Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170824

From jackson hole. At 8 30, we get u. S. Weekly initial jobless claims. Then july existing home sales. Attention is raised join us to set the stage is matthew boesler. Janet yellen says it she is going to talk about Financial Stability. What does that mean . Matt im looking forward to what she has to say on this topic. We got a wide range of views on Financial Stability in the latest minutes of the july fomc meeting. The Financial System is so much stronger now than it was in previous expansions. We shouldnt have to worry as much about the Financial Stability because the fed has been doing its job on a regulatory front. Theres one participant in the stressed raisingmade rates gradually would be the best way to strike a balance between maintaining Financial Stability and its inflation and employment goals. Its not clear yet what is the consensus about using Interest Rates to address Financial Stability concerns or not. David that is one of the questions if you take Interest Rates and Balance Sheets, which one goes more to the Financial Stability issue . Matt they would probably think about it in terms of the Interest Rate whereas the to bee sheet is supposed this thing that they did to bring down longerterm Interest Rates and intervene in credit markets during the depths of the crisis when they really needed to be intervened in. Its not clear the Balance Sheet has the big bearing on the way they see setting policy to address Financial Stability. Year, the newhis does the fed chair need to follow up . Do they want more twoway risk in this market while we are waiting for december . Matt its possible. Earlier this year, dudley came out and give that interview on 28 we on february still have plenty of time between now and december that we didnt necessarily have beethen. They may want to sit back and let the data play out between now and then. Jon this could be the fed chair s last visit to jackson hole as the financia fed chair. That a way she can do matt that will probably come out of the part of praising the fed for all its done since the crisis to make things better. They usually do include warnings about rolling that back. A lot of fed officials have said we can review this and roll it back a little bit. Its not there were that balance is in their minds at the moment. By for more, we are joined jim bianco and Nick Bennenbroek. Title, the theme of jackson hole this year is fostering a dynamic Global Economy. What can the fed do to foster a dynamic Global Economy . That is a good question. Not create financial instability. This has been a big topic for the fed ever since the financial crisis. They think part of the crisis was an unnecessary panic by Financial Markets over the Mortgage Market and housing that made a bad situation worse. If they want to foster stability in the Global Economy, the fed not more worry about creating instability in Financial Markets. Betweens balancing act loose financial conditions and the potential for financial instability, between that and ultimately soft inflation print after soft inflation print, how does the Federal Reserve balance those two things . Balancerike a bit of a in terms of Interest Rates in terms of saying you dont want to go too late because that might encourage bubbles or financial elevation but also you o earlyant to go to for the risk of causing the economy to stumble. Just the idea of getting underway in terms of producing the Balance Sheet as well. Even if janet yellen reminds the markets that we are going to keep on removing accommodation gradually, that might be enough to have some points on markets. David they have raised several times already. Conditions have loosened rather than tightened to what extent is trump helping them . The dollar is listening financial conditions to a large degree. Nick looking at the equity market, the dollar, to the extent that you would say that they are looking to see slightly less accommodative or slightly more restrictive financial conditions just as you get the economy doing ok, weve got a bit of inflation, they would like to see more restrictive to avoid the possibility of financial instability or some kind of public run. Jon president draghi also making an appearance. Speech could be on absolutely anything. Whensk you whether the speech first got scheduled, we were waiting for a hawkish mario draghi to come out in jackson hole and set us up for tapering. Is that risk diminished somewhat . Jim people have talked themselves into diminishing it. In 2014, draghi outlined the ecb Bond Buying Program. People are surmising that in 2017, he will use the same venue to outline how they will end the bond buying. That was a big theme a couple of weeks ago. I wouldnt be surprised if he does use this venue tomorrow to Say Something along those lines. Stop thew we would Bond Buying Program or heres the conditions we would use to continue to pull back on it. His speech might be more important than Janet Yellens speech tomorrow. Jon the account of the last meeting was pretty clear, they dont want to be boxed in. They want more breathing room to bring policy either way should they need to there was also an explicit reference to the fx channel and the risk of overshoot. Is the ecb going to say hold on . Jim i would gather more the market talking itself into it. The ecb had that problem earlier this year when they were talking about more hawkish and then they came out and said you misinterpreted us and the market rebounded the other way. The ecb always wants to say we will leave our options open, but the market will hear what it wants to hear. Bit on theng off a other he will Say Something. They could always interpret what he says in a more hawkish tone. David the last accounts explicitly address the question of the euro. Banks still have it within their power to talk their currencies up or down . I think it is lets see what they actually do. The ability to drive the currency lower or higher is fairly modest, especially