that the serious members of appropriations are going to take that budget seriously. They cut 6. 1 billion from the National Institutes of health, cut, cut, cut. This is not good for the economy, and by the way, i mention the National Institutions of health because it is not just ivs, autism, etc. , this is the economy in new york and around the country. This provides jobs, and it also has to do with our young people choosing careers. If they are seeing cuts at the National Institutes of health, they go to yahoo , google, they may not go into the research. David 2017 was a success, certainly from your point of view, and the government kept running. Wasnt a success because essentially was it a success because essentially the white house caved . Rep. Lowey it is hard to know what is on their mind, but the white house caved on almost every controversial issue, and we ended up putting it together in a bipartisan way. I am not sure where the white house is and what they are going to do. When you have the secretary of state talking about cutting the 1 3e department, usaid, by i mean, this does not make sense, and it is shocking to all of our partners around the world. David can you agree with the white house on one thing, which there is a need for defense investment or spending . Many people think we have been underspending on defense for some time. Rep. Lowey i have said all along and to my partners as we negotiated this bill, i will support in the 2017 15 billion for defense. Minute, we need defense at home in our schools, and in our communities as well, so i do think given the very troubling world we are living in, we do need increased dollars for defense, but we also have to watch it carefully and make sure this money is spent wisely. I am impressed with those who are there who have been we need to still have strong oversight and make sure we are investing in our domestic agenda. David congresswoman nita lowey, so good to have you with us. Thank you so much for your time. Back to you, alix. Alix joining us now onset is steve rattner, willett advisers chairman. You are deep into politics. What is your interpretation of the legislative agenda is going to move off the table . Steve what have been surprising to a lot of people who have asked me about this is that the market has not moved sooner. You have had the issue going on for a well. The legislative agenda is slowing down, going on for a wild, and we have not had any market reaction. In the greatmild scheme of life, so we will have to see what happens over the next few days, but certainly the legislative agenda is on hold. Caroline i was talking alix i was talking to a guest earlier who said we need an extreme event to shake up the market. Event . An extreme if the president of the hole in his office seem surprised. I do not think it is at the moment. I think we simply have aided functional white house, which we had under some other president s, who could not quite figure it out. This one is probably less experienced. I do not see it extreme event on the political side of the short run, but who knows . Alix tying that into trumps position, for cutting jobs, 1300 salaried positions affected. This comes after the journal says they will cut down 10 , the market the stock down. 8 in the market. What is your reaction to the . Steve is shows that the president cannot job on companies not to cut jobs. You have slowing demand for autos, and obviously companies are responding, which is what shareholders wanted to do. What you really need is a focus on economic challenges, getting legislative stuff going, getting the economy going again, but with the political stuff, that seems unlikely. Alix and trump campaigned on bringing jobs back, on manufacturing. s face is standing by him in terms of the voters. Base is standing by him in terms of the voters. s Approval Rating is 39 , 40 , which is his base. If he wants to keep everybody happy, including his base, he has to do some real policy stuff, not just send out tweets or make announcement about jobs. You have to do stuff to get those jobs to stay here. Alix legislative agenda and how it has held up in the last 48 hours. Pleased to have you with us, of willett advisers. Coming up, senator david perdue of georgia will be with us. Also, congressman mike quigley. This is bloomberg. Points. Res up by 93 is bloomberg daybreak. I am in much roger with your Bloomberg Business flash. Reminding us that cuts are on the way. Ford telling us that cuts are on the way. Said early retirement and special reparation separation packages aided the custard in germany, prosecutors say they are investigating current and former top management in the vw admissions scandal. That theytions are deliberately delayed cautioning drivers about the scandals. Today. Arising earnings beat estimates. That gives targets turnaround plan muchneeded momentum. Chain plans to lower prices, refurbished 600 stores, and introduce new brands. David . David ever since donald trump elected a president , we have an hearing about tax reform. Tomorrow, finally, congress is going to start turning to it when the house ways and Means Committee starts hearings on tax form. We have with us steve rattner, someone who will be testifying before them. Give us a preview. Steve what i will talk about is really what the principles are that you need to have for good tax reform, things like fairness, promoting growth, dealing with no International Competitive position, and so on. I will i met up against the trump proposal, which i think falls short in a number of respects. Impact ontedly, its the budget deficit and our debt and the fact that it is not balanced across all the strata of america. David lets start with the tax deficit. We have had the chairman of ways and Means Committee and also Mitch Mcconnell. Do you agree with them . Steve i agree with that. More importantly, it needs to be deficit neutral because we do have a significant deficit that is rising back toward the trillion dollar mark it we have a debt to gdp ratio rising. What is clear from what Mitch Mcconnell and other republicans have settlement is how they plan to measure whether the deficit is neutral. Whether the use simple math, which is what i do and other analysts do, or if they use dynamic scoring, which might make some assumptions about how much growth it might produce and then how it looks like the deficit, which they think will be erased by growth, that is a big open question they have not been specific about. David they have not said anything to indicate they believe in dynamic scoring. If you are going to do something substantial on the tax code, where are the revenues going to come from . Steve the president s proposal is a 5. 5 trillion tax cut. Nothing that you can assume will get anywhere near racing that. Erasing that. I think the president is on the right track i would not agree with every specific but i think he is on the right track in terms of eliminating many deductions and some playing on the individual site what is in common, what is the induction, what is not, and use those savings to perhaps lower individual rights across the board, not just the people at the upper end. You do a similar exercise on the corporate side. There are so many gimmicks that American Companies can use to lower their u. S. Tax rate that i would tie to a tax code things like transfer pricing, off shoring, and so on, and use those revenues again to lower our overall tax rate. David if you were going to guess, is it more likely or less likely tax or formal get done if the president does not have what is much of a role . Recent relevant, what if Mitch Mcconnell and orrin hatch and others take control . Steve earlier, i would have said it would be a modest textile, more along the lines of what i just outlined that would get through, but i have to say that the events over the last two weeks, the last two days, for that matter, it is not just a matter of turning over to the help. Completely w im sure you have a better idea the hill is completely now preoccupied and upset come as they rightly should be, with the state of the white house and whether we have a functioning not. Dency or i think we have to wait a few days or weeks even to see how this all settles down before anybody should predict anything about what will happen with tax reform. David i can certainly confirm it is all the talk here, consuming washington as you expect. As an investor, how best for the president and washington to put this behind them . Is it a special counsel . Aeve special counsel implies prosecution, as you know better than i do, some kind of special committee or commission. This may be slightly more