Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170525

And the guy who put billions of dollars to work in shale. What does he see as a potential growth opportunity. If you are shale, you have opec doing the heavy lifting now. Totally. Jonathan you should be very happy with that. Crude does not stabilize. These are the stores this totally. Jonathan morning scores this. Eurodollar stable. Yields higher by a single basis point on the 10 year. David time for the morning brief. We will get data on the u. S. Economy. Weekly jobless claims, wholesale inventories and the advanced good trade inventories for april. Brainardrnor lael takes part in a discussion on the Global Economy in washington. Thejim bullard speaks on u. S. Economy and Monetary Policy in tokyo. At 1 00 the u. S. Treasury will sell 28 billion in sevenyear notes. Coffee. W we have opec extending production after last years agreement failed to limit the global oversupply. Said nineoil minister months is a very safe bet. We found out that nine months with the same level of production that are member countries have been producing at is a very safe certain option. We will do it in six months. Would have a season in the First Quarter which could undo what we have done. We went for the bed extending to nine months. Jonathan joining us is manus cranny. The base case is nine months. Are there others in the room that would like to do more . Russians listen to the they even said, nine months and what to offer the market after that ninemonth expiration. David westin likes when i go for poetry and shakespeare. This is the damage that has been done. Why is the market so heavily offered if youve got nine months agreement. I will tell you why. What does theone ecb has been pressured to do. Exit strategy. You expire in nine months time. You didnt get full marks. There going for the easy option. Write down the middleoftheroad. Theyve got a consensus. They hadnt told us what they do when that expires and that is why we want to know what happens. The market will rebalance. If i hear rebalance once more, i will be sending you a note. He was amazing. It didnt end up very well for macbeth. Jonathan we all watched the drama on bloomberg tv. Are they talking about the saudi aramco . Are they conscious that the commitment wont be there once the listing gets away . Thats a discussion which has come up. The two things that have hoursted over the past 24 is will they go. Square behind a commitment when i caps off of the grind next year. There are doubts circulating. I dont really get that. You hold the market. Lets call it 45. The nigerians this morning said 50 was the floor on a good deal. You get your ipo. What is your responsibility. Let the market find its floor. Unleash the dogs. That saudissk want to get the ipo away. Jonathan he looks way too comfortable. David hes having a good time. Jonathan we have the perspective of Mohamed Elerian. Central banks, we are very used to talking about how hard it is to find a consensus. Lets talk about the Foreign Policy. Some of these guys and that room, there is not the shared Foreign Policy. Its very divisive. They can come together and put through an agreement on oil. How is this getting done . They can and they have. I have stuck to it. This is a different opec agreement. Thought first they need to include nonopec. It is much more differentiated among its members. In terms of uncertainty i dont think its the aramco ipo. So far nonopec has delivered half of the cuts they have promised and they really need to step up. Its great to have alex and houston because we still dont know about the price responsiveness of shale. Are in theing is we 45 to 55 range. Aether we move either way is function of what shale does as opposed to what opec does. David its very difficult to get a cartel together. For years opec was really nowhere. What brought it together you go is it shale and is it technology that made shale possible . Is also thet november scare. November 2014 when saudi arabia said i am no longer going to accept a reduction in my market share. Prices went all the way down to 20 and i think that was a huge wakeup call to opec. That the saudis will no longer play the role of the swing producers. That is what it took. Talking about Price Sensitivity in houston, texas. There isnt much Price Sensitivity at all. Have seen the race come all the way back on. We have seen how resilient they are as well. Absolutely. My question for mohammed is talking about Central Banks. Exit strategy impossible for ecb and fed. Opec is going to have the same kind of problem. How do we navigate an exit strategy . I think the hope among opec is that the exit strategy is demand. The Global Economy will pick up and will be able to handoff to demand. If that doesnt happen theyre going to have to figure out how to extend this Production Cut. Then they risk falling into the trap david talked about. They become the swing producer for the Energy Market as a whole. It will be really interesting to figure out how close the shale producers come to running out of cash completely when prices were much lower than that. Did opec to come together to quickly or should it have waited more to have some Creative Destruction in the space where youre going to be discussing. Great point. It really has to do with the back end of the curve. In about a year we are about 52 on the curve. That could get dicey if we slip below 45. I love that you brought up demand. Thats key. That really pairs with u. S. Global growth. Its really hard. I think we are getting closer and closer to a tipping situation with the probability of both pretty equal. I wouldnt bet on demand. Its a risky bet. If you are at opec its the best bet. Youre just hoping that demand will be the solution for you. That is something to look at very carefully in the next few months. , wethan Mohamed Elerian will be sticking with you. Counting down to the opec decision. Big pop from best buy, in the premarket on the back of some solid earnings. Plus 1. 6 . The estimate was 1. 5 . Beating estimates. Up 9. 68 in the premarket. 55. David good news from retail for a change. Coming up, republican congressman louie gohmert. He is a member of the House Freedom caucus. He will be joining us on the cbo scoring of the Health Care Bill and the debt ceiling. Live from new york and washington, this is bloomberg. David this is bloomberg. Im david westin. President trump is meeting with european leaders as part of his overseas trip. Kevin cirilli is traveling with the president. He joins us from brussels. On us in new york that the president is talking about fighting terrorism. At the same time, hes got a problem with the leaks coming out of the investigation of the manchester bombing. Tell us about what theresa may is going to say about it. Absolutely. I am told that theresa may will issue of thee bbcs exclusive reporting that manchester authorities in the u. K. Have stopped sharing intelligence with the United States surrounding that terror attack because of leaks coming from the u. S. To members of the media. I have spoken with four trump Political Consultants this morning who have said that they feel this will embolden the president case that the leaks from the u. S. Intelligence community are hurting the u. S. National security interests. Consultant whoe told me that at the end of the day, President Trump is in charge of the u. S. Intelligence community. This is without question the first unscripted moment politically speaking following this manchester attack. David its hard to talk about that without having it comingle with the investigation involving james comey and the russians. Can he really go after those leaks and not at least appear to be defending his own people . Great point. A source that i spoke with earlier made it. As of now, there is no point person who is responsible for these leaks. I spoke with a person at the center of the investigation by the u. S. Authorities as well as congressional committees regarding the potential for there to have been collusion between the Trump Campaign and russia. Andf now this is very much intelligence gathering stage of these investigations. Now james comey is not set to testify before congress. At least after the memorial day holiday. David we have the foreignpolicy president over there in europe. We have a lot going on here with the budget. How active is the president and the white house on the road in conducting that . Or is he basically delegating . He has delegated it. This has been the most scripted President Trump i have ever covered. He has consistently avoided any unpredictable moments. For anential is there unscripted moment regarding the bbc reporting. I can tell you the criticism coming from washington is bipartisan regarding this budget for a bevy of different regions reasons. Moderate republicans feel this could hurt their chances in 2018 midterm elections. A second point that i would make regarding the cbo report is the Administration Officials are quick to criticize the ceo cbo and politicize it even though it is a nonpartisan agency. David still with us is Bloomberg View columnist Mohamed Elerian. You have a piece out today and Bloomberg View talking about where we are and warning that we may be becoming complacent. Slow and steady growth that we confuse with stability. Whats going on in washington with the budget that could have ramifications in terms of reform . The concern is this period of low and insufficient growth has been going on for so long that two behaviors are starting to materialize. Used to it and we are becoming fatalistic. We are confusing selfinflicted wounds with real secular issues. We deal with the selfinflicted wounds, we can get growth back up quickly. It doesnt mean there arent longerterm issues. First of all, dont ignore it. It is eating away at the economic financial institution, political integrity of the system. Dont become fatalistic. We can do something about this. David President Trump would say he is trying to avoid those self inflict did wounds. Does that make sense . The u. S. Is falling into the trap of getting the sequencing wrong. First there was the implementation sequence. If you were an economist you wouldnt have started with health care. You would have started with progrowth measures. Theinstead of starting with overall vision of how we are going to promote Economic Growth and using the budget as the tool , we have put the budget front and center. This budget will go nowhere at an and we are going to lose additional few months in designing and starting to implement a growth strategy. Im getting more worried. We were expecting an isolationist president. Its not what we are getting. Resonate is going to that message about fighting terrorism. Is the focus now on foreignpolicy and not on economics in a way we thought it was going to be . You saw it with next and and carter. ,hen things go bad at home Foreign Policy becomes really attractive. The second thing is on trade. When you want to change the world, the world changes you because the existing trade toangement is not easy dismantle. What the Trump Administration has realized is that it has to go very slow in terms of trade renegotiations. David if they could get the sequencing right, with that lead to real progrowth results that you think are essential . Tax reform would be one element. It is really important to differentiate the tax reform side from the tax rates. Most people agree we have a tax system that is antiproductivity, and to growth. The rate issue is much more divisive. You need to couple that with the Infrastructure Spending and you need to take seriously the retooling of the labor force. This is a big issue. Element. Reform is one its necessary, but its not sufficient. You need to start from the top and work down. Toid infrastructure seems have been put on a back burner. We hear nothing about retooling the workforce. I think thats a tragedy. The whats happening in technology and demography, you have to move quickly on that. Of s back to the issue china does this really well. China starts with a vision. Says, i dont know every step of the way. Im going to learn and adjust really quickly. This adaptation is really important. Youve got to have a northstar and you got to tell people what it is. Next,an coming up Central Banks in focus. From the ecb to the fed, we are talking. Fed chair janet yellen. Thats next. This is bloomberg. Jonathan the minutes of the may fomc meeting shrugged off the First Quarter. Sluggish growth and remained confidence for Central Banks. Most participants judged that if economic information came in line with their expectations it would be appropriate for the committee to take anothers death in removing policy accommodation. In removingtep policy accommodation. Mohamed elerian is with us. Unwind 4. 