for the likes of mr. Draghi or miss yellen. Not really jon what is the biggest problem for the ecb . Probably the fact that its moved 12 . As 160. En as high this is not particularly problematic. They dont like the fact that it has moved so fast. Its a bit divorced from reality. But probably will tighten, the currency has moved up a lot quicker than the actual Interest Rates. Sticking bennenbroek with us, alongside jim bianco. Coming up, more from jackson hole. An interview with nita melnikoff in 20 minutes. Rge from new york, you are watching bloomberg tv. David this is bloomberg. Be an already going to eventful september in washington, got even more complicated this week with President Trump saying he will shut down the government if he doesnt get the money for that wall along mexico. We have to close down our government. We are building that wall. Let me be very clear to democrats in congress who oppose a border wall and stand in the way of border security. You are putting all of americas safety at risk. I dont think anybody is interested in having a shutdown. While we work on doing what we actually said we would do much control our border. I dont think you have to choose between the two. David joining us from the white it soundsaret like President Trump has trouble with republicans, not just democrats. Thats exactly whats going on here. Test of wills between president and Republican Leadership in congress, between andbase and the trump base the coalition of republicans. Paul ryan and Mitch Mcconnell andtrying to pull together think goodness it has been a slow august. Thank goodness it has been a slow august. Ofres this budget deadline september 30 from others the whole debt ceiling issue theres the whole debt ceiling issue. Is deemed too dangerous and the attempt to separate it to determine when the debt ceiling stand up really happens its one thing to have a shortterm shutdown to and itsoint another to miss a debt payment. You have these issues, you have the implications on what it does for the prospect of passing tax reform, the implications on leadership what does paul ryan see in all of this for him . A leadership fight, of course. David talk about leadership within the white house. Who will be the quarterback for organizing all of this . Theres a few different options. President trump could be the quarterback. General kelly could be the quarterback, gary cohn and Steve Mnuchin could run the play. It wont work unless general kelly is able to maintain order and discipline inside the oval office. Then theres the question of steve bannon who is no longer inside the white house but back at the helm at breitbart. Symbolically, been in supporters and many in the freedom caucus, will they be pushing for this fight . Trumps threat sparking concern across the world yesterday. Stocks recalling their biggest. Ntraday decline in the week the s p 500 headed for its biggest monthly decline since before the u. S. Election. Still with us to discuss it, jim bianco and Nick Bennenbroek. How are you thinking about the end of september now . Drama . Litical jim the market doesnt seem to think its political risk. I think its more drama. Andpublican House Republican senate and republican president are not going to shut down the government and self detonate themselves. There will be a lot of theater around it, but at the end of the day, something will get done. There will be no default, no acrimony we saw in 2013. Jon a Republican House and Republican Senate and republican white house, yet we still discuss it, the prospect of this actually happening at the end of september. Jim i think its all political theater. They need to push it to the end. I dont expect a deal before september 30 anyway. That is the way washington works and it gives them attention and gets them the ability to frame the debate. I think the market is right not to worry about this right now. Theres nothing that says they will shut down the government and there will be a risk of default and interests wont get paid on october 1 and all the other problems that come with that. That is a very low probability right now. David what youve said makes good sense. Unfortunately, good sense and washington dont always come together. Look what happened with health care. They had six years to figure out how to repeal and replace obamacare. They had republicans in the house and senate and didnt get it done. Do you think you will get past this debt ceiling crisis . Nick i do. We do have the same or Party Controlling all three branches of government. The market has seen this move before in terms of the debt ceiling crisis and the debt ceiling debates. They are relatively comfortable that even if we go right up to the brink and to the 11th hour, we will be ok. Frontis a new activist from President Trump, but there is a limit to have any kind of contentious jon we also have republican versus republican. Markets, youor look at the positioning right now can extremely bearish on the dollar at the moment. Does it get harder and harder to build dollar over the next month . Nick the trend is for a weaker dollar over many years. A lot to do with whats happening in europe and places like canada, for example. Its important that theres not a lot of interest in having any kind of contentious over this zero chance of any debt default. Weve been through a partial Government Shutdown before. The market is relatively comfortable that it will end up ok. David jim bianco and Nick Bennenbroek both will be staying with us. Next week, i will have the chance to sit down with warren buffett. Hes in town because of the a very auctioning off expensive lunch. Live from new york, this is bloomberg. This is bloomberg daybreak. Tiffany reported samestore sales that dropped 2 last quarter. Ines missed estimates an every region, except japan. To drawhas been trying in younger shoppers by renovating stores and introducing new designs. China is accusing the u. S. Of sabotaging the International Trading system. The issue is the