benign. If i were the president , i would certainly the best way to get through would be to open the komodo and stop trying to i would not use the word obstruct, because that has legal applications but stop trying to frustrate the investigation and cooperate with it. David we will be watching her testimony. Thank you, steve rattner, the chairman of willett advisors. Alix coming up next, senator david purdue of georgia will be joining us. This is bloomberg. David this is bloomberg. Im david westin. We are on capitol hill, joined now by david purdue, the distinguished senator from georgia. On he is the only person capitol hill who has actually led a fortune 500 company. You are a businessman, not just a senator. Welcome to the program. We have to talk a little bit about this, it was reported late yesterday, reportedly the president urged then director of the fbi comey to back off the Michael Flynn investigation. How much does not disrupt the agenda here on capitol hill . Sen. Perdue it certainly turns the media away from things we want to talk about, health care and tax, but we have to address it. Seeing as how he has operated over the last four months, it to believerd to meet that this thing will be substantiated, so we will see how this turns out. Im anxious to get past this and move on to the agenda that the American People want to focus on. David there may be nothing to this ultimately, but how do we get to the point where we know nothing is to this . The select so far, committee we have is an Intelligence Committee in the senate, and they have been investigating the russia thing, they will attend these allegations as well. I have full confidence they will get to the bottom of all of this. David you are certain they will investigate. Sen. Perdue that has not been confirmed today, but if it continues, i am sure it will theude be included in investigation into russia. David Jason Chaffetz once the memo. Do you support that . Sen. Perdue i do. As we saw earlier in the week, the unsubstantiated reports were actually reversed. He was not in the room in a conversation. David lets get back to the agenda of tax reform. You have been outspoken about the need for tax reform. We have had on majority leader Mitch Mcconnell yesterday, the day before that kevin brady. Lets start with what they agreed on. Number one, it used to be revenue neutral slaton be permanent. So it can be permanent. Kevin brady set for a businessman, you have to invest. Sen. Perdue theres no question we have to invest. What the border adjustment tax does, the reason they are cuts,g about that is the but lets focus on what we are really trying to do the reid pridd repriest repatriation tax need to be done so we can compete with the world. Those are growth oriented. David if you dont have a border adjustment tax, which you have said very public you are against, can you pay for this level of cut, going down 15 for the corporate . Sen. Perdue two things. Number one, the only reason we have to pay for it if the arcane rule we have here in congress. But what we have not talked about his potential spending cuts, tax expenditure revisions that nobody has talked about yet, and the ultimate longterm impact of growth in this economy. If you just allow 10 years and look at it, the growth that will come will be much longer than that. David are you in favor of dynamic scoring . Sen. Perdue of course. Absolutely. Again, even that model may not fully represent the full benefit over the longterm. If you look at the capital asset, some of these have 30, 40, 50 year lives, but we only look at 10year. On the reverse of that, we do a 10your budget, which means you can spend the money now as long as you stay within the 10, but that rarely happens. Guest fromad a honeywell, and he said he never make decisions on Capital Investments based on tax rates, so that is not really generate more investment, does it . Sen. Perdue no, it does. The largest Liquidity Position in the history. We have small banks because of doddfrank, and somewhere 3ween 2 trillion and trillion. I was a ceo. I had profits. I know when i wanted to build out there, some of the decisions were made based on where could deploy that money. Today with low Interest Rates, it makes it easier not to do that. We are heading back to a more normalized Interest Rate environment, i believe. David without the restraint on Capital Investment for you as a ceo, was it a failure to see clearly increased demand in the future . If you only investing Capital Equipment if you think you have a demand you can profit from. Sen. Perdue that is right, but you have opportunities across the globe now. What happens here in the m a environment particularly, it makes our company very vulnerable to someone who could come in, acquire a u. S. Company, and use the tax arbitrage between their country and our country to pay for the deal. That has happened numerous times. David can you get the text form you want without democratic support of some sort . Sen. Perdue absolutely. I believe that. I think this adjustment tax is aggressive, hammers middle income consumers. We saw whatntly, happened in europe when they put a consumption tax on top of an income tax. In the last two presidencies here, david, this government in the United States has gone from 2. 4 trillion to 3. 9 trillion. David give us a timetable. We heard from a congressman brady by the end of the year, we heard from Mitch Mcconnell by the end of congress. Sen. Perdue two months ago, we were talking about getting it in thingre the of august. Now we are trying to get health care done by the entering of august. In my view, we should stay here and focus on this. Senator david perdue, thank you so much for joining us today from the great state of georgia. Alix, back to you. Coming up next, congressman mike quigley is a key member of the house intelligence to midi. We will be speaking with john chairman later on in the show as well. Intelligence committee. We will be speaking with john on later in the show as well to a weakness in europe, a nice bit across the curve in treasuries as well as in europe as the dollar continues to grind lower. This is bloomberg. Alix this is bloomberg daybreak. I am alix steel. Little unrest spreading. S p futures down by about 12 points. Picking up a downside in the last few minutes. All 5. 5 percent. The move in the currency market continues to be eurodollar, grinding higher , 1. 111. Well bidtreasuries here, outperforming by two basis points. Now yields are down by five basis points as we move into safety continues as the move into safety continues. Headlines outside the Business World your emma chandra is here with first word news. Emma russian president Vladimir Putin is ready to come to the aid of President Trump. Putin says russia will provide a transcript of talks between the president and Russian Foreign minister serco Sergey Lavrov if the white house wants. During that meeting, President Trump is said to have leaked Information Set to happen classified. Laptops inan on airliner cabins may be extended to more than just flights from europe. The home and Security Department said other regions are being considered, too. The e. U. Is pressing the u. S. Not to impose the ban. The two sides will discuss the issue today in brussels. Another political crisis for President Trump. While he was fbi director, james comey wrote a memo about a conversation with the president , saying he had asked comey to drop an investigation into former National Security visor Michael Flynn. That is according to a person who is given a copy of the memo. The contents of the memo have number ofrmed by a news organizations, although the memo itself has yet to surface public. Democrats say the president of the request could be considered obstruction of justice, an impeachable offense. The white house says comeys memo is not truthful. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. I am emma chandra, this is bloomberg daybreak. David we came down to capitol hill to talk about tax reform, but it turns out we will talk a little bit about what President Trump did or did not say about the plan investigation. Havewhat the president may disclosed to foreign minister lavrov of russia. Were joined by mike quigley, a Democratic Congress and from the illinois. I understand that mike pompeo from the cia testified last night. Welcome to the program. Rep. Quigley thanks for having me. David i will not ask you about classified information. There has been enough of that. But tell us, having come from the hearing last night, are you confident that you know what has happened and not happened with respect to classified information and the u. S. Government . Rep. Quigley i alwaysrep. Quigley think i do, and then the next day, the flash on my phone is something amazing happens like the last week. At least shocking revelations about what has taken place. I think it is important for the public to understand that the Trump White House is trying to interfere with this investigation. The allegations of wiretapping therump tower, encouraging midnight excursion to the white house, and so many more examples. Week, where the veiled threat to mr. Comey about what was taped or not taped, obviously the firing of mr. Comey, and now before more that he wasgation encouraged by the president of the United States to drop his investigation of general flynn that is not just interference, that is obstruction of justice. David so President Trump was not elected to do with scandals like this, and i am sure it is not what he wants to do, either. For you to work with congress, what you need to do to get this behind you so we know what really happened and we can decide . Rep. Quigley first, the white house should start cooperating and tell its people on the campaign, and on the official site, work with these folks, tell them what took place, hire an independent prosecutor, and give us the resources we need to go forward with this investigation. It is also important to know that director comey had asked for Additional Resources just to do the russian investigation. ,t is getting confusing especially, i suspect, for the American Public. While i am investigating the most important issue, in my mind, involving the white house since watergate, a we are now seemingly in need of an investigation of the investigation. David there have been a number of democrats calling for a special counsel now for something. As a practical matter, what will cause that counsel to be appointed . Rep. Quigley i would have assumed the firing of director comey. I would have assumed that yesterday probably brought back resistance against it. The American Publics pressure, moderaterly with republicans, recognizing that they cannot trust this white house on this investigation i do not know what it would take after yesterdays revelation. David have you gotten any sense about whether mr. Rosenstein, be the pointo person because the attorney general has recused himself, have you gotten any sense he is moving in that direction . Rep. Quigley we have not talked to him. Im curious. I would like to have him before the committee to discuss this matter. It is disturbing that he and mr. Sessions play a role in talking to the resident about firing director comey, so honestly at this point, i am not sure who to trust. So what is the rolet your committee can play to move this forward, to get it resolved. Rep. Quigley i think rescheduling the open hearings, the closed hearings. We continue to review the documents that are available to us and bring the witnesses forward. We now have an agreedupon witness list. And just back to the russian investigation, i think we have the momentum to reboot and go forward. And verytely, disturbingly, these new revelations this week make all that so much more complicated. It clouds the matter, it slows it, it drains resources, and probably more important, attention away from it. David so who will get this engineered . Andhat the republic leadership on the house and senate side . Who are the people who will a out the way to resolve this . Prince alwaleed rep. Quigley if we are talking about a special prosecutor, if we are talking of investigating trumps white house, it is people like Jason Chaffetz, who i heard yesterday and today talked about having subpoenas of the memos, the notes, and takes if they exist of discussions between director comey and the white house. We do not have the votes on the democratic side. This clearly rests with leadership on the committee side and on the leadership side in the house and senate on the republicans. David do you have a sense what the republicans have gotten together and have a real plan . Have a agreed among themselves, the republican caucus, on the house and senate side to say this is what we need to do to move forward . Rep. Quigley first, on the russian investigation, i believe we are back on track. In terms of analyzing what has taken place with mr. Comey, i think they are probably in the same place that most of us are exasperated, shocked, and a little concerned about how to go forward. Do they have a plan . Clearly not. David give us a sense from your point of view, how much of your time is being consumed with this things likeo appropriations, which is a pretty important committee, too . Rep. Quigley we are clocking about 75, 80 days a week between what i normally do as a member of congress. I would say probably half of my time is on this, if you include travel. I have been to cyprus, keys on this, and there are more places to go weird i would like to clone myself and work on all of it as much as possible, but unfortunately, there is just no time. This is a mammoth undertaking. When i was in cyprus and looking at this from the monitor money lottery point of you, i was quoting the movie giles, and i said to myself jaws, and i said to myself, we need a bigger boat. It is obligated, layered, and texture. Mean it doeshis not get done, it gets done later, it gets done less what endgame . Rep. Quigley i think it is difficult for the republicans to move forward on a unified basis on tax reform anyway. As tough a task as we had, if you couple it with all these distractions, i think it takes the trust out of the of American Public and whatever it is you are going to do. The real talk of corruption is the loss of publics trust. Here you are talking of us in the very sacred and their tax dollars it makes it david far more difficult for them. David thank you. It makes it far more difficult for them. David ok, congressman mike quigley, thank you. Alix i love the jaws reference. We will have another take on tax reform as well as the drama in d. C. Overnight. And we look at the state of ethanol, really resting in the epas hands. Is that now derailed as well . This is bloomberg. Emma this is bloomberg daybreak, i am emma chandra. In this is the hewlettpackard enterprise greenroom. We have the Senate Finance committee at 11 15 eastern. David this is bloomberg. I am david westin reporting today from capitol hill. Cover. Orm came down the obviously, a lot of things having to do with the Michael Flynn investigation as well as the president talking reform with mr. Lavrov. We have don marron, the founder and chairman of lightyear capital. Great to have you on the program. You know washington terribly well. We want to talk about tax reform, getting the economy growing again. Can we get to that without resolving some of these issues that have come up . Don i think you know washington even better, david, but i will try. I hope we can because these other issues will not be resolved quickly, and my guess is they will not be resolved cleanly. We have got to get to the tax situation because of the promise the president made and we need it. Equally important is regulation. Start on tax reform because it is the reason you originally came down here. Why is tax reform so critical for growth in this economy . Don the economy is growing nicely on its own. I know people say the numbers are low, and i think they are better than a show. We have a lot of unmeasured things intellectual property, music, other things any system that you do not see as specifically as these numbers but the reality is the tax system is too complicated, to front with loopholes, and too fraught with loopholes, and bigger then they would have preferred. The whole idea of the every four years, to have it on one side on one piece of paper, it would be terrific. It would change the feeling about government, if you could do simply that. As far as tax reform, the dollars, very important, and we can talk about why that is the case. Fundamentally, one to get rid of unfairness as perceived and also to try to make it simpler. David you mentioned already supplication for the individual. We do not have to go through all the difficulty. The white house has also emphasized on the hill, really cutting that Corporate Tax rate, largely for competitive reasons. Is that right . Don it would be good to reduce the Corporate Tax rate because for some the people who pay a lot of tax, the corporation would increase the value of their stock. That would be a good thing to do. Culturend thing is the of spending your time on loopholes and restructuring, changing things is essentially destructive. You want something that is cleaner. Whether cutting the tax rates will do a lot for the