5 trillion and make it boring . Yes. You go very slowly. You make it a nonevent. I think they will end up doing that. The more interesting issue is not really what happened in the minutes. Its what has happened since the minutes. Bullardits president for the governor, is the fed to trying to make markets feel comfortable again . Where they shaken by the selloff so much that we are back to the old fed or is it going to try to lead market . Jonathan lets get back to the regime change. Many people thought the fed would reconcile down to the market. That was the First Quarter. I think they will. The market clearly thinks they wont. Was clearly reinforced by James Bullards speech last friday. Governor brainard is viewed as one of the most dovish on the fomc. I think her comments today are going to be really important. Several years ago you said this is going to be the loosest tightening in history. It has been more than that. It has been a dovish tightening cycle. Financial conditions have eased. Whats the message that comes from the market . I think i and others have underestimated all of the sources of liquidity into this market. Not just Central Banks. As the profit share of gdp has soared, companies have accumulated more and more money on their Balance Sheet. Then theres the inequality argument is more of the income has gone to the risk rich. What i underestimated is the extent to which liquidity continues to be pumped into this market. Whatever the fed does, the incoming liquidity is so loud that financial contingents end up losing. Theres a limit to that and people should remember minsky. At some point too much stability leads to instability. Im a little bit worried about all of these products that are coming out in the etf space. Liquidity forsed a normal cycle. David we have seen that before. Mohamed elerian, thank you for being with us today. Coming up, we will Talk Health Care and the budget with a member of the Freedom Caucus. Louie gohmert from texas. Live from washington and new york, this is bloomberg. Jonathan from new york city, youre watching bloomberg daybreak. Im jonathan ferro. Two hours away from the cash open in new york. Futures are firmer. Of 69 points on the dow. After thee s p 500 longest winning streak. Yields go nowhere. The dollar this morning marginally stronger against the euro. Stronger against the yen. We are bouncing off the lows for 2017. Crude, will it catch a bit off the talk in fee and a. We are down by 1. 27 . Lets get you some headlines outside the business world. Heres emma chandra. Theheresa may is concerned u. S. Is leaking intelligence information on the manchester bombing. She will raise the issue today with President Trump the nato meeting in brussels. British police say that links to American Media are a breach of trust. They have stopped sharing information with the u. S. Another report about how russia tried to meddle in last years election. Top russian officials discussed how to influence donald trump through his campaign advisers. The russians conversations focused on Trump Campaign Paul Manafort and michael flynn. In montana, the republican candidate for congress has been charged with assaulting a reporter. Witnesses told believe tash police that he grabbed a reporter and slammed into the ground. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Im emma chandra. His is bloomberg yesterday, we got the healthcare bill from the house. Cut in the federal deficit by 119 billion and limited 23 million fewer americans being covered by Health Insurance. Is politicalw reporter. Tell us what this means for the Health Care Legislation pending in congress. It means it is much more difficult for Senate Republicans to take this bill and get it through the senate. There is a much tighter margin. Only 52 republicans in the senate. After this score came out at least three Senate Republicans said the bill as it stands is not something that could get their support. Mitcho heard from mcconnell saying he doesnt know how the Health Care Bill will be able to get the votes they need to pass through the senate. 23 Million People potentially not having Health Insurance compared to what we would have under obamacare is not a good headline and something the Senate Republicans are grappling with. Senate democrats remain pretty much universally opposed to this health care effort. Is something Senate Republicans are going to have to do on their own. It is looking more and more difficult. David explain why they cant do it by themselves. Billant they do their own and have that become essentially the statute that gets passed . That is something they are thinking of trying to do. In the house this bill passed only by about two votes. It was a very tight margin and they changed the bill in certain ways to get the conservative members to support the bill. You might lose some of those house conservatives who voted for this bill and you have trouble in the house. Trying to balance getting the moderates and the very conservative members on board and its a really tight balancing act. We heard from the Senate Majority leader that they are going to try. David theres a lot going on on capitol hill. Steven mnuchin testified in front of the house and said he was going to have to ask for the debt ceiling to be raised before september in august. Committee and the rest of congress, i urge you to raise the debt limit before you leave for the summer. We can all discuss how we cut spending in the future and how we deal with the budgets Going Forward. It is absolutely critical that where we have spent money we keep the credit of the United States is the most critical issue. David we already had a pretty easy summer in front of congress. How difficult will it be to try and raise the debt ceiling before recess in august . This is another area where the conservatives in congress will likely wield a lot of power. We heard from the House Freedom caucus they want some spending changes, they want policy changes if they are going to increase the debt ceiling. The democrats are in favor of raising the debt ceiling. Doing it with a clean bill. You have moderate republicans that want to help the administration get this through. Among the Republican Caucus there are some fishers that are going to have to be fis sures that are going to have to be dealt with. It is something that is likely to take a while to figure out. For reportingou from washington today. One of the biggest issues pending on capitol hill is the size of the u. S. Deficit. An outspoken critic of how the government has been running up debt is representative louie gohmert. Hesitated to criticize his own Republican Leadership when he has thought they have fallen short in managing the federal budget. He joins us now from washington. Thank you for your time. Great to be with you. The reason i challenged him was to try and get 29 votes so we can force a compromise its speaker. Abouteciate your concern keep raising the debt ceiling. The last time our credit was threatened it was because we kept raising the debt ceiling without any regard whatsoever. I think it would be a good idea to work on that as well. Not only a moral duty to do that. First generation in our american history, feels just fine. Spending future generations money that we will never pay back. It is an important issue. David the question is what do we do about it. What is your reaction to what senator mnuchin said yesterday. He wants to raise the federal debt ceiling in august. What would you want in exchange for that . The Freedom Caucus had a meeting with him this week and we talked about it. We were in agreement. We would like to deal with the debt ceiling before august. But we want to have something that has historically been done. Anything that helps rein in the massive overspending had to be put with Something Like the debt ceiling in order to get it done. There are things we can do whether its welfare reform, work requirement. Thats not because we dont care about the poor. Its because after 30 years, i saw the charts at a harvard seminar. For the first 30 years after , single moms income when adjusted for inflation flat lined. When they put in the work requirement for the First Time Since welfare started, single mom income sharply went up. It hurt the poor people by eliminating that requirement. We had more people not working. Something that will encourage people to get out and work, something that will encourage more income. Let me tell you about cbo. I could care less what cbo said. They said obamacare was going to be 1. 1, 1. 2. Obama calls the director over at the oval office. Around 800 probably billion. After it passes, maybe its 1. 7 or so. More like 2. 6. Margin ofd to say any error that is plus or minus two hundred 60 to 400 , they should not be scoring anything. He and his son have worked out a proposal where we would have competition in scoring so we could score the scores. This is ridiculous cbo scoring. They would come back and say, you will bring in twice as much. What cbo says. Ss they couldnt find their rear end with both hands. Its just not good count. They have never given us a good effective scores. David lets talk about good counting. We have a budget that has been sent to capitol hill. A lot of people saying, it doesnt add up. How concerned are you that the math doesnt work. Thats not the budget you would put forward if you are in a Corporation Going to a board of directors. It depends on which part of the matthew are talking about. David the benefits of the tax cuts without the cost of tax cuts. How about that point. Thats one of those issues. If you have a 1 or 2 rebate or Something Like bush did it doesnt really affect the federal revenue bringing more in. You have more cuts like kennedy and reagan did, it affects income. When you have additional revenue coming in more than ever, you cant overspend in record amounts. We have to have some restraint when the money starts coming in. We ought to say, forget what the score is on a massive tax cut like we are talking about. Dont let people here in Congress Talk you into raising tax cut. Corporate if we are 15, we undercut china. More to work. S the federal revenue goes up and we dont care what cbo says. I would like to get rid of them entirely. David you are a student of history. Has it ever happened where we have cut tax rates and save that money rather than spend it. You are right. Typically a was speaker that reagan was dealing with. Thatuck oneil was speaker reagan was dealing with. It is a huge concern of mine. We have a big tax cut. We get massive new revenue in. We have got to show restraint for the first time in my lifetime and restrain the spending. You saw it. You lower the tax rate, money comes in. They get giddy and spend it. We cannot do that. Thats a very important point. David thank you so much for being here. I think you made a friend, david. David i can use all the friends i can get. Up, opecsoming biggest extension. Disappointed investors hoping for more from vienna. We had back to houston. Talking opec, oil and shale. Youre watching bloomberg. This is bloomberg daybreak. Im jenna emma chandra. Coming up, former chairman of the u. S. Export import bank. Alix in the oil market, it is all about opec dominating those headlines. The latest that is wrong, libya and nigeria will have the same conditions they did last. They will not have any output restraint. Rent not liking the news brent not liking the news out of opec. The jawboning out of vienna continues. Note, opecositive can crawl back to 60. Today its about 54 in brent. Lets see what happens by the time we finish. , givene is a consensus the last six months it seems to be very optimistic. 