u. S. Investigation into chinas intellectual property practices. The Trump Administration says it will determine whether chinas actions in areas such as Technology Transfer are reasonable or david still with us, jim bianco and Nick Bennenbroek. Lets stay on this topic of china. How do we get ourselves in this situation where we have china lecturing us about the International Trading system . How did the u. S. Get on the wrong foot here . Jim that is a good question. I think it goes to our politics and that we are talking about putting up walls and reducing gives the chinese the moral imperative to make them look like they are the free traders of the world and we are less so the free traders of the world. It is the u. K. With brexit as well. David after the election come of was a lot of concern about trade wars, especially with respect to china. Is it possible we are being too complacent about the possibility of disruption in trade . Jim the market is making an assumption that for all of his worth, donald trump is a businessman and a businessman cannot see the idea that a trade war would be good for the american economy. Therefore, the market is assuming he will never let it get to that point. As we move forward from here, theres always that risk that it could get out of hand. I would like to agree with the market that its not a real worry right now. Jon there is a big debate over some of the economic policies or lack thereof the fact that china says the u. S. Could sabotage the International Trading system, for many people, is a joke. The idea that the chinese are lecturing anyone on free trade. This is something the u. S. Has to do, isnt it . That is putting pressure on the chinese to restrict their protectionist policies and actually open up the Market Access to Foreign Companies and rules that are implemented. Jim i agree. It is a joke that they are lecturing us and we are allowing them to not have to change their policies. It is a bit of a missed opportunity in that respect. He will have to see if we can grab the high ground on this argument and be able to then push this idea of more free trade that would help benefit the u. S. Economy and not let them t be so protectionist. Jon jim bianco and Nick Bennenbroek sticking with us. Of seized counterfeit goods at the border come from china. David china has been taking great liberties its not a secret. Jon strong words from the Chinese Ministry of commerce. Our interview with interview Esther George. You are watching bloomberg tv. Jon you are watching bloomberg daybreak. Two hours away from the cash open. Features are positive, up about. 25 on the dow and s p 500. A decent tone in europe as well. 5 on the ftse. Esther george has been calling for higher Interest Rates for years to head off inflation. Theres a problem theres not much inflation. Michael mckee is in jackson hole for the economic symposium. He asked Esther George whether she was wrong or premature. Esther i think about our mandate, which is price stability. Relative to an economy that is growing at 2 and is adding jobs come i think we are at a pretty good place and we still have very accommodative Monetary Policy. That tells me we should begin to gradually remove that accommodation. As long as the outlook supports we are moving in the right direction. I think we are. Mike that suggests you are in favor of another rate move this year. Esther that was my last forecast. Plotsime we put the dot together is a new opportunity to look at the data. I will be looking at the data as we get ready for the september meeting to see whether that still makes sense. I think there is still opportunity to do that. Mike by the end of the year, not necessarily in september. Esther i dont pick a meeting and i dont consider those rate paths a commitment. I think its a general sense of where rates should go. Mike to what extent is inflation a lagging indicator . Is the phillips curve broken or is nehru lower than it has been in the past . Esther im not sure that i will have a good answer for you there. Many people are studying that very issue. The things i look at when i look at inflation the price of goods has been falling. Maybe that is due to technology. Services, which is two thirds of the economy, you see those rates are staying at 2 and higher. In the context of the economy we have today, thats why i think you have to be careful getting too focused on the point estimates as opposed to the broader trends you see. Mike with inflation not rising, you had five months of disappointment in the cpi, Market Expectations are falling. Is that a problem for a fed that has always said expectations are key to keeping prices stable . Esther you have to pay careful attention to that and i would include myself there. Again, you have to know what drives those expectations. That is the challenge. Reflected in those numbers as opposed to overreacting to some specific point estimate. Mike theres been a lot of talk about Financial Stability. Janet yellen will speak on friday. With financial conditions easing and stock prices continuing to rise to new records, is that a reason to continue raising Interest Rates . Do you have a concern about the level of asset prices . That washe qe undertaken over the last 10 years aimed at boosting asset value. When you see that weve made four rate moves and financial conditions have eased, that, i think, points to the idea that we need to adjust the Balance Sheets. That is eight tool we havent had experience with. That is an important next step to be looking at. Mike are investors to complacent these days . Esther i dont know. You will have to see where that comes out. When you set conditions that have had easing Monetary Policy for a long time, the incentive to reach for yield, the committee signals that it will be gradual could feed into that. I watch those asset values carefully, but im not sure theres anything you can target specifically when it comes to setting policy. Mike the Balance Sheet taper, wall street is betting it is september