economy, in my mind, is open because that money, when it comes, the question of how it is spent, if it is spent on buying back stock, no. If it is spent on r d, absolutely yes. The answer is probably somewhere in between. Alix what is the market telling you about this ta agenda. This tax agenda . Don this is the referendum and his ability to deliver his constituents jobs and the feeling that they are dissipating across the board. In this market, there is in fact increased participation of iras, etc. 401 k s, as long as the market keeps solid, it is a good vote for confidence of what is going on there. More broadly, though, the real question Going Forward is will be American Economy keep growing, and will it grow in a constructive way . That is the problem because that is where you get to these things in washington. Changes inld back regulation, changes in health care, fundamental things that will make the health of the country better. Alix we have seen some Economic Data pick up, but the stock data come of the survey data has tried to roll over a little bit. That can be affected by what is happening in the stock market and what is happening inthe seat have you think that squares out in d. C. How do you think that swears out . Don you have the healthcare bill about health, you have the tax reform, which is about money, and then you have regulation, which is about efficiency and how peoples lives are spent. All three are important. The easiest one to do is regulation, but the public has to see something accomplished. Remember, this is the government that shut the country down twice in the last five or six years and is threatening to do it again over debt extension. It is not a healthy situation, and you cannot count on resolving the things now. That will take too long. Which it could do is get in there and maybe at least help to solve things for americans and go for a smaller bill, one where we have the key elements so that the market and the people will see you actually accomplish something. So far, nothing has been accomplished. If the president were to call you up right now and say, give me my one priority that i should be focused on, what is it . Don my priority actually would be getting rid of all these regulations because they affect everybody. If you are on Social Security and tried to call somebody in washington, you are put on hold for an hour. Form isasing a car, the a foot and a half long, all for the language that no one is going to read that benefits the car company. So you can speed up business in a number of different areas. If it is not that, do something for individuals. Lived up tou have your promise. David don marron, the founder and chairman of lightyear capital. Thank you so much for joining us, don. ,alix. Take a look alix at the alix 50day moving average, it has broken back to you, alix. The bloomberg terminal, you can interest directly with us to this is tv on your terminal. This is bloomberg. Alix markets are worried that trumps legislative agenda will be derailed, but some Companies One might be green plains energy, one of the largest Ethanol Companies in the world. Joining us now is ceo of green plans todd becker. Is what ison going to happen to the Renewable Fuels standard . 2017 untouched. 20 at the white house. What do you expect . Todd we do not expect any changes. The epa understands the importance of the program, and the new administrator understands the importance of the program. Get derailedings in d. C. Like what happened between russia and the u. S. And comey and trump overnight, do you wake up and see the headlines and say, he is not point to care about ethanol today, or do you ignore them and go on . Todd i think from a policy standpoint, we are in one of the best positions we have been in years. We have that expanded blends, we have got the rbo being looked at well, how do we sell it year round, so i think from our standpoint, the stuff that happens on a daily basis literally, we think we have broad support across the administration for the long term, and that is what we are focused on. Alix there is some doubt that , thatad of the rfs underscore prewitt it will be more like 2 to 3 . 15 billion for the program here the program here deal progress 27 billion, but for what we do, cornbased conventional ethanol, that program is set. We do not think that will go any higher from the standpoint of the standard. Could we break through the . . We are starting to break through 15 10 blend wall, ethanol, so that is where we are breaking down. It is not the statutory limit your we are going full marketbased and driving demand right now. Alix the other issue is carl icahn. In aviously is an investor refinery. Basically you have refineries having to pay certain credits to meet epa rules. He wants to move that cost from refiners to fuel blenders. How does that affect you . Todd there are a few refiners who want to do that, but the bigger coalition in place is large and binaries large refineries, convenience stores, avon epss do not move the point of obligation. You have a few people looking for relief, but in general, the program has worked and works well. The point of obligation, changing it at any point now, increases havoc on the market. We think the president understands that. The last time we talked about it, 10 or 12 markets moved around the world just on discussion of it. Last year, the epa issued 23 waivers for small refiners to give them relief on the cost of the program. So you can get relief. Isx the ones icahn involved with are not small, and he does not back down over anything take a look at what happened over life. A change, if you see in the point of obligation, how does that affect your . Do you look at less ethanol demand . Todd we do not think it will have my broad front, but if it were to happen, it would probably happen in concert with alix but if it does, we will give you more even, e ethanol with gasoline, changing the point of obligation . Todd if it were to move from our standpoint, the ethanol is set around the world at this white. We continue to grow globally, we are exporting more ethanol than we have before, demand in the u. S. Is better than it has been before, and it just wreaks havoc on the paperwork and the administrative effective at. From our standpoint, if it were to change, minimal impact on green plains in general but a bigger impact on the constituency. Alix in terms of exports, brazil is considering an import tax from ethel here in the u. S. What do you think about that . Todd i think they realize any big import tax they put on would be met with something from the u. S. Dont forget, they export meat to they want to export cornu, and they would be afraid of a retaliatory affect if they put attacks into brazil. What they said yesterday was listen, we at least want an even playing field. If you have to hold it, that is satisfying some guys in brazil, but in general, i think they punted that one down the road. Last quarter, we exploit exported about 20 of our reduction. Alix where is it going . Todd all over the world. Brazil was a biggest customer last year. Europe opened up again. We have places all over europe and south america. We are going to export summer between 1. 1 billion and 1. 3 billion gallons of ethanol. Cheap octane and clean air. We are seeing these issues around the world. It is not just mandates, it is marketdriven initiatives that say, we want to buy your octane. That his resignation with the epa. They want to that is resonating with the epa. I think that is where they want to be focused. Alix todd becker of green plains, thanks so much great coming up next, more from Washington Democratic senator joe manchin. This is bloomberg. Alix one monumental memo. President trump reportedly asking fbi director james comey to drop an investigation into former National Security advisor michael lynn. Risk off in the market. Caution reigns on wall street. The dollar in its longest losing streak in months. Hitting the bullseye. Target trouncing earnings estimates. Numbers. Ig into those a very warm welcome to you on this wednesday, may 17. You are watching bloomberg daybreak. 30 minutes to the opening bell in new york. David westin live from capitol hill, where all the action is taking place. David we are about to have a very important interview with senator joe manchin, who is a centrist, not a partisan. We will talk to him about what should happen next. Alix in the market, here is how risk is playing out. Futures off by about 130 points. A little downside being picked up in europe as well. The 10 year yield having a monster move to the downside. That is the lowest level since the end of april as the safe haven buying spreads from europe into the u. S. On on the 10 year 2. 