0, very realistic we dont believe its going to significantly derail or affect what we are doing. The market is big enough to absorb the expected increased production and shale. Alix all about shale. Its no big deal. Joining us from houston with more insight is regina mayor. Basically operates in 100 countries plus around the world. Really understands the industry. Such a pleasure to have you here. So far the headline, we get the ninemonth extension period whats the impact on the curve for that . I really think the longterm relevance of opec is questionable. They have demonstrated they have the ability to drive the price down. They are really confounded by u. S. Shale producer behavior and have difficulty driving the price back up. The shale producers are very comfortable in a 50 environment. I would expect to see rate counts go up. Have gone up 120 over the last year alone. Reduction is back to where we were in 2015. We get some backwardation around 2018 and the curve rises. Right now its around 52. What price do we need to fall behind for shale to put on the brakes . You need to go below 40. 40havent seen wti drop low since 2016. We havent seen it go above 55 june of 2016. The producers are quite comfortable and can make Strong Capital Investment Decisions both in shale as well as in gulf of mexico and other projects. To deepwater go under 40 as well. How aggressive do they get to the 40 versus the 50 versus the 60. Is there Production Growth differential . 60 would drive a lot more growth and increased rate count. I dont see 60 as an option in the shortterm. We are expecting it will stay in the 50 to 55. Becomes theestion exit strategy. They didnt want to discuss the exit strategy. At what point in 2018 as the saudis ramp up production . They are in a catch22. The nine months expires at the end of march. Over, summers driving season hasnt picked up yet. Thats a really bad time to let the market glut the market with supply. They will have to continue for the next 12 to 18 months. I think they are finding limited ability to affect the overall price. Producer and i call you. What is my strategy over the next 12 months. How much more rigs should i be adding. Theres a big difference between what wall street views for the oil price and a producer. Their strategies are set for the next three to five years. There is limited room for movement. Populare plays are so because that gives optionality. Those get fixed for a decade. Shale has some optionality that it tends to be more at the margin. We will see 10 barrels per day. Its 10 roughly of the global market. At the margin it has a big impact. Thats why opec continues. Alix what restrains shale . What closes the the and the highyield market . I see very little restraint coming. The mark is very frothy. Five times more assets presale in africa than any part of the world. Powder river, scope stack, oklahoma. There are so many basins to play for and so much opportunity coming into the market. I see limited restraint. Alix you are going to have a lot of cost inflation with shale producers. Thats going to restrain their ability to pump. Service costs are going to rise. Is that a realistic scenario . Seeing upward pressure on supplier prices. Right now people are targeting breakevens at 50 and some 40. They havent achieved it yet and it is still an Asset Classes that is really difficult to make money. Upper pressure on supply of prices will continue. If suppliers charge them too much they are going to miss business. It has to be a symbiotic relationship. Todayt tension exists with suppliers and producers. Those that are successful will create innovative and more creative contracts that drive transparency and create winwin situations so they collectively share the upside and downside together. Alix what is the biggest risk for shale . I think we are pretty bullish on it Going Forward. Downside formited shale. They just keep pumping in a price and it does get some 40 . When does we see that happen . We could become our own worst enemy. I dont anticipate when that would happen. I think theres governors on the market and people would pullback capital. Theres a ton of optimism and a lot of bullishness. Alix you travel around the world to many different countries. If you are sitting with the Saudi Oil Minister, what would you be telling him about shale that they dont understand . Its a very economic decision and they are not looking. They are very comfortable in the 40 to 55 range. I would tell opec may need to radically rethink their strategy if they think theyre going to have a major impact. Alix there you go. From the mecca of shale energy, regina mayor. Really interesting conversation. This is what opec really needs to be focused on. Not the political strategy. Great stuff. Im not sure she is the only fossil friendly gal. Coming up, former Export Import Bank chairman. He will talk about nafta, trade and the border adjustment tax. Jonathan this is how we are set up. The scores as follows. Futures are firmer. Day25 and on a five winning streak. From new york city, youre watching bloomberg tv. Mrs. Bloomberg daybreak. Im emma chandra. Shares of best buy surging in premarket trading. Comparable store sales unexpectedly rose. Earnings also beat estimates. Nintendos new switch gaming console debuted in march. , the struggling retailer posted a profit for the last three months. The turnaround time may be making some headway. Hes been Closing Stores and selling assets to try and restore profitability. Mark fields will not walk away emptyhanded. He could end up with close to 58 million in compensation. Yields will get 17 million in retirement benefit and ford will let him use corporate aircraft. That sounds like a retirement plan. David sounds pretty good to me. Jonathan sign me up. Coming up tomorrow, council on Foreign Relations president will be joining this program. A big week for Foreign Affairs with the g7 and nato summit. From new york city, youre watching bloomberg. Jonathan opec looks to stabilize the oil markets lining up a ninemonth exemption Production Cuts. Chair yellen has a plan. Anicymakers indicate approach unwinding a 4. 5 trillion Balance Sheet and President Trump calls on nato to step up the fight against terrorism. Prime minister may has her own message. From new york city, good morning, good morning. You are watching bloomberg westin. With david alix steel, what is coming up . Alix the big question is, what will put the brakes on shale . In houston, i dont have an answer yet. I will be digging deep over the next two hours. Jpmorgan representative will break down that question. And will be joining me putting money into the david i just want to see the cowboy boots. Jonathan oneway trip, no return flight. Alix steel. Across assets, futures of firmer about it order 1 on the s p 500. Food is softer despite the agreement perhaps to extend Production Cuts to nine months. One. 12. Ar trading eight 30 a. M. Eastern time, we will get data on the u. S. Economy and getting weekly initial jobless claims. Later, we will hear from the fed. At 10 00 a. M. , a fed governor will talk about a discussion on the Global Economy in washington. 12 hours after that, st. Louis fed president james will talk about Monetary Policy in tokyo. Will00, the u. S. Treasury sell in european notes. There President Trump in brussels in a meeting with nato leaders. Kevin cirilli is there. This was all positioned well for a g7 meeting down in sicily all about fighting terrorism. To what extent has that been interfered with by these leaks . I just spoke with a senior white house official who tells me the white house believes the leaks coming from the u. S. Intelligence community regarding this manchester terrorist attack only underscores the administrations efforts to stop and investigate the u. S. Intelligence community surrounding what they feel is a firestorm of leaks. That said, i very own Jennifer Jacobs asked President Trump directly as he was heading into mccroneg with president this morning in brussels, if he had any comments regarding the bbcss reporting, and he declined to answer the question. David he stepped away from the question, but one of the questions we have is this is a president that got elected think it is all about jobs. I will be the greatest jobs greater in history. Now, he has gone overseas and has had some success. , his shifting his emphasis focus was on the domestic economy and growth here . Kevin that is a great point. The first portion of this trip, we really saw the president s efforts to tout job creation and places i saudi arabia and how it would positively impact up creation in the United States. Top ceoscompanied by and Business Executives from a host of Companies Including Lockheed Martin and raytheon. But now, he has pivoted to the second portion of his First International trip. In brussels, head of the natos some, all talk focusing primarily on counterterrorism efforts, particularly given the wake of the manchester terrorist attack. G7it is a return to the meetings where it will be interesting to see whether or not he does have any new economic announcements. This is a very scripted president , a more scripted version of President Trump than anything i have seen on his First International trip. Brussels, he in did have a series of bilateral trade meetings, including those with the European Union. David kevin, thank you so much. It looks pretty nice in brussels. Kevin very nice here in breathless in brussels. Jonathan im getting jealous. City, it is not that bad. Pedro, i want to begin with you very quickly. Foreign policy seems to be a focus. Before it was economics. We used to have guess come on here talking about an isolationist america. That seems to be changing. Why a focus on Foreign Policy . Pedro it is a natural progression of sitting in the oval office. You saw the president on the campaign trail focused on the u. S. Economy and jobs. Cap to the moving overseas and he made a lot of promises in regards to domestic policy. Gets into president office, you cannot ignore what is happening on the world stage. This is the natural progression of this president s focus in office. He will pivoting back to domestic policy when Congress Returns after the memorial day recess. Jonathan a brain, is he being is he being overtaken because things are not going so well at home . He is late in making his first foreign trip. It doesnt rhyme with his political agenda putting domestic matters first, but over the last few weeks, we have seen developments that were not part of his initial agenda. Trying to shift the focus right now is probably to his advantage, but as you know, internationally, he has met with a fair amount of skepticism. This is not been the easiest of trips. David peter, as we have said, the president does not get this set all of his agenda, things, or did this president came in with a remarkably extensive agenda. ,e have health care, budget infrastructure, deregulation. What is the situation in washington . Is this administration focusing on what comes first . And what is it . This administration is focus what they need to do domestically. Been a lot of distractions with the press and the overseas trip has taken the focus off of that. But the domestic agenda remains. It is deregulation that largely they have achieved. They have additional steps to take there. But on health care, that was the priority coming in and the Campaign Promise that was made. That was the first thing they needed to execute on. Ctesiphon comes after health care. We believe tax reform comes after