that you will announce an. Any reason they would be wrong . Esther ive been in favor of doing this for some time. The estimates suggest the economy is in a good place to begin doing that. I look forward to the discussion in september. Mike do you have any estimate of the impact on Financial Markets from that . Particularly yields and whether that will amount to a defective tightening. Esther ive seen various estimates. We dont have experience doing that. You would expect with the duration of these assets that as you begin to shrink that Balance Sheet, i hope it does get reflected in the u curve. Mike how sensitive will you be to Market Reactions the tapering process . Esther we are always taking that into account, whether it alters the patent policy is a broader discussion about what else is going on. Mike do you see asset prices deflate . Esther i dont know. I have heard various views on that, too. I wish i had some experience to draw on here. Valuem was to boost asset we have seen that. Whether that ends up having asymmetric reaction on the other side, we have to wait and see. The very gradual approach that is being taken there is giving the Committee Time in the markets time to understand the Balance Sheet. The Balance Sheet will ultimately be will depend on what Monetary Policy system you end up using. Are you in favor of using the Current System of interest on reserves or are you in favor of going back to setting a funds target . Esther its appealing to go back because we know how that looks. We are where we are today. Its important to judge how we move forward you could get hit with a shock at any time. The ultimate operating framework is not something the committee has pined on yet. It has talked about it. Theres been analysis underway. Andnow, we have to use ioer the overnight reverse repo pools as part of how we begin to normalize policy. Mike the reasoning for why you want to do this now and why you want to new raising rates, is it because you need some cushion, you need some tools should the economy turned down . Attractivet would be when you think about the next downturn. I would not say it is my primary motivation. You are trying to make sure the economy is going to benefit in the ability to grow an in a sustained fashion. Where is unemployment . How is inflation performing . Do those suggests you need to have Interest Rates reflect that . That is my motivation. All theit gives us ammunition we need at the time we need to decide that would be an added benefit. Jon that was Esther George from jackson hole. Joining us now from jackson hole is michael mckee. Hawk. Wk remains a what else does she have to say about the data . Mike the data at this point is telling a story that the economy is humming along as it has been. Shes not particularly concerned that inflation hasnt been rising in recent months. She thinks it will get back to that. Perhaps more slowly than she anticipated. At this point, she doesnt see any reason to change your forecast significantly at that september meeting. Jon the other thing that struck me was the complete absence of conviction that she has as to whats going to happen once they begin the process. How much does that complicate the Monetary Policy stance if they have no clue what the Balance Sheet unwind could mean ultimately for markets . Mike i think the broader fomc is less concerned. They feel they may get some affect out of it, but it has been telegraphed so widely, it shouldnt have a major impact. They can react on the other side of the policy lever by dialing back the number of rate increases they might do if they start to get a reaction from the Balance Sheet unwind. Theres the theory at this point that they dont know what they dont know, but they can get away with it and make it work. David one is tempted to hook up what you just talked to Esther George about with what we expect to hear from janet yellen tomorrow. When the asset prices come down as you unwind the Balance Sheet as they went up she took a sidestep. Mike that is a real question. Do people stopped buying when theres less money in the system . The taper is going to be so small, but when you get into next year and get significant rolloffs, you could have an effect. It is hard to disentangle it from what else is going on, particularly in equity markets. Earnings are strong, the economy doesnt show signs of slowing down. How do you know what the effect of the Balance Sheet is unless you have a total collapse of the stock market . Is there any sense out there that the urgency of starting this process might be tied to the possibility that janet yellen would be stepping down . She would like to get this started in case she doesnt have the job after february. Esther that has been a general undercurrent for quite some time. They dont know who will be on the fed next year. Up and fischers term is there are three open seats. They would like to have the process underway, running on autopilot so its not something that faces a new chairman. Jon looking forward to the coverage over the next couple of days. Thank you very much. Still with us to discuss is jim bianco and Nick Bennenbroek. Some things that Esther George didnt want to answer about whether theres any signs of complacency in the market. Something they are wrestling with at the moment. Is there . Jim i think there is and i think you are right to point that out. The fed has been hyper obsessed and market expectation the market has decided the fed will reduce the Balance Sheet in september and it will be very gradual. The Kansas City Fed itself has put out a paper that says you have to reduce the Balance Sheet by 500 billion to be the equivalent of 125 basis point hike one 25 basis point hike. That is why the market is complacent about this. Announce a Balance Sheet reduction in september, it is no big deal. As you get into the summer of 2018, thats when the real story starts. David one of the things i took away, we have raised rates four times and it didnt tighten financial conditions. Maybe