26 the 10 year. Dollaryen just getting hammered, off by about 1 . This is the biggest gain for the yen we have seen in about five weeks. The vix jumping higher now at 16. Gold getting a nice bid. Abigail lots of movers here in the premarket. Target shares are up 4 in the shar premarket. Really some strong response from investors on a much better First Quarter than expected. Low expectations that they beat in a huge way. They also beat sales by 2. 5 . Lets like the ceos turnaround hold. S taking we also have colgatepalmolive trading higher, up 3. 5 on a New York Post report that they may be interested in selling themselves. That is more than 25 higher than when the stock is trading right now. Considering the topline growth is low single digits, that may be seen as expensive. One potential buyer that was cited, g. 3g. Disney down. The analyst their sites exposure to cable. Tolowered his price target 105. He is saying disney right now based on everything, and there are aspects that he likes in the company, is fairly valued. David now we will go to joe manchin, a senator of west virginia. He is very pivotal right now. He has been a supporter in some ways of President Trump. He says he wants him to succeed. He is a centrist, not a partisan. Great to have you. Sen. Manchin thanks for having me. David first, we have to talk about the development in the last 24 to 48 hours. What do you make of reports that the president may have encouraged that fbi director james comey to back off the Michael Flynn investigation . Sen. Manchin serious. Those are serious reports, serious accusations. When i was governor, you are trained what you can and cannot do. Basically, the investigation into what we have done is good for me. I cannot intervene. That being said, you have to find all the facts out. We have now basically this coming out, mr. Comey saying this. Those facts will come to this, and we will be able to subpoena if they do not come to us on the Intelligence Committee. Basically, follow the intel. The intel will take you to the facts. The facts will take you to where the truth is. We make decisions from there. This country is resilient. We are the hope of the world. But there has to be a process. The rule of law is everything we are. Andyone else stands admiration of how we are able to handle different situations so lets show we can continue to do that. David what is the best way to get the facts . Is it congress . The Intelligence Committee . Sen. Manchin i have said this. This should be a special counsel or independent Council Council or independent council. Republicans dont democrats. Democrats dont like republicans. Republicans dont like democrats. Democrats dont like republicans. Get somebody independent if you can. That is a process you go through. Answer to congress only and not the administration or the attorney general. Attorney general has had to remove himself from the investigation. This is very complicated. I would hope the next fbi director is someone who has a stellar reputation, has come through the ranks, nonpartisan. They have always come down. That is where james comey was. Can we find somebody that can there and the American Public and have trust in . I think we can. David i want to get back to tax reform for a moment. Sen. Manchin sure. David what do you make of tax reform . Can still be done . We have not had a major reform since 1986. It is a 15 to 20 year cycle. We are passing 15 plus. When we did the last tax reform, we did not have cell phones. We do not have access to the Internet Service and 24 hour news service and social media, so it needs to be done. The tax code has gotten so convoluted, and all you have to do is spend a little time in washington. The people that are working the tax code as we speak argument in favor of who they represent. This credit is taken care of. Obviously, we need one they can believe in. Right now, we dont. David can you work with this president and this white house as a democrat . Sen. Manchin i spoke with the president a couple weeks ago. We talked about other issues on health care and a couple of things. I said mr. President , listen, you have the committee that you signed off on. That is fine. I will work out of that template. 15 i dont believe is going to work. If you are open to look at figures that will work, we have a growing 20 trillion debt that we will have to answer to sooner or later. We have a system that people believe in that is there. These credits and offsets and rings that we call jump in the box, most of them can be eliminated. We can have a Corporate Tax that is competitive worldwide. We dont have this inversion going on where people are leaving us because we have driven away. An off lot of common sense can be brought to it, and hopefully we can do it. I am hoping to sit down starting today. David common sense sounds like a good thing. Sen. Manchin not so common these days. David thank you so much for being with us. He is from the great state of west virginia. Alix common sense, what is that . When it comes to the markets, the last 50 minutes happened quite extraordinary. Lowest of the session for the s p futures. You have buying really picking up across the curve. 10 year yield down by seven basis points as the dollar continues to get hammered. What is going on in the market . Michael. S is real quick to start with you, it is a little bit of a risk when i come in the morning and all of a sudden, it has really picked up. What has happened . Michael we have been in this volatility vacuum. Nobody wants to pull the trigger or so anyway. Everybody wants to wait to see how they react to the news. We had a little move last night. We tried to recover this morning. This is the biggest story a bigger story than market anticipated last night. Alix how do you anticipate the story and how it relates to the trump agenda . I think to michaels point, pullbacks are pretty common. It has been an area of low volatility environment for a little bit of time. I have to say i do not know how much of it is driven by policy uncertainty and how much of it is driven by general Market Forces because thats here is the thing. Because, here is the thing. One thing we notice historically is that every time you have some sort of geopolitical shock or policy driven downside to the market, it more than recovers in the subsequent mediumterm. Alix it seems like the issue, though, is it policy changes are delayed or do not happen, if that is not priced in, a severe delay, how can the market survive without that . Savita ok, lets talk about financials. Financials have moved not on policy, not on trump. T has moved 100 expectationsd on of fiscal stimulus driving the economy buyer. It is a play on long rates. That is why i think these socalled trump trade might be myth and part reality. Materials, you look at metals, some of these higher beta cyclical companies. They had moved fairly aggressively on expectations we will get 1 billion in fiscal stimulus over the next 10 years. Maybe that is a little bit over run at this point, and you might want to turn back exposure, but the market has been digesting over the last couple of months the fact that policy, tax cuts, and fiscal stimulus are not a slamdunk. We have seen a lot of retracements in a lot of these risk plays like industrials, areas of the market that would benefit. Alix same when it comes to small caps. What is the trade today . We are 20 minutes away. The fix has jumped the vix has jumped. What is the trade . Michael we have been an alltime high. I have been cautious on the u. S. Market. Anywhere but the u. S. Versus the u. S. For example, we have seen this massive rotation to europe as their economies have strengthened and you have some Geopolitical Uncertainty dissipating over there. I think Something Like this, the headlines we have here in the u. S. , that reinforces that rotation and will further it. We have had massive underemployment in developed markets around the world and emerging markets from equity relative to the u. S. We have had this policy driven it is time for people to start looking elsewhere around the world. This gives people another reason to keep the rotation going. Alix much more coming on the Market Action into the open. Savita and michael, both of you are sticking with me. Coming up later today from the conference in las vegas, it is an allstar lineup of guests. Dont miss that take and what it means for the markets. This is bloomberg. Alix markets look to be headed for a very ugly open. Futures off by doubledigit. S p right at the lows of the session. Market yields down by seven basis