health care and we believe that will remain on track. The Health Care Reform bill will be passed. And then they will go on to tax or form that will take the better part of the rest of the year and next year. Those two items are on track. The stories with russia have given members of congress breathing room on these policy measures. David as peter says, health care, as it turns out, turned to be number one in line. As far as financial markets, business goes, is that a distraction . Does it really tatts are forming are looking for . Largely, the answer is yes. It is a distraction, but it may be a necessary component of the agenda. It is not entirely true. If you look at Small Businesses in the Small Business service, the high cost of health care for a while, was one of their major concerns. And one of their expectations from this residency was being able to bring down the cost of health care to help Small Businesses. It is less important than tax reform, but not a significant. Jonathan primus ago, lets go back to january what was your base case for tax reform then . And now, what is your base case for tax reform now . I am glad you asked because we have not shifted. It is roughly in line with what we have just heard. Our base case is that we will get a significant tax reform, which is really tax cuts among the end of the year. Definitely increasing. As we have heard, you could say it is on track, but the importance is the difficult part is still to come. We have not seen any Movement Towards compromise. Jonathan peter, has your base case shifted . Or has it stayed the same . It has stayed the same. We have got more bullish on tax reform happening prior to the midterm elections. We still think it will get done by the end of q1 of next year and could slip a little bit, but in general, we have been bullish on tax reform happening. If anything, the other distractions that are detracting a little bit from domestic policy initiatives have let fire and the republican have lit a fire under Republican Leadership. And to begin to see the impact of tax reform through the economy before voters go to the polls. Peter, economists often say that is not right in that tax reform is much more important for progrowth. His tax or from harder to get through congress than tax cuts . Yes, taxi formal be harder to get through congress. But when we talk about tax reform, the rules of the congress have changed where now you can take into account the Macro Economic feedback associated with tax cuts. You dont have to fully pay for tax reform with revenue increases elsewhere, but you can count the Macro Economic feedback through dynamic scoring. What we are looking at is a taxcut. But it will be in fact, it will look as if on paper that it is revenue neutral but it will be a tax cut. [laughter] david that is one way to put it. Jonathan great to have you with us on the program. Coming up next, opecs ominous extension. Oil suffered its biggest decline in the past three weeks with disappointing investors hoping for a little bit more in vienna. The parallel between central banking and opec third david. Opec. T more, more on live from houston, texas. From new york, you are watching bloomberg tv. New jonathan opec is set to be extending Oil Output Cuts that an action ninemonth cuts for an action nine months. Is it enough to stable the crude market . Ning us from vienna is will we get more from the opec meeting . I know you love a cliche. I know you love a cliche. Buy the rumor, sell the fact. We got a good call in. The market has gone slightly better off. The essences if we get an agreement for nine months, 1. 2 barrels for opec and 600 for the nonopec members, you get a little rise. The nigerian oil member says is the floor. 60 is a bullish call. You get the independent Oil Producers that go ban, bam, bam. Have a look at this. Guys and girls are behind me. Lets going more closely. Thats lets go in more closely. Lets go in more closely. We are not closer to the record. Volumes and the market relatively speaking, to other opec dates, is relatively light. Consensus says the is that you have a better bid. We will find out what the agreement is. You talked about the fed. It is all about the exit strategy, sir. David so far so good. They had an agreement with more than 90 compliance. What about the seasonality . Is there a risk of more people cheating . You are right. 102 compliance. 102 at april. They will hit better for that it may. You have hit the nail on the head. The heavy lifting was done with a little bit of wiggle room, which was we have to do our maintenance. They undercut applied. They under complied. April. Ped their gain in comes thelifting second half of the year. You can cut production all you want. That is not the problem. The problem is you have to cut the exports. You have to cut the exports. That is what they are not doing. You can reduce of the production you want, but if you are still putting it into tankers and selling it at tight, that is an issue selling it at height, that is an issue. Jonathan thank you so much. Lets go to alix steel in houston, texas. All about shale for the guys meeting in vienna. Are they doing enough, alix steel . Alix indiana, absolutely not. In vienna,t the absolutely not. There is no exit strategy. We are getting closer and closer to a tipping situation. I would not bet on demand. It is a risky bet, but if you are sitting at opec, it is the best bet. It is informed for opec and nonopec. To fully comply. It is very important. We are very good compliance. We need to comply with these decisions. [indiscernible] the proposal is for nine months. Are we going to discuss an exit strategy in this meeting . I doubt it. It is premature. We need to get the market a little bit more time. By bela are joined morgan from jpmorgan. And we have my guy on the ground that i talked to. I want to talk about the exit strategy. How significant is it that they do not have one, and a not talking about yet . It is very significant. It is something i am concerned about. My think about what is at stake right now, people are talking about extensions. It is priced into the market. Initially, six months was priced in, now nine months is priced in. We about compliance, i think they will be able to stick with compliance. There is a lot of at stake. What concerns me is there no clear messaging around exit strategy. Yes, it may be premature for them to talk about stopping those cuts, but it is not too early to tell the market and communicating what theyre going to do. The way we look at the market going for it, there will be oversupply in 2018. Making the market weight to see what will be done in the next meaning, or the meeting after that, does not help. Theyre talking about price stability. We need to know what the end game is it alix fair point. Do you care what the end game is . You are hedging on this and being happy with what you have right now. They experienced a much Higher Oil Price and what it is today. They are doing their own game plan. Alix what is going to be the turning point that shuts off shale in your research . It looks like it keeps going lower and they keep getting more efficient. What is the ultimate end question . I see some say as low as 30, 40. Strategy foraint a 2018. It is now january of 2018 what is your base case for u. S. Shale production . What will be the reaction from the saudis . Case in 2018 is entry and exit about 2 million. When we look at 2018, we are still going to be building crude. It is nice that they tackle the First Quarter, which is by extending by nine months. Will sit down and Start Talking about their members and figure out what they are going to do for the second half of the year. The Second Quarter of 2018 still has bills in the market. We need to know what the strategy looks like because if we do not have that, you are going to see the volatility we have seen in the last six months in the market. Alix fair point. It seems like from carrying the rhetoric that they are focusing on natural decline rates and demand. Two comeng those through. Is it as rosy as opec needs it to be . When we came in to the beginning of the year, there were is animal spirits for Different Reasons. We have seen and the last few months that it is not been the case. Demand is pretty high. If you look at historically, we have a good amount of demand, but we are not having what Market Participants had expected this year. On the flipside of that, opec has been rather modest in the way they had anticipated what demand will look like. They have 1. 2 barrels of demand and they will be shy. Demand is tracking to be about 1. 3, 1. 4. It is lower than expectations. The market is closed it at 1. 6. Theyec is looking at 1. 2, will get that in the market will exceed that. But they cannot hope ondemand. Is one thing what opec is doing a sufficient for this year, but they keep hoping demand will come in and in success, but it is not enough. Alix if demand is going to hold up somewhat, but not enough, what is the money velocity like in houston and throughout texas tech on how deep are the leslie like in houston and throughout texas . There is a lot of money still around and you are going to the hotspots where your money can go to work. There are investors waiting to get into the game more. Alix watch out shale. Thank you so much, guys. John, really interesting day in houston. Jonathan looking forward to much more. It is ebrahim from citigroup. Wonderm. Is a bit i does the bulk of em commoditydependent. How do your how do your remain how do you remain longterm em . Ebrahim Interest Rates are not going up in the u. S. To the same degree we expected earlier in the year and the dollar is relatively soft. A big factor is investors have been very underweight em. Em. Le want to belong for if you look at the complex of factors, there is enough support for them to stay that way. David you made the right distinction on the one hand, is it a shortterm trade because the valuations are low, or are there fundamentals that will lead to longterm growth . Two very different issues. Ebrahim they are. We have to think in terms of disappointing recovery in em. Are in a different world gm is in a different world em is in a different world. Investors have been very underweight and ems have adjusted. Jonathan most read it just will talk about em i will point out we should not have a blanket conversation about emerging markets. But if investors change their behavior in the way they allocate towards emerging markets, are we getting a little bit more nuanced in the way we allocate money . Investors have been differentiating and you can to this at a High Frequency when you see very large idiosyncratic moves. The overall envelope has been very, very supportive. That tied has been lifted all boats in the end. David have em markets evolved has Commodity Markets . Historically, it is been a commoditydriven business, right . Ebrahim it is a big factor and the surprising thing is even a commodity importers have done well in the context where Commodity Prices were the sense seems to be that even if a oil prices were a little bit on the soft side and Commodity Prices were softer, e. M. Can still do ok in that applies to the commodity exports. Jonathan more bullish on europe . Ebrahim relatively speaking, i may be biased, but i think europe by its own standards, looks better at this point. David there you go. Uber heme will be staying with us ebrahim will be staying with us. Next, we will be talking to Fred Hochberg. Live from europe and from washington, this is bloomberg. These days families want to be connected 24 7. Thats why at comcast, were always working to make our services more reliable. With technology that can update itself. And advanced Fiber Network infrastructure. New, more Reliable Equipment for your home. And a new culture built around customer service. It all adds up to our most Reliable Network ever. One that keeps you connected to what matters most. Jonathan from new york city, you are watching bloomberg daybreak. Lets get you up to speed. Last wednesday, freaking out about the drum nbc about the selloff in d. C. And then we close at record highs. We could get an intraday high. A fiveday winning streak as well. Futures firmer. The breaking data come through in the United States. Initial jobless claims keep doing their thing grinding lower and lower and lower. Rating 2. 