we start unwinding the Balance Sheet, that will. Will it . Nick i would be surprised if it caused a huge impact on financial conditions initially. Isbe the Market Reaction asymmetric, but the actions of central bank are necessarily symmetric. Arent necessarily symmetric. Given that the exit will be more gradual than the entry come i would be surprised if there was a significant reaction early on. David jim bianco and Nick Bennenbroek staying with us. Coming up next hour, we will , joining usll simon right here on bloomberg. Emma this is bloomberg daybreak. Coming up later on bloomberg markets, an interview with tim plenty. Olenti. P David Congress may have anything to say on the subject. After the president said he would shut down the government if he didnt get that while the china, speaker ryan came out saying no one wants to do that. The ranking democrat was more forceful. She issued a statement saying the president s threat to shut down the government if he doesnt get his way is the polar opposite of leadership. If the president follows through on his threat to shut down the government, he and his enablers should be held fully accountable. Thank you for being here. My pleasure, david. David you are the Ranking Member on appropriations. It will have to come through you. How realistic are these threats . It doesnt make any sense. Frankly, it is unfortunate that congress for the First Six Months of the year has brought us to a logjam in september and the failure to resolve these in a bipartisan drama freeway has potential to causes serious damage to our economy and american families. We have to have a spending bill to keep the government open by the end of the month. We have to raise the debt limit to prevent a default on the national debt. We have to react the rise the Childrens Health Insurance Program and the federal aviation administration. Leadershipcan failing to pass a budget resolution to set the stage for a tax reform package this will take a lot of work. The idea of shutting down the government doesnt make any sense. David you have all of 12 legislative days to do it. Address one thing for us. Some reports we are hearing that there may be a movement to link the debt ceiling to the spending measures, which raises a lot of questions and markets. They maye thinking shut down the government for a few days but certainly not default on the debt. Theres all kinds of threats out there. You have to do both. Not pass a budget. We have to take care of health care, job creation, roads and bridges and Homeland Security. If the president really follows through on his threat to shut down the government, he and the republicans in congress will be held accountable. The house, the senate, the white house. There would be no question as to who would bear the sole responsibility of the government shuts down. David play through who is really in the driver seat here for us. The republicans led by the speaker of the house says we will have a continuing resolution or otherwise get a spending measure through. The president vetoes that because he says he needs the wall. Does he have the votes . I would be shocked if the president gets the vote to shut down the government. Remember, all these members of congress and the democrats will be held accountable. Does a republican president want to take responsibly for an irresponsible and reckless act and the polar opposite of leadership . It doesnt make any sense. David is there the possibility that the president could bring some of the democrats together with some of the republicans . It feels like theres a division between the president and the Republican Leadership. Of course. I am the Ranking Member. Bill in 2017. T we could Work Together. We have a responsibility. We have to invest in schools, job creation, roads and bridges. And Homeland Security vulnerabilities. We have to pass a budget and we can do it and we can Work Together and the president thinks he can shut down the government, he will be held fully accountable. David that is encouraging to many of us. Thank you so much. Nitoas congresswoman lowey. This is bloomberg. Emma this is bloomberg daybreak. Ubers Financial Performance kept improving in the second quarter. Uber investors turned against the ceo amid growing scandals. Spending growth slowed to the weakest point in 2014. Car sales in the u. K. Stagnated. So too did the business investment. Jon sticking with u. K. Data, reinforcing the views that the economy has shifted to Slower Growth sterling rebounded from its lowest low since 2009 against the euro. Still with us, jim bianco and Nick Bennenbroek. The pessimism around sterling outside of todays Session Bureau sterling has ripped through this year. The amount of pessimism already laid into the price and beyond. Nick i think it is justified. Might get close to parity the eurozone economies on the up and u. K. Economy is just meandering along. In terms of the dynamic of the challenges, lets be fair, the problem is the europeans have a slightly easier job in terms of the way they do things where is the u. K. , they have to go back to square one in terms of their whole trading relationship or their international relationship. Jon we talk about a strong european economy and a week u. K. One weak u. K. One. Do you take that consensus view . Jim i think that consensus view is right. The uncertainty around brexit will keep the u. K. Economy somewhat depressed. You can hardly go a week without some executive talking about moving a bunch of jobs to ireland or germany or brussels. That will take its toll on their economy. Once they get through this article 50 period and once we get to the other side, there will be some certainty. The u. K. Economy can then move forward from there. Until that cannot we are all stuck in this wait and see mode. What will the rules of the road trade . It will continue to lag. David how much of it is simply uncertainty and how much of it is the markets thinking it is headed in a bad place . It seems like the u. K. Is moving toward europe and saying they re are these red lines that arent so read anymore. We are ready to make a deal. Fromthe pound is suffering the weak economy and the relative nature of its competitors, the euro is moving well, the u. S. Is doing much better than it is doing right now. There has been some talk that they might be able to port some kind of an alliance with europe. The eu has backed up their stance. Their stance. Last year, they were out for blood. The u. K. Economy will meander along until we get to some certainty and this certainty will be a big cloud over it. Jon jim bianco and Nick Bennenbroek. Parity talk on eurosterling. Where did that come from . Oming up, jack ablin as we count you down to the market open, heres the stage. A decent session emerging. Up by. 25 on dow futures. In europe,. 