points as the vix jumps. Dollar get hammered. What is the rotation we have been seeing . One area we have been looking at is value versus growth. The white light is the ratio between growth versus value. We all know growth has really outperformed. Where are investors actually putting their money . That is what the blue line tells us. As it goes lower, it means more shares are being created for value. Of bankth us is savita of America Merrill lynch and michael. Does that concern you, that divergence . How does that check out when you have a down day like this . Savita it is interesting. I think the number one driver we have found for when you want to be a growth investor versus a or is theest i scarcity of growth. When growth is abundant, you want to find the cheapest growth. When growth is scarce like it has been the last three years, you want to look for the unassailable growth stock and will pay whatever multiple you need to to capture that growth. I actually think that things are Getting Better rather than worse. If you look at Earnings Growth over the next couple of years, even without a lot of great stuff happening, even without a massive gdp acceleration, negative Oil Price Effect on earnings, and a lot of these other optical courses, exiting the industrials recession did you better Earnings Growth over the next couple of years so you might want to actually start looking for cheaper areas of growth within the market. This is one reason we like health care. Health care you dont think of as value, but it is devalued right now, trading at the cheapest multiples we have ever seen. I would actually shift to a value buy at this point. Alix you said last thing you are looking outside the u. S. , but in terms of the u. S. , is there some value . Would there be a valuable pick up here . Michael as far as the stock market is concerned, i am concerned most multiples are expensive. The Financial Sector is one of the least expensive sectors in the market. It has had a edelman is run. Is very much tied to the 10 year yield. One of the fx i am concerned about is a lot of the things in this market are tied larger macro trade and not the individual stock. Alix even though this version is lower . Michael absolutely because youre talking about his low volatility environment, this low volume environment, and the active. Passive versus not as many people looking at the individual stocks for investment ideas. It plays into the whole growth value dynamic. As you noted growth as massively performed. Google, amazon, microsoft, they are 12 or 13 of the index. They are driving the performance. People are paying a higher premium for growth, which for me is a very dangerous formula. Alix how do you square that valuation conversation when you have this kind of selloff . I want to buy this book valuations are high this, but valuations are high. Savita we were in a down market and value outperform growth after the tech bubble. When the world is getting great, i think that in certain circumstances networks, but it depends what the market leadership has been. As michael big risk pointed of is the leadership of the market has been super narrow. Investors have converged. Active managers have converged into a very narrow subset of stocks. The number one way to make money over the last five or six or seven years has been to take what active Equity Investors are most overweight and so it because we are sell it because we are still moving from active to passive. After a quarter of crashing it, we are in the same dynamic again where active managers have converged into the same subset of stocks and are about to get pummeled by potential further inflow. That is one dynamic. He second issue is when you have a certain sector carrying a market and the market corrects, you normally want to shift to other areas of the market. If growth has been driving the market in this eight year will run, maybe the next bear market can drive. Alix right, but that means we would have to buy the dip to see that. O . Es it continue to be s michael that is the question today, i think, going into this open today. We have seen this massive rotation from active to passive. Int is going to trigger passives minds . We had that dip at the beginning of last year, and it was concern about a global slowdown, etc. We saw some rotation, but it was shortlived the rest of th. Will impeachment headlines and threats of impeachment or allegations in daily newspapers, will that prompt those passive investors . Should i reevaluate here . Should i take some off the table . They are the ones driving this low volume, low volatility environment. You have to see what will play in their psychology. I am not sure we are there yet that this incident has exploded to that point yet. Alix this next session will be really interesting to see how we close. Savita, michael, both of you are sticking with me. Coming up later on bloomberg markets, a senator will be joining the program. As we head into the open about 10 minutes away, it looks pretty ugly. Dow futures off by 164 points. This is bloomberg. Alix marine one from the white house. President trump is set to disembark in a few moments, and he will walk the tarmac and leave on air force one. It will be taking him to connecticut, where he will give remarks later in the day on the coast guard academy. No tweets yet. All silent on the tweets front from President Trump. As we look and had into this open where the dow is off by 163 points already in the futures market, what is your strongest conviction you are looking at the end of the year . Savita we are sticking with our target of 2450. I think it is really based on the idea that this great rotation out of fixed income into equities has not actually happened yet. We have seen inflows into bonds are actually more than twice the amount of inflows into equities over the last eight or nine years. Here is what i think you want to do now. Our up to our target is not that high. The internals of the market are really interesting right now. Conventionhest sector picks, financials, i dont think you need rates to move higher for this sector to work. Granted it has moved with rates for most of this year, but think about this sector. We are at peak regulatory tightness. Loan growth has been superlow. You have healthy consumer Balance Sheets. Consumers are starting to make more money. You could see a pickup in loan growth. You could see massive costcutting on the revelatory and Compliance Fund given that a lot the cost that the banks have been shouldering were creating new programs to build out compliance. The most staggering statistic to me is our bank analyst pointed out that Compliance Costs for banks have grown more than 100 . They are now 25 of the average cost structure of a financial company. That is kind of a point in which you want to see that. You are probably going to see that reverse rather than amplify. I also think the cash return story for financials is a strong push. One o thet reasons investors pay higher and higher multiples for financial is a higher and higher payout ratio, and that is what we are starting to see, the unleashing of capital on balance sheet. I think that is a great idea. Health care, second pick. That is really on valuation. We think the Political Risk priced into the sector is overdone. We think the pricing risks prices into the sector. Priced into the sector are overdone. It is a pretty small section of health care, which is specialty pharma. Trading at alltime lows based on all of this risk that we are talking about. I think it is a buy. Alix great stuff, and much more from you as well. You are sticking with us. For minutes until the opening bell. Minutes to the opening bell. Looks like a pretty ugly day. Dollaryen actually reaching below its 50 day moving average. 111 is what you will see there. Bit. Continuing to catch a byde also participating, up 8 10 of 1 . This is bloomberg. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Alix this is bloomberg daybreak. We are Just Moments Away from what potentially could be a very ugly open. Dow jones off around the lows of the session. Nasdaq futures also participating down by 42. The other moves very interesting in different aspects. A lot of safe haven buying in treasuries. Outperforming core european bonds as well. Those yields on my seven basis points. 226 is where we stand on the 10 year. The dollar, under 98 for the dollar spot index. Just here. Lets see what is going on in the market. Abigail ugly indeed. We could be looking at an ugly open, and there is no other way to put it. We are looking at a selloff of the major averages. 