34. That is a revised figure. The lastlower through 10 years. That is a record. You have to go back to the 1970s for these kinds of numbers for initial jobless claims. Trade balance comes through whiter than expected and negative 67. 6 billion. Inventories come in negative from a previous reading of 0. 2 . Initial jobless claims are a tick higher from the previous month. Is grinding into the floor. David it is remarkable. When you go back eight years when we thought we were in trouble, it is extraordinary seeing the employment in this country. Ebrahim from citibank is still with us and we are joined by bob miller from blackrock. Welcome back, bob. Taking these numbers that we have, put them together with the fed minutes yesterday that they talked about inflation continues to be fairly low and restraint, but the Employment Situation is very high with very little weight pressure. What you make of all of that . Bob i think the labor market indications continue to suggest a very robust labor market and i would argue that your at full employment. If you adjust the unemployment claims in the continuing claims ,or the size of a labor force it is been a lowest in 15 years 50 years. Labor market is fine. Averaging is 1. 66 for core pce. We are currently at 2. 6 percent, excuse me, 1. 6 yearoveryear. We are around the average. I would argue that the fed has achieved stable inflation, which is a part of its mandate. It is a little lower than the majority of the fed. It is important keep in mind that there are a number of negative contributors to inflation, core and headline, that are outside of the feds , specifically the Technological Development and innovation that continues to deliver to consumers more and more goods and services at ever lower prices. That is not a negative inflation or deflation fundamental. David is that accounting for the restraint inflation part . Does it go even further than that . The technology is technology affecting that . That plays a part. It is a very significant factor, more significant than in the past. I agree with bob that we have to be somewhat humble when it comes to finetune inflation exactly at 2 or so. More leewaya bit than other Central Banks because it does not have a clear premise of the inflation goal. It is not entirely straight for to associate all of that softness in inflation to innovation specifically and directly. It is hard to find hard empirical evidence. Jonathan and what is the role of the central bank . The ecb faces the very same dilemma output is strong and inflation are muted inflation pressures are muted. How do shape policy for those dynamics . One of the additional factors important to the fed is the degree to which they are responsible for Financial Stability in the overall economy. They achieved full employment. Inflation,ed stable ill slightly below their optimal target of 2 . Is a Financial Stability consideration in the central bank come in our judgment, should continue the normalization process, and continue to move what is a very accommodative policy rate to a less accommodative level in an attempt to slightly move financial conditions tighter over the course of the next couple of years. In an effort to avoid repeating the challenges that occurred in 2004 and 2006 when the fed raise rates, but did not tighten financial conditions in the domestic economy due to factors outside of their control. The same set up exist now. Yesterday in the minutes, there was a mention of commercial real estate valuations in some sectors, perhaps reaching high levels. Sentiment is an important part of the discussion Going Forward. There are other elements a policy master of policy metrics the fed can turn to. Jonathan financial conditions are raising despite rate hikes. Do they need to do more . Do they need to get more aggressive . Ebrahim it is a tricky situation. You should see you could you should see gradual tightening. It as a signale that the fed needs to go faster. Ofer all of these years monetary conditions, you want to avoid making very dramatic change the policy. A gradual pace is merited, but stay the course and move away from extraordinary levels. David the course to where . It is a process. What does normal look like . Is there an end goal . Or is this a matter of Central Banks turning up the dial of the they into trouble . Bob the goal would be achieving stability of labor versus capital. I think we are close to that. Where you start to see labor rewarded at an equal rate or stable rate relative to capital in the division of corporate profits in the economy. We are close to that. In that environment, what is neutral policy . It is the current funds rate in the u. S. Is around negative seven basis points. It is probably in the range of 50 to 100 positive. We are not going back where real rates had to be 2 to 3 to slow the economy for a variety of Different Reasons that have been explained on the show for months. They were around demographic issues, structural issues deafening growth projections. David so we are not that far from the normal rate . To 150 basis00 points on the front end. The one interesting thing that came out of the minutes yesterday was the initial discussion of a mechanical approach to how to slowly investments and Balance Sheets investments in the Balance Sheets. Jonathan are you comfortable from what you heard from the Federal Reserve . Bob yeah, the question in the fed has changed from why she would be adjusting to policy then why should we not be adjusting policy . That asymmetry has changed. Arethan do you know why 2. 26 . Curve toiew the yield the most sensitive Economic Conditions and having a has of the tibia to global factors. Withthe bank of said the bank of japan and European Bank of securities it presents this gravitational pull on the term structure of rates. We do not think the long end of the u. S. Can get higher. Normalif we are close to in close to stability, is this the worst possible time to have a massive fiscal input . Not that washington will come up with it, but they keep threatening it, whether it is a big tax cut or a big infrastructure package, is this a bad time to do that given where we are . Ebrahim this ghost and was in the u. S. , absolutely yes. What we are doing in the u. S. Is tax cuts to stimulate demand in the shortterm, it is absolutely wrong. If it is what people call growth , itortive of fiscal policy is a different story. If you built potential for future growth, there is a lot to be said for that. Jonathan for economists, it is considered a threat. [laughter] jonathan bob miller, please come back. Ebrahim, you will be staying with us. Lets get an update on the headlines outside of the business world. Emma opec has extended Oil Production cuts another nine months according to two delegates for me with the decision. Luckys landmark budget expires in june lockheeds landmark budget expires in june. In brussels, the European Union says their differences with President Trump and a number of key areas could European Council president spoke after meeting with the president. I am not 100 sure we can say that we have a common position, and opinion about russia. Emma he says the e. U. Agrees with the Trump Administration on many policy areas, including counterterrorism, but said some issues remain open, such as trading climate. U. S. , the republican candidate for congress in montana has been charged with assaulting a reporter. Witnesses told police that he grabbed a reporter by the neck and slammed him to the ground. Global news 24 hours a day, powered by 2600 journalists in more than 120 news bureaus across the world. Im emma chandra. Hochbergming up, fred will be talking about nafta, trade, and about that border adjustment tax. Live from washington and new york, this is bloomberg. Chandra. Emma coming up, cio cofounder of highland capital management. David this is bloomberg. Im david westin. President trump first came to office, there was a lot of talk of trade, but it turns that china is not its currency after all in after terrorists against trading partners, we are discussing a Controversial Border adjustment tax. What does this mean for u. S. Trade . Is Fred Hochberg and has served as the export bank under president obama and has been a prominent Business Executive and academic. And still with us is ebrahim abari of citibank. Tell us take us to the process of renegotiating nafta . Fred there is a deliberate process. A lot of the open issues and difficulties with nafta remember, it was done 25 years ago. The world has changed. Digital economy was not anticipated. It is rare for any agreement to last 25 years without adjustments. David is it a good time to take another look . Fred absolutely. Issues and a number of the issues and partnerships will be negotiated. I travel to mexico many times. Twoda and mexico are our largest trading partners. This is a vital trade relationship. We want to be careful not to upset. We sell more goods and services to those two countries then the next dozen after that. David is it possible that there may be more cross border trade with mexico rather than less . Fred if we do it smartly. One of the key issues we have supplied we have established a great supply chain with our partners in canada. It is a way that north america, mexico, United States 10 compete with asian competitors because we have United States can compete with asian competitors. David we have to be careful. How would border adjustment tax affect nafta . House republicans say the senate Senate Republicans a absolutely not, but how would if it was nafta . I havehe intelligence been gaining over the last couple of days is this tax is not going to happen. There is no enthusiasm for it. There may be some lip service. People like to say there is a ruling when the subject comes up. It is not been done. Secondly, it may not be compliant with the wto or legal. Of delicatelot issues going on between the United States, mexico, and canada. This is a buried disruptive type of pact. It is not using we do not have a value of the tax or the kinds of things that would coincide with a border adjustment tax. It is an oddball to throw in. Many people in washington think that it is finding toys of dollars to justify it and it is not a good idea. But we have to find the cash someplace. We are not finding it was a repeal obamacare, so there is a scramble for cash. Jonathan talking about magic accounting. Ofing into 2017, a lot concern about a protectionist white house. Have we seen any evidence of a protectionist white house . Ebrahim we have seen some. We have not seen only as much as we feared at the time, but we have seen a number of reports being commissioned and National Security being brought in as a potential rationale for terrorists on certain sectors, which cannot be countryspecific. Weve seen these measures taken against her canadian imports as well. These measures taken against canadian imports as well. Think those fears are unlikely to come true. Jonathan what is your view . This is about american jobs. Were all about u. S. Jobs. Jobs usingd American American workers using products to import and export. You want to support more good jobs here. A protectionist attitude is very contrary to what we have been doing since the postwar. Working with others is hard. Cooperation is difficult and is much more difficult to work with your colleagues and peers than an organization where you are a country where the president is dealing with nato. This is difficult to do in the fear about protectionism has been retaliatory. What is the new administration doing with your old job . Has fivently vacancies on the board with a board of five