5 on the ftse. From new york, you are watching bloomberg tv. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. Getting a little bit longer. Jonathan jackson hole begins with some of the major central bankers in wyoming. President trumps threats to shut down the government trigger concerns. The u. S. Probe into intellectual property practices sabotages the global trade system. Good morning. This is bloomberg daybreak. Lets get you set up for the market action. Futures from her, up by about. 2 . Features firmer. 1. 18dollar reclaim a handle. Treasury yields grinding higher. 10year. The u. S. David Esther George sees an opportunity to raise Interest Rates in 2017 if u. S. Economic data holds up. We set down with george ahead of the Economic Policy symposium. Jacksonined by mike in hole. Ather george seems to be on track to keep raising Interest Rates. She has argued that the fed is to be head of the curve on inflation and with unemployment so low, we were going to generate inflation. Obviously, that has not happened. I asked whether she was premature or whether not she has been wrong about what has been going on. Wallalance sheet taper, street is betting it is september that you are going to announce it. Any reason they would be wrong . I have been in favor of doing this for some time, and i think the estimates suggest the economy is in a good place to begin doing that. So i look forward to the discussion. Do you have any estimate of the impact on the Financial Markets, particularly yields . Again,s hard to know because we do not have experience doing this. You would expect, because of the duration of these assets, that as you begin to shrink that Balance Sheet, i hope it does get reflected in the yield curve. Mike how sensitive will you be to Market Reactions with tapering . I think we are always taking that into account, whether it alters the path of policy is a broader discussion. Mike do you think asset prices deflate as you shrink the Balance Sheet in the way they inflated . I dont know. I wish i had some experience to draw on here. What i know is the aim was to boost asset values. I think we have seen that. Whether that has asymmetric reaction on the other side, i think we have to wait and see. Again, i think the gradual approach is being taken, which gives the Committee Time and gives markets time to understand where that Balance Sheet is headed. Mike you have not told investors how big the Balance Sheet will ultimately be, and that will depend on what Monetary Policy system you end up using. Are you in favor of staying with the Current System or would you go back to strictly setting the fed funds target . A it is appealing to go back customer enough how that looks, but we are where we are today. I think it makes sense to judge as we move forward how we see the economy and fold. What you do not know is you could get hit with a shock at any time he would you will have another set of decisions to make. The operating framework is not something the committee has opined on yet. It has talked about it. There has been an analysis underway, but i think, for now, we have to use ioer, the overnight rivers repo tool reverse repo tool. Reasoningart of the for why you want to do this now and why you want to continue raising rates, is it because you need cushion, some tools, should the economy turn down . I think that would be, obviously, attractive when you think about the next downturn, but i do not say it is my primary motivation. You want to make sure the economy is going to benefit and the ability grow. Is motivation is where unemployment . How is inflation performing . Do those suggest you need to have Interest Rates reflect that . That is my motivation. Whether it gives us all the , the time we need need to decide that, it would be an added benefit. Mike she comes back to the idea that inflation may take off and that justifies a continuing to raise Interest Rates, guys. Jonathan appreciate the insight. We will catch up with you later. Were joined from chicago by jack ablin of bmo Wealth Management, and the black rock Portfolio Manager joins us around the table. Answer our want to question. I think she did allude to valuations. That was one of the focuses we took away from the july fed minutes, something we have been talking a lot about evaluations, especially in fixed income, have really elevated this year. Across markets, whether it is nonagencies or even high yield, it is the lower quality stuff. And each one of those Asset Classes, it has performed well. There is just not a lot of upside price potential. There is a lot more Liquidity Risk as you have gone down in lower andncrementally lower amounts of youll pick up theyre talking about Financial Stability and the guys that have pushed you guys to go into the junk used stuff. What about right now . Cautious but optimistic stance in the fund. We are not running a lot of risk. I am surprised i. A lot of those Asset Classes have done really well. 12 on ther about year. Good quality financials in the United States, they might have had yields close to 5. 