1 . Nasdaq almost down by the s p 500 down about 8 10 a 1 , the same as the dow. That is the worst open of the s p 500 this year. It is on this increasingly political nature down in gc gcx d. C. Ofld this be the beginning the end of the trump trade . Below 2. 3 ,d back suggesting we could see a big move lower. Lets take a look at the big banks because that is really pressuring the banks today. We have jp morgan, bank of america, citigroup, and wells fargo all trading lower. Banks, the financials, that has been the top sector out of the election until last week. We started to see a reversal from those march, early march highs. Divee see the banks die again. Where is the volatility . This is a longterm chart. In white, we have the fear gauge. We see record lows. In blue, the uncertainty index. It has been near its record high. Higher. To taktick perhaps now we are starting to see a little bit of catch up. Time will tell. Alix you so much. Still with us is savita and michael. Industrials all off by 1 . The vix really jumping. What is the followthrough . Michael will this be sustained . That is the key issue. A perfect example, we are down about 80 basis points. This will give you the time this year the market will close down more than 50 basis points. We have only close down more than 50 basis points 4 of the time as opposed to integrate years, it is 20 of the time. We have had is low volatility environment. Thesthis type of news and headlines will shake things up. Alix well below the fiveyear average of 20 . What is going to be the new level of risk volatility we need to price in here . This is a new environment. Savita well, i guess i would say a couple of things. An 80 basis point move down in the s p is not unheard of. The first time this year it has happened, but it is not that abnormal. Three times a year. 5 pullback usually happens three times a year. I will say, yes, it has felt a little unnerving given all of the Political Uncertainty and what is going on in washington, whether or not we are getting tax cuts, fiscal stimulus, review and replace obamacare. Everything seems to be gumming up. The vix was staying at these relatively low levels. I think we will normalize from here, but i dont think this marks recession. Most bear markets have been accompanied by an economic recession. I find it kind of hard to paint the picture at this point given how healthy consumer Balance Sheets are, given that we are seeing a pickup in with growth, but inflation is not overheating. Consumerreally see and we areis shot really seeing recessionary signals to my would not see this as a moment to start panicking, if that makes sense. Alix michael . Michael the only thing with that issue is you talk about back in 2000 when you have a stockvervalued though market, but that did not start with a recession. Buyer exhaustion occurred. That would be my concern. Alix savita . Savita i would just say that in 2000, there was this convergence into Tech Companies based on the year 2000. We did see a recession in 2001 also the market generally down markets generally lead recession. I would also say that valuation is not a catalyst. Valuation is a really bad shortterm predictor when you want to sell or buy stocks. Think about the beginning of 1999. The market was crazy expensive, but you still wanted to be in it. To me, the harbinger of when you want to get out of this equity market is two things, if we actually start to see signs of weakening growth, and if we see capitulation like inflows into equities. That is the one thing we have not seen this bull market is everybody going all in on equities. There is still this wall of money sitting in bonds that could flow into equities or cash if Interest Rates start to move meaningfully higher. That to me is the kicker. We have not seen euphoria during this market. Alix michael . Michael i agree with you valuations is a director, but it is about the risk of the environment you are in. We talk about this volatility, we have massive selling in volatility. Uprtselling of the vx x ix is 75 this year. These are people selling volatility. Andle selling volatility pushing it down, right . I would say this is the equipment of selling cash insurance right before hurricane season. It does not mean hurricane will hit and determine i do tremendos damage, but it can be a risky environment Going Forward. Alix savita . Savita ok, so i think that maybe the optics of the market at some of the trading activity suggests reasons to worry, but i still see that as speculative and nonfundamental activity. It is kind of semantics at this point. What i do see is that Earnings Growth is helping. Sales growth has come in over the last three quarters at an accelerating clip. That was the missing link over the last eight years was that topline was nowhere to be found. Companies are above the numbers, above analyst numbers for the first time in a very long time. For the first timmaybe they do, but they dont look lousy. Alix does that wind up holding up . You had the survey data coming in so strong for consumers, but the hard data like retail sales are truly disappointing. Savita yes. Alix this is where i like the market of d. C. And wall street connect. If survey data rolls over and you wind up having mercurio weakness that might drew doughty ratings. Savita i think that is a great point. If this is all smoke and mirrors and we do not see the real numbers improving, we would obviously change our tone, but i think there are hard metrics you can look at. Constant currency sales growth for s p 500 excluding energy has been accelerating for the last three quarters. Guidance has actually improved rather than deteriorated for the rest of the year. That is what i look at and i say, ok, we are not getting that huge gdp acceleration that we were all hoping for, but things are getting marginally better rather than worse. That is a hard number. You cannot fake sales like you can earnings or other metrics. Alix i feel like that is to your point that it is ok, but elsewhere is better. Savita maybe. Alix right, michael . Michael 100 . Dont forget, earnings peaked years ago and we are still expensive. That is my point. Now, there are other points of the world that have to perform. Savita had a great point earlier that some of them are not really true trump trades. The emerging markets got hit really hard on trumps election, and they have rallied since. There are other places in the world where i think things are much more attractive than the u. S. Alix that goes with sick when i global growth. Are we synchronize if the u. S. Starts to roll over . Michael i think we see a little bit of a handoff were other parts of the world that were weaker are starting to pick up. I would not call for a u. S. Recession, but we are seeing weakness. We are seeing weakness in the u. S. Consumer when it comes to auto loans and Consumer Finance and things like that. There are things to worry about. I am not concerned we are going into a recession, but there is much cheaper valuations around the world. There is better opportunities than investing in the u. S. That has been on a tremendous run since the recession. Alix got to leave it there. Great discussio. Savita over in london. Michael, thank you very much. We are about nine minutes into the open. You are looking at a dow off. The weaker sectors in the s p, you have financials, tech, health care, industrials, but you have huge buying an buying in the bond market yields. This is bloomberg. This is bloomberg daybreak. This is the hewlettpackard enterprise greenroom. Coming up later on bloomberg utahts, senator hatch of at 11 15 a. M. Eastern. The risk off move continues in the market. You have the dow off by 160 point. The s p off 16. Also lows of the session. A modest dip already. Joining us on the phone is ivan. Great to have you. What do you do on a day like today . Ivan we are in a very strong up anket, and anytime there is overreaction to anything that can be deemed negative news. Alix but why . Material weakness for the market. It cannot move higher without it. Ivan trump is still going to be president. I dont think he is going to be impeached anytime soon and the biggest bit under the market bid under the market is the repatriation tax holiday that can bring back 1. 