people. David so it cannot do any business . [laughter] fred no. If we are going to compete with china and selling goods and overseas, you need a fully functioning bank, and i am hopeful. The president has identified two individuals, but has not named anyone. Jonathan sounds like the Federal Reserve. [laughter] jonathan ebrahim and Fred Hochberg, great to have Yellow Program could coming up, best buy continues to perform its shareshich sears with surging after a palatial quarter. Find out what is behind the strong result. From new york city, as we count to down to the market open, you are watching bloomberg. Emma Deutsche Bank and be close to settling a Federal Reserve investigation and have billions of dollars moved through the bank and out of russia. People familiar with the situation say the deal could be announced in coming weeks. The question is how the u. S. Just met department could come hard the question is how hard the u. S. Justice department could come down hard on Deutsche Bank. Earnings declined 41 in the first three month of the year. Anova barely lost its top global position to hp, but the company gained market share. Shares of best buy are surging premarket trading comparable. Shares unexpectedly rose and beat estimates. Switch game 2 jonathan is there a switch consult console in the worst is there ad switch consult in the david westin household . David not get the. It not getting. Not yet. Jonathan talk to us about best buy with products theyre not responsible for. The switch was more successful than we expected. You are not want to see any new products refresh that will move the needle there. Is kate is yesterday 4k yesterdays news. Commodityck to pricing, television pricing is down 20 this year. Phones are not exciting anymore. I actually think you have a simmering war between amazon and walmart at christmas because walmart make the strategic error of buying jet. Com. And jeff bezos hates you will see a bloody battle and best buy will have Collateral Damage at christmas. Jonathan it seemed ill last quarter help me understand that more . Walmart chose to buy rather than build. They are not very competent and building online. I dont think that he is particularly competent and building online. He was competent about setting up the domain names. He tried jet and had a ton of money behind him. Amazons growth value of 200 billion. Barely making a dent in the online arena, then he started spouting off about how he is going to take share from amazon this holiday. I can tell you, jeff bezos does not like that. He made a symbolic move of shutting down etsy, and he was very public about it. He is out for blood. Youre going to see the Consumer Electronics price war and christmas just heard walmart. I think the spies caught in the crossfire. David walmart is doing something right online, because whether it is mike laura, theyre all my was up dramatically in the last quarter. They went from no presence to some presence. About people who historically do travel to the store and are less online savvy and a less inclined to become amazon prime members. I agree that that is an audience that amazon has not get t attracted, has yet attracted, but my membership is pushing 40 million household, probably 45 million households by your end. Amazon isarket for the walmart shopper, and bezos is going after them. Spending 3 billion that is squarely in the sights of amazon, i dont think was a good purchase. Jonathan thank you very much. Coming up next, we are counting you down to the opening bell. From new york city, you are watching bloomberg tv. Jonathan opec looks to stabilize the oil market lining up a ninemonth extension for Production Cuts. It is lower for longer in vienna. Indicating a lower approach. President trump calls on nato to step up the fight against terrorism. Prime minister may has her own message. Shared intelligence has to remain secure. New york city, good morning, good morning. Im jonathan ferro. This is bloomberg daybreak. Alix steel is in texas. We continue to capture down to the opening bell. Alltime highs hit a closing yesterdays sessions with futures firmer going into the session this theres a up by 0. 27 . Treasuries are softer. , 21 , 50. That is the story. Lets get you prepared for the open. Heres Abigail Doolittle. Abigail lots of movers on earnings. Sears Holding Shares are surging after the Company Closed its first profit in two years posting that income up 244 million. Huge outperformance. Some investors may think that the ceos turnaround strategy is working. Something that investors will welcome. Another stock flying high on earnings from the premarket best buy shares are surging ns, if they hold these gai earnings by 50 they have put up . 60 per share and it looks like gaining strength was behind it with new tendos new switch with nintendos switch console. Real stranger for best buy. They Earnings Party continues. But Earnings Party continues the Earnings Party continues. Prtchards island pcs grew grew. And pcs investors are happy this morning. David opec is said to be extending oil cuts for another nine months. This after last years landmark agreement failed to eliminate global oversupply or chief sustained price recovery oversupply or achieved a sustained price recovery. Alix steel is down in houston. Agreed to what has been and what has not . It sounded like opec proper may have agreed to the nine months. Is that agreed yet . That think to be a very fair take. He had the consensus of opec to do a mine month ninemonth extension. We understand from sources, algerian sources, that the algerian oil minister may well know longer be the Prime Minister at the end of this opec. These are algerian sources in trying to establish we are trying to verify this. Opec can still go ahead and agree of cuts and extensions with a quorum of three quarters of the members. With we so interested he is the gentlemanly architect poster the iraqis and arabians. Orchestrated the behindthescenes discussions about this initial push. It is the theater of opec politics, which are incredibly important. Maybe not so much today, but Going Forward in terms of orchestrating the moves putting the market in check. David we will have to sort out. Deeply ironic if the architect is out of a job. Alix, what do they need to get the price of two before they discourage Oil Producers . Alix that is the question. It has to do with the curve. Shale producers are heading production for 20172018. If it gets low enough, they will not be profitable when they hedge. That number is up for debate. Goldman says it is around 45. It all boils down to the big question what will put brakes on u. S. Shale production . Is it going to be hedging . Cost inflation . Takeaway capacity . Private equity or the highyield market try not . No one seems to have the answer get. That is what that is what is key to see if this opec agreement can work. Jonathan we had Fred Hochberg earlier and he raises the question that maybe they could have let this ride a little longer for the extra pressure on conversation from your conversations, is there anyone that thinks Production Cuts are not the answer, and they can go back to the old strategy of letting it all rip . Way, theyut it this went from market share to lets put the brakes on. I want to put something in 1998, cuts were between 4 million and 5 Million Barrels a day. 5 million is really not that aggressive. To 50. Ry to get ipl of saudi aramco ipo ofar we see an saudi aramco next year. It is all about the exit strategy. There is a News Conference at 5 00 p. M. We will find out what the news is. Did anyone say russia . Was on a in 1988, i football field. Great to have you with us on the program. Kaunda. Us now is mara okada. K energy and ok about credit right now . This debate we are having is all about supply. The demand side is coming into question right now. The fundamentals of the situation right now look pretty good, but where that goes from here is really going to be a function of demand. And demand is very, very hard to call. If we are up about one Million Barrels right now between supply and demand and demand does not show up, you could see a very different sort of oil price going from here. David wise demand so difficult to call why is demand so difficult to call . It is global growth. We are seeing a nice rebound that is good. We have all of this green, all of these electric cars come a lot of efficiency going through europe for people want to go the other way. Forces licting predicting those conflicting forces is difficult. A lot of focus is on supply, but the mentally hard thing to call. That is where the volatility comes forward. Jonathan are you holding any Energy Credits right now . Yes, but we have taken more chips off the table as well reflate it a lot. A lot of capital is coming into the highyield capital. It has a different exposure to energy. We are making nice money and making nice gains. You have to be disappointed on the commodity pricing. David it is interesting you pointed to the that close . For these areme turned it Energy Sources to make a mark on demand . When we look at fracking, they are almost at production from a very low rate count. Low rig count. We have not even touched wind energy and solar. That has grown rapidly. How those supply demand curves will cross is something the market does not know right now. They are not pricing in. Is going to hold off another nine months. The extent we get a big shift in demand and whether it is coming from some of these alternative Energy Sources, in a way to the market is anticipating, you could see a very different low price. Jonathan how much confidence did you take when crude was rolling over into the 40s. Do you take confidence from that . It was not complacency. It was one of the dynamics we are seeing market is getting to be much more indexdriven in general across the board. This is something we have been thinking about, the etf flow across markets where, you realize there are more indices today that stocks. There are 5000 indices and only 4000 stocks. When you have this massive inflow on high yields, they have to buy energy. Decoupling ofis fundamentals from liquidity and technicals in the market and they can be sustained. Again, when we look at that, jonathan, i am going to sit there and look at that and say, that does not make sense to us longterm. Jonathan how do scrutinize . In the fixed income market, you guys are not just looking at the index. Youre looking beneath it and looking at individual securities and thinking about credit risk and duration. How does your job can out . How do you differentiate . Aboutwhen we are talking the example, it could be a great opportunity for active management because you can sell into a bid that does not make sense to you. At some point, you can reload and make a lot of money. Talk about retailers earlier. We have been buying some of these retailers in here as a market has gone into the other direction on sentiment. Some of them throughout the baby with the bathwater. You have to be able to anticipate this liquidity and be disciplined about fundamentals, but to your point, it is not an easy thing. When you look at passive versus active, active is doing better in general. We are talking about the bond market and highyield, but this is more of an equity story to me in the long run because there is a much bigger force there. David as you look at this cute shift towards indexes, towards etfs come is it any more stability in the marketplace . We have seen it all compressed, compress, and compress. One of the things that is around that, if you look at vanguards 4. 2 trillion, they have taken in a. 5 times more money than the rest of the market taking in 8. 