5 at the beginning of the year, and they are in the low 4 now. It is a really big move. It is unreasonable to expect much more price appreciation. Across most of fixed income, you are looking at carry. That will dominate your return profile going forward. We are in the process of selling some of these names that have appreciated nicely. It doesnt mean youre taking down your yield a little bit, but you are really stepping up your quality. It does mean you are taking done your yield a little bit. David how much of these asset values are supported by fundamentals apart from the pumping of a huge amount of liquidity into the global system . It is certainly a fair portion of appreciation has to be attributable to the nice strong earnings we have, up 10 or so year over year. So i do think there are some good fundamental things going on underneath the surface. That said, if you look at price to sales, pricetobook, pricetoearnings, we are in the 99th percentile of our historical range over the last 10 years. So the only metric we can use to view the equity market. Ttractively is through bonds the fact that yields are low, lower than they should be probably, and through that, equities still look pretty attractive. David there is another way it is connected. We just had two good earnings seasons. How much of those earnings are attributable to low yields and he sends a corporations are able to our old money at abnormally low levels . Absolutely. That is certainly a function of it it even though buybacks are off a little bit in the last ifee months or so, you know, you look a shares outstanding of a the last five years, i think shares outstanding a down 16 . So yeah, the fact is that earningspershare is running roughly double the growth rate of net income. That is attributable to borrowing money, buying back shares, and reducing the number of shares is standing or jonathan is this a market they can digest the ecb joining the party in the next couple of months is that a market that has resiliency to digest that . I think so. We are on a path towards normalization, and i think that has been well telegraphed a Central Banks. Jonathan i want to know what normal means. Point, a great point on valuations and of goodies, if you are in an environment where bond yields are going to stay low for the rest of the cycle and maybe longer, then looking at p e multiples based off the past when bond yields with at much higher is probably not a fair comparison. If you look at the earnings yield of stocks compared to the yields of bonds, you would say, all right, if this stuff this in fixed income, that trade may be over and the next step may will be in equities. We would agree that equities look relatively more tractive, at least more upside am aware as there is virtually nothing left in most pockets of fixed income. David both guests will be sticking with us. Coming up, bill simon, the former walmart u. S. Ceo. We will talk about amazon and also the walmart deal with google so you can order your groceries online just by using your voice. Live from new york, this is bloomberg. This is bloomberg daybreak. David this is bloomberg. I am david westin. Six months ago, we were told before Congress Took its races, we would have new Health Care Decisions and tax reform would be behind us. Now were waiting for congress to come back from that august recess, and we are wondering how they will get the debt ceiling raised and new funding for the government to keep it going, and that is just 12 legislative days in september they have to do it into it we hope to get just a plan for tax reform. And health care . Forget about it. Michael fredericks and jack ablin are with us. Jack, how did we get to this place . The markets were running right along in february. We had all these expectations. None of that happened, and the markets did not take a big downturn. I think we certainly had we talked about fundamental improvement, but underneath the surface, david, i do think that many investors, most investors, have pretty much on wild the chance of tax reform. If you look, for example, as small caps outperforming large caps between election and early december, essentially assuming with small caps paying the highest Corporate Tax rates that they would be the biggest beneficiaries, that has unwound and has moved in the opposite direction. From that perspective, off the table. Bonds versuscipal taxable spirit if you felt personal tax rates would be cut, making municipals less attractive than taxables, that has also unwound. From an investor perspective, investors are not expecting much legislation out of congress, certainly this year. So if we do get something, the flipside is, if we do get something, it is not priced in, and that could be a nice little upset for the market. Extent not dowhat we replace the hope and expectations of an upside with the fear of a downside . Well, this is a really important topic here there has been a lot said about the low levels of volatility and moves and the derivatives markets around the vix at we have been trying to take advantage of this low levels and trying to get Downside Protection on possible risk of , ecbnment shutdown meetings and other meetings to the end of october. Until a few weeks ago, it was a cheap time to buy Downside Protection to her jonathan what kind of Downside Protection would you be buying during a Government Shutdown . What kind of things do you do . Were not doing anything terribly exotic, focusing on buying s p puts, things that are fairly vanilla, very liquid. It is not cost a lot of ofnciple to hedge out a lot your Downside Risks when you find opportunities to get into 99 percentile valuations. It is hard to believe when you think about why the vol had been so low when we had major events i could really upset markets. So it was a little hard to believe. Jonathan i guess they have not upset markets yet. You are right it is political events you have to view these as insurance against something going wrong, but it is definitely not a base case that markets will be upset by a Government Shutdown. David investors are watching domestic u. S. Ought u. S. Economic plants but