5 trillion cas cash infusion. You feel like i can still happen despite the noise we have seen in the market in the last 48 hours . Ivan absolutely . Alix where do you want to buy the dip today . Technology. Tely that has been the ongoing change driver of the economy. Industrial is the second area because we definitely need a massive increase in infrastructure spending, and that is another area of the administrations focus. Alix what do you do with vol on the jump . Ivan i dont really trade things like the vix, but we have been in a very low volatility environment, and that will continue because companies are so flushed with cash, and we will have more cash coming into the market that i think volatility will drop. I would play that expecting volatility to drop again. Alix also taking a look here at target. Up 3 on a down market because earnings were not as bad as estimated. They missed the weaker analyst estimates. What is the play on target . Ivan first, apparel was good. Target from the very beginning has done specially branded apparel for target very well. They have gotten that niche. They have value brands that they carry that everybody else copies that turn. The other thing, digital has done well. A lot of the areas, they are evolving into an army general fulfillment retailer even though it is cheaper for someone to buy it in the store and take it to the Cash Register than had it be fulfilled online. More retailers are evolving into online. Annel retailers so they can manage with less inventory, more efficient inventory, more inventory turns. So i think this is the evolution. Target has evolved into a very good omni channel retailer. Alix we get a review of walmart tomorrow. I always felt an improving economy has been negative for walmart and positive for target as more walmart customers will go up market, but walmart has expanded. They have improved their shopping experience. So i think walmart will give us an idea somewhat of the strength of the consumer and some of the things they say as far as they are seeing in the trends in the economy. I think the target strength will probably give light to some walmart strength. Alix really great to get your perspective. Really appreciate it. He is buying that dip. Check out tv. Interact with us directly. Go to tv on your terminal. You can also click on ask a guest a question. This is bloomberg. About 20 minutes into the session here, and it is a pretty ugly session so far. About 170off by points, the worst day since the end of march for the dow. The s p off just barely. 7 10 of 1 . And utilities are the only sectors barely in the green today in the s p. The nasdaq getting hit the hardest, 9 10 of 1 , by 54 point. At 10 00, we will be taking you to House Speaker paul ryan. He will begin a News Conference at the rnc headquarters in d. C. All eyes on what will the speaker say and what do Establishment Republicans make of the last 48 hours . Especially the news from the New York Times that there is a reported memo out there where the president asked comey to take Michael Flynn off the list, off of the spotlight there. Paul ryan front and center in about 10 minutes. David, you have been in the center of it, d. C. , all throughout the morning. David exactly. Talking to republicans, democrats, the house, the senate, everyone is talking about that supposedly will jim conley wrotcomey wrote. I have been talking about what they think and what comes next. The president himself has not shown an ability to learn from past mistakes. They are compounding their mistakes. We might be getting caught up in the moment, but it is very cap at this point to see a white house that is ready to reorganize come up with this behind them. Certainly turns the media topic of the day away from what we want to talk about, health care and tax, but we have to address it. Seeing how he has operated the last four months, and will be hard for me to believe this thing will be substantiated so we will see how it turns out. This is so shocking to me, david. It is not about comey. It is not about trump. It is about the United States of america. I am sure you have a better idea and probably agree with me, the hill is now preoccupied and obsessed as it should be with the state of the white house and whether we have a punching presidency or not. Since thishave administration has been put in place and that has not sent an agenda. David there is a consensus. Everybody else this has to be addressed and address forcefully and as quickly as possible. The quick is how they will address it. A lot people talking about an independent council. Alix what does it wind up meeting for the markets . Is the headline itself . Is it a maternal risk for the market . Or is it how it puts off the agenda and to what extreme . There is still the hope of tax reform priced in. If you delay it or put it off the table altogether, that truly needs to be drained out of the market. David there is a terrible risk of overreacting. Those of us in the media overreacting. It is hard to know how long this lasts or how much it really affects. At the same time, i think it is a real question being posed when rs will be on at all. When they will get into meaningful tax reform. Washington consumes a lot of time doing that. Alix interesting today that we did not get a tweet from President Trump. I had a whole strategy about how i wanted to deal with a President Trump tweet. We did not get it. Obviously the dog that did not bark to go to sherlock holmes. We are not hearing from President Trump right now. The other when we are not hearing from yet is the Republican Leadership. We will be talking shortly with orrin hatch. There is speculation, and it is just speculation, that maybe the Republican Leadership right now is trying to get together to decide what to do and how to approach this problem. Minutes have seven until all ryan will be giving a News Conference. Any hints about what that might entail . Broadlyhe consensus is that the president has to get his and his staffs act together to use the vernacular. The question is, how can he do that, and is he willing to listen . Is he willing to change his ways and bring some discipline to this process . Are from what happened or did not happen, the underlying this is the name of taking away from things like tax reform and health care, things the president was elected to address. Alix an interesting point if i say so myself, it happened in d. C. Two months ago, would we have seen a reaction we are seeing in the market, or is it because the harder data has been a little softer . Ip coming in stronger yesterday. Does that wind up making this whole situation worse . Dysfunction in d. C. As there are worries about u. S. Underlying growth. David it looks right now like we will test the hypothesis. I agree with you. Very interesting point. How the markets been raised because of underlying fundamentals of increased growth and employment situation. , and cap has got a lot of credit for it, or is it based on what he is going to do . Alix great stuff, david. I appreciate your work over the last three hours. You will be giving us some good interviews as well. In the market, where the markets seeing down. Joining me now is oliver. The question, will the dip the bought, and i have extreme . And by how extreme . Oliver there is a few things to point out here. One is that obviously i dont know, but when you look at what has happened in the market, despite all of the low volatility, this like the fact that things have been very muted, there is not a terrible amount of risktaking going on. I know that sounds crazy because people are buying s p 500 at 21. 5 times earnings. In a valuations basis, we are in a better place than we were three months ago based on earnings. If you look at investor training, longterm positioning, they are a little bit leverage funds are sort of the s p short of the s p. There is nothing spectacular happening going on. Even some of the big stuff has been overstated in terms of how people are shorting vix and whether or not a quick pop in the vix will hurt them. It has yet to be seen. Alix it is not 20, so we still have that junk there. Jump there. Thank you very much, oliver. That down now off by 1 . 210 down on the dow. Moving out of the dollar. Vix is jumping. A big day on wall street. This is bloomberg. Cracks from new york i am a from new york, vonnie quinn. Mark and i am mark barton should welcome to bloomberg markets. Here are the top stories we are covering today on bloomberg and around the world. President trump is facing a new crisis. This comes after a memo written by then fbi director james comey alleged that the president asked him to drop the investigation into former president ial adviser Michael Flynn. U. S. Stocks have their worst open of the year with losses accelerating as the drama swirls around the President Trump controversy. The dollar losing more strength and hitting its lowest levels since the day before the election. Handling thetors money with all the surrounding controversy of the present with all the president s surrounding controversy . We will hear from