5 times more money than the rest of the market. That kind of flow really can make all of this other stuff not matter the shortterm. You are going to compress market volatility when you have that much flow. The thing we all have to try to get comfortable with is what happens when it goes the other way . We never have tested that inequity market. Im in highyield and i get a lot of people poking at me about that. Equities in passive are multiples of multiple was of what is happening in credit. Testing it that other direction is one of the things that keeps me up at night. Jonathan marco, will be staying with us. Lets go to alex doing houston, texas. Alix the question i am asking is u. S. Shale production and i will be talking to what would make him not do that . Live from amberg beautiful, sunny, warm houston, the heart of shale. David this is bloomberg. Im david westin. The minutes of the fed meeting shrugged off the First Quarter sluggish growth for various reasons and maintain confidence in the broader outlook for the economy. The central bank said quote most participants judge is economic information came in line with their expectations, it would be appropriate for the committee to take another step in removing policy accommodation. Joining us is jason hunter, jpmorgan Technical Analyst and mark okada. Welcome back to the program. Tell us about the fed and what they said in their minutes. On the one hand come inflation doesnt seem to be going ahead that fast. On the other hand, there are indications the economy is growing all right. What is happening to the yield . We are seeing happening in yield and you are focusing on what the fed has said. Im watch most the price i watch mostly price action. It seems like they are on a path to go in june keeping front and yields for the upper end of the range keeping front end yields at the upper end of the range. Noteill think the 2year can get into the 150 area as we head into summer. But when you look at the intermediate sector, we had a bear market view coming into the year thinking yields would make their way to 62 making their way to to 65. To 265. Way it looks like it was gaining traction, but things have gone up since then. David it seems to be in that range, but having trouble breaking out of that. And jason we saw 230 to 260. That was right in line with our view. After the fed moved in december, we saw technical things suggesting treasuries would rebound. We are looking for a rebound for the 230 area, and we were suggesting using any of those rebounds to enter shorter exposure. Come mid First Quarter, most technical indicators are pointing to higher yields midyear. You are starting to increase our short exposure reducing declines. That view started gaining traction, but once we got into the meeting, certain things happened. The economic surprise data here in the u. S. Started to slip and accelerated lower, which is what we think is driving the ball flattening of the treasury curve. Below for the year on a 10 year is 216, april 18. We have been north of that since the election results. Talk to me how strong that resistance is, that supported 216 on a 10 year fish that supports the 216 on a 10 year. A lot of those shorts are deeply into the money after the election. It increased again. If you look at the average of the entry price, you get a rough idea that we thought the gap that was produced there in late november was a big inflection for us. It has been a big line in the sand for our bearish outlook. Those positions have rolled over. It is less of an issue, but to your point, the 200 day average has risen. That is a psychological inflection. The number is not that big of a deal, but if we look at how momentum in structured, multimomentum has been in favor of the bearish market and is at a potential crossroads. It could turn in favor of the rally and help give that david mark, how does that affect on how you put money to work . Mark it applies to the situation on supply and demand. All the focus has been on supply treasuries and the fed getting out of their Balance Sheet. But the demand side is so much harder to call. The demand side is been very strong. Weve seen visible flattening of the curve, and that is taking everyone by surprise. One of the things we have to look forward to is this be nine view that the fed can start cutting supply. Supply ofsing the treasuries massively when the ecb might start tapering. This incredible demand for treasuries. Will just sitves there, but they do not want almost treasuries. Second be happening the same time the fed is trying to exit. I think on the demand side versus the supply side is really something the market has not been able to figure out. This debate is something that will be talking about a lot more Going Forward. So come you are asking, what do we do about it . Im sticking on the front of the curve i feel more comfortable. We are doing great because of that. It is hard for me to get comfortable for the type of volatility be could expense on the back end of the curve. Jonathan we will continue the conversation. Coming up tomorrow, Richard Haass recounts formulations. A big week for Foreign Affairs and formulations given the g7 summit and the nato summit. A conversation with Richard Haass coming up tomorrow. From new york, county you down to the opening bell, you are watching bloomberg tv. Jonathan it is the story of the year so far, drum and d. C. , drama nbc and calm on wall street. Here to discuss is jason hunter and mark okada. You told us you were uncomfortably bullish. Are you more uncomfortable than you are bullish . Mark this is the uncomfortable side. We are longterm blitz, but quite uncomfortable. When we think about the administration and where we are in staging thing i saw point in the obama administration, he got his cabinet together by february. We have just gotten Trumps Campaign together, his main cabin in may. There are 7500 people that you form in this whole, sort of administration. Has 3700 in place right now. He does not have the people in place right now to get things moving. Ae market got ahead of itself little bit on some of the stuff, but longterm, i am still very bullish about deregulation, getting that in place. The thing we keep talking about is personnel is policy when it comes to deregulation. Getting the right people in place and they take some of you can see a very economy in the u. S. Aboutan we talked a lot rates pain rates in the year. What is that relative to where we are now stuck the jason it is different reflections of the same thing. That in the yield curve. On the equity side, you can see that in value versus growth. Financials will be a key component. Rate trade. The you can see different forms across Asset Classes. All that excitement after the election, good chunk has been unraveled. You can see the markets getting back to levels and positions. Well those give the same pain trades in december as they were in a . Mark they will be the opposite. Jonathan the opening bell coming up next. You are watching bloomberg tv. Jonathan from new york city, this is bloomberg daybreak. Im jonathan ferro. Positive 70 points on the doubt. Streak sinceinning february, five days. Six and will we print a brandnew intraday record high at the open . As you hear the cheers, i never get it. The treasury market unchanged. David i think they are told to do that. Jonathan the dollar softer, down. 1 . Of capitalism. Lets go to Abigail Doolittle. Abigail we are looking at the all time intraday high for the s p 500, opening up higher by. 2 . Nasdaq and the s p trading higher. The nasdaq also putting in an alltime high. Records here at the open. Five days in a row, today makes it six. Some bullish action. Not participating are some of the e p names. Some real weakness including conoco phillips, and echo darker, chesapeake energy. Could say that it is because opec is about to sign a but some sayeement not only is it priced in but this sector is washed out. 3 above the 52week low. Confirmationhe that he things we will see a rebound, he thinks the sector could trade higher by 7 over the next month or so. One reason it is priced in, we have a oil somewhat range bound, therding to some, this is bloomberg. In blue we have opec daily output. In white we have u. S. Rigs. Ande last summer, u. S. Rigs inventory has been climbing, while opec cuts are coming into play. Daily output declining but offset by u. S. Production. That is the question, will the cuts be enough, and at 50 a barrel, that encourages some of the u. S. Players to continue to produce, creating the supplydemand dynamic that is not so encouraging to some investors. Encouraging enough to be range bound, but not to bring oil higher. Jonathan we are up a quarter of 1 and we do print a new record on the s p 500. 2408. Here is the picture for retail. Finally, a bright spot. Best buy surging in the premarket and the open. Higher by 14. 6 . That is the biggest one day pop on best buy stock since august 2016. Session for best buy on the cards after betterthanexpected earnings. Our retailretail is expert. Talk us through retail. A bright spot finally. They have been very sparse. Terday, you had lows loews. Aday we had Williams Sonoma little bit better than expectations but still not great. Best buy because of mobile and gaming, they were better than expected after a really long run of struggling. David we see these individual stories about retail. Story that there is an overall uptrend in terms of total sales and employment. Roughly half of Consumer Spending is from retail, so how do you put those two together . Retail overall is up, and yet, you have the sad stories. Seema i think there is a disconnect between those macro indicators and what is happening on the ground. You see growth up online, but separately legacy retailers are struggling with how to compete and how they should look as retailers in his new environment. I dont think the consumer is as strong as it appears with some of those macros. David online is a huge story with retails. Employment, 15. 9 million americans work in retail, and that number is going up. You would think it is all going online but you are not seeing a reduction in retail. Seema you are seeing that reduction in some areas with these closures. Im not sure in that growth in retail is accounting the supply chain side, the Distribution Centers as they grow their online business. David which would feed into online. Jonathan best buy stock has been incredibly volatile for the last 10 years. After earnings, the average percent move is 7 . Mark, talk about equity versus credit. You have been picking up the pieces in credit. Why . Easier, credit, it is less about valuation, more about, can they piggyback. Jonathan sometimes that is not easy. Like me thatebody is not as smart as these equity j. Crew, where we do not know what the outcome is there. Do they need to exist . They certainly have made some strategic errors and how they are executing, but you look at toys r us on the other front and there are a lot of things that they are doing very well. The market hates them. I could not tell you where the equity is going, but there are certainly some things that are very attractive. Teens returnedmid to their. There are ways to play this that is more straightforward. For people like me who are more simple, can figure out. Again, a deep dive into the fundamentals, look at where they are doing things right, do they need to exist . We are doing that and making good money. Way, this discussion goes back into the discussion of energy. Fundamental disruption in the business. You talked earlier about alternative energy. Here we are seeing online. Mickey drexler was speaking today saying i did not appreciate how extensive that moved to online would be. How do you account for that transformational change in the industry . Mark its very difficult but you have to find experiences in retail that really do not apply to online. Like a Guitar Center or toys r us, these things where they are not going away. They are too important for the trade. Bere will certainly parts of the commodity where you can get it online, and these people are doing it. It is where the rubber meets the road because disruption is real, it is not going away. There is a ton of real estate that a lot of people on that they shouldnt. Seema it is about where they fit in in the model. Maybe for a lot of these names it is to be smaller. Maybe with toys r us, they do not need as many because they are going online. We have a record high on the nasdaq and the s p 500. Underpinning that is amazon also hitting a record high. Patrickon, michael weighed in on the devastation that we could see off of other retailers. Im not sure mark is particularly confident welding online. He was quite accomplished setting up the domain names, diapers. Com, soap. Com. He tried jet and he had a billion dollars behind him, compares to amazons gross market of 200 billion, so barely making a dent in the online arena. Jonathan talking about how jeff bezos hasnt asked to grind with a certain element at another company. David and that there will be a war between amazon and walmart, a price war, and it will squeeze out some of the others. Seema you have seen it happen so far. Best buy is substantially not the same as it was 15 years ago, there is no more circuit city, Bed Bath Beyond is struggling, no linens and things. Be on and noble seem to track to stabilize, and then the last two quarters turned down. Jonathan do you worry about devastation . I have never heard a credit guys say that the other guys are smarter. I assume you are joking. You say the one question that matters is whether we get paid back. How many people are going to get paid back . It has ripped through credit as well in terms of retail. There will be situations where we would not touch it. Jonathan give me an example. Mark j. Crew. They missed not only the Stores Versus Online but they did not anticipate this fast casual situation where their competitors show up with something that doesnt work and they change it three weeks later and j. Crew has 12 months to figure this out, to be able to change what is in their store. They have this fashion dynamic, online. Does the world need j. Crew . I think it is a great brand, i think i have one of their suits on right now. Longterm, you have to figure it out. It is difficult for a credit and equity guy, though we are not touching those situations. Niemann market is another where we have looked at that situation. Another part of this that you refer to, the real estate side of it. Apart from lending directly to the retailers, people have loaned a lot of money for building those stores. Where is the situation with credit . Is where the concentration is on the real estate side. You have seen a widening their. The market has had some struggles because of it. Difficult,ery concentrated exposure in a lot of those bonds. It does not look great to us. Jonathan 10 minutes in, another alltime high on the s p 500. Last wednesday, drama. Your thoughts . Mark i think you have to look at the internals to see this pivot between value and growth. Sorte back to this amazon of thing as opposed to the trump trade that we had before that was much more fundamental, that i felt more comfortable with in the long run. That changing of the guards is not something that makes me feel comfortable. It is great we are seeing this alltime high. Maybe that is just then gone with their 2 billion. Jonathan great to have you with us. Seema shock, thank you for weighing in on retail. This is what the opening looks like. We are up a quarter of 1 on the dow and we print another record high on the s p 500. From new york city, you are watching bloomberg tv. Here in the hewlettpackard enterprise greenroom. Coming up tomorrow, Richard Haass, council on Foreign Relations president. Dont miss it. Alix in the oil market, all eyes are on vienna, but my eyes are on houston and what shales responsible will be to opec extending their Production Cut today. You had a Saudi Oil Minister talking about what shale meant for opec today. Shale is an important variable but we dont believe it will significantly derail or affect what we are doing. The market is big enough to absorb the expected increased production in shale in 2017. Joining us now is david rockecharlie, the head of kkrs real asset investment. He has invested in about 10 investments in the eagle furred. You never do tv, so thank you for doing this. The big question, you have oil rigs continuing to increase its opec production continues to come down. How does that resolve itself on the curve. The most important to think about is Oil Companies are trying to make body and they have money to spend. They look at the forward curve for signals, when to invest in their capital but they are a Growth Business and will keep investing until they run out of money. Alix when you look at prices out in the year, around 52. Im trying to get a read on what level would stop that production level increase. Oil Companies Think they can make money at 50, so they will continue drilling. Moneyhas been a lot of invested in land, particularly in the permian basin. You cannot spend 40 billion on an asset that does not produce cash flow and just let it sit there. How long does that story play out for . 40 billion yes, but maybe not in the next nine months, if the curve stays around 50. Spent that 40 billion was with the opportunity that they could spend more once they acquired it. The most important thing to realize is the next year will probably not change a lot of peoples minds if we are in this range. The drilling plans are out there, people will continue to develop those assets they have required acquired. Alix we dont have a strategy from opec that at some point russia and saudi arabia will want to get back their market share while shale is putting out potentially 10 Million Barrels a day. What is your base case for that . We are longterm investors, we dont focus as much as what will happen in 2017 or 18. Our view on base case today is opec is looking for stability. We are seeing that in the market, oil has been relatively stable. Why we have been able to invest. I look at 17 and 18, i think it will be relative to stability unless we see some kind of shock. Alix do we go below 40, do we stay in the 45, 50 range . Is a the industry itself depleting resource, so the installed oil base is declining every day, so we have to spend capital to replace the production. Within a range it is reasonable to assume we can stay where we are but it will all depend on how quickly u. S. Shale can increase. Also, does opec cut more . They have a history of cutting a fair amount of production, we have not talked about that much recently that opec has been the stabilizing force over a long period of time, and they could do more. 1. 2 Million Barrels a day is a drop in the bucket. We have talked about our plans for 2017, 2018. We continue to continue to actively investment we are doing Something Different with our capital, we are buying production. When we see in the industry today is a dynamic in north america in particular where companies are continuing to focus on growth. That growth comes from buying land, in particular in the perm young. And then investing capital in the drilling to bring more production online here to finance that emma they are going to Capital Markets which have 16. Pretty receptive in it has slowed down this year. Secondly, they sell assets that they feel are lower growth in order to invest in assets that are higher growth. That is good for us. We like acquiring assets that are sold today with lots of current production. It gives us a longterm approach. There an oil curve that says i do not want to put money to work right now . David two things that we focus on. One is volatility. It is hard to invest when things are volatile. At the end of the day, we are in the partnership business. We work to acquire assets. Those companies have to be willing to transact with us. As prices move around a lot, it is hard for us to invest at all. As long as there is stability, we can hedge our production. We have become really good risk managers in this industry, one of the things that kkr focuses on, longterm risk management. We are happy to invest generally at any price as long as we feel good around the cycles, and we followed two things, the industry fundamentals, and the Capital Market fundamentals. Right now, both are working for us. When theyou see a time oil industry in the u. S. Does not outspend its cash flow . David it does happen but it is unlikely to be consistent. Frankly, the industry spends the capital they can raise. The biggest governor on this industry is the capital available to it. Flowcomes from the cash they have, which is down because oil prices and gas prices here Capital Market flows of which have been up recently that have come down recently. Then the ability to sell assets and reposition the portfolio. That is what is driving the m a market right now. A lot of inflows from People Like Us buying assets. Alix how much money have he put in, how much money will you put into the next year . David First Quarter of this year we have signed an investment equal to about 1. 2 billion. I would say this is about as good an environment as we have seen. We are pretty excited about the opportunities Going Forward. Alix how much are you investing the rest of the year . Attention to the supply and demand in the market, competitive returns. As long as we can find the return we want, the ability to manage those returns in the hedging of the market, we can invest at a prerace. Alix how much more could you invest . Is our realons expectation. I dont think we have any set number. We have proven we are willing to sit on the sidelines and not invest. We were pretty patient during 15 and 16. Safety say 17 and 18 will be good years for us. Alix for investors looking at whats happening in vienna right now, what is the company in the u. S. They should be focused on to show why opec will have a hard time . The two dynamics to think about, we had a lot of debate over the last decade about whether shale was a real resource. I hope that debate is over. Weezer talk about whether oil would flow through shale because of the size of the molecule. We have proven we can do that. For us it is more about the supply cost curve. One of the best companies in our they are, eog, focusing their portfolio around 40 oil. I think that is a telling sign, they are not focusing around 30 or 50 or 60. Alix great to get your perspective, thank you, david rockecharlie. John, back to you. Jonathan almost 23 minutes into the session. It is records on the s p 500. A record on the nasdaq. 2412 on the s p. Wereple of days ago people freaking out about the drama in d. C. And the risk rally. For the stocks, with the exception of facebook, the fangs outperforming once again. Records across the board this thursday morning. From new york city, you are watching bloomberg tv. This but it will go nowhere at all, and we are going to lose inadditional few months designing and starting to implement a growth strategy. I am getting more worried. Jonathan that was Mohamed Elerian with david westin earlier. He is getting more worried. We printed a record high. The stock market is not worried. Maybe we should be worried about washington. Jonathan a remarkable session. Maybe in the worries are justified about d. C. , but certainly the market is shaking them off once again. Futures positive. Stocks at all time highs on the s p 500. We are higher by one third of 1 . Bloomberg markets is up next. This is bloomberg tv. Steven mnuchin is once again facing senators. He is taking questions from the senate to the finance committee, talking about the Budget Proposal as well as the administrations tax reform plan. At the same time in brussels, President Trump is arriving at the new nato headquarters for the memorial ceremony, meeting with fellow nato new leaders. I am vonnie quinn. Mark we will have complete coverage and secretary mnuchins hearing. Lets get a check of the markets with Abigail Doolittle in new york. Sums up thee word trading action, records. We had highs for the s p and the nasdaq, the dow also trading higher, up 0. 3 , on pace for the sixth. Strength for u. S. Stocks, and it seems to be that this could be reason to