also on how we deal with the rest of the world. China condemning the United States moved on sanctions. Spokesperson, the u. S. Investigation of china based on domestic laws sabotage as the existing International Trading system and has poured cold water on all parties that have been working to promote bilateral economic ties. Jack. O you, to what extent do investors have to take into account possible risks of trade . As you look at u. S. Equities, do you want to start taking into account whether those companies are making their money domestically or are really tied into trade . It hast question here at not been taken into consideration. I would argue the opposite is true. China is one of the bestperforming markets this year. Mexico, one of the bestperforming markets this year. Clearly, investors are not concerned about any meaningful pullback of trade. This rhetoric stressed change and it looks like we see concrete steps to move in that direction, i think we could see a reversal, especially in some of these Largecap Companies that rely on overseas trade to fill the Balance Sheets. Jonathan Larry Summers running an oped today, saying the following the leaders have moved from being appalled by the words of the administration around trade to being appalled and bemused. You can be bemused, just dont be alarmed . You know, it is funny i find myself laughing and ignoring President Trump myself. So yeah, you know, there is a lot of arm flapping going on. Players, at first, most are going to take the words of a president pretty seriously. But when you keep hearing it and then when nothing really happens, eventually you become a new word. I think it is now assume nothing unless something happens. Maybe there is some positioning the news to go on. Jonathan it is unfortunate that sophisticated investors like yourself have to laugh of the words of the president of the United States. On this issue, most people think it is dead right to go after china, go after the policy of that country. How on earth to the United States of america lose the moral in free trade to be one of the most protectionist economies on the planet . Yeah, you know, i know we like to argue for free trade, but we have had pretty protectionist policies ourselves. I think protecting the intellectual property of pharmaceutical companies for 30 years and embedding that into our trade i would not call that free trade either. So i am not so sure that u. S. Was on a high ground itself. Of course, now we pay the highest pharmaceutical prices in the world. Is know, i think everybody into the act. I think that where i see some advantage is because there are some moves we can make to help curtail some of that perhaps imbalance with china is the relationship with north korea. So i think there is some Fertile Ground for us to gain advantages in trade, but perhaps use it as a political mechanism to tighten the reins on our adversary over their border. Is rhetoric in the sisters of things. At the same time, if we really are starting to question the underlying fundamentals of the International Trading system, that could be Serious Business for investors. There has been a lot of wealth created since world war ii, frankly, by having open trade and freeing that trade over time. If we question the wto, china is whatnical at one point is that pose a risk . It is a lot of rhetoric yes, the u. S. Runs a massive trade deficit with china. On the other hand, we need china with respect to north korea, and it seems like there will be something on the policy side of things, which has been one of the dominant narratives over the last several months. Nice not a surprise to see rhetoric, but i do not think we should take it too far yet. I do not think this will be, in the short run i do not think this will get out of control or derail the story. , episodically, is a front page, top of the headline risk factor that seems like the markets are not focused on very much whatsoever. The china slowdown is one of the big potential drags on the , positiverrative narrative, for markets. At the moment, it has really fallen off the headlines postup David Michael fredericks and jack ablin both stay with us. Next week, i will get a chance to sit down with warren buffet. Live from new york, this is bloomberg. About one hour and six minutes away from the open in new york. A positive, positive 58 on the dow, up five or six points on the s p 500. Volume has been really light. 17 below the 20day average. Despite the news flow, it has been quite a typical summer week. Market, muted price action. The euro dollar goes nowhere, 1. 18 flat. Up in jackson hole tomorrow, mario draghi. Yields grind higher, 2. 19 on the u. S. 10year. Lets get some Business News now. Emma tiffany posted secondquarter profits that Beat Estimates and also reported samestore sales in the u. S. That were better than expected. Tiffany has been trying to attract younger shoppers by renovating stores and introducing a new collection promoted by lady gaga appeared the eu is concerned about real spirit two large hedge funds have dropped their licenses and will now operate under a 2011 easy reporting and transparency requirements. Deutsche bank is responding to competition. According to people familiar, Deutsche Bank has cut in half the price it will charge for fixed income and Macro Research to 35,000 a year. It will force them to charge research separately from other services, such as trading. And that is your business flash update. Jonathan thank you. Inyou have to cut something half, before you have even started charging for it, it just goes to show you really do not have a clue what price to put on your product. David i do not have a clue. They say you have to charge for it, but do they say how much you have to charge . Why cant you charge one dollar euro . Jonathan there are sophisticated minds making these decisions that also do not have a clue. Coming up tomorrow, the former u. S. Ambassador to germany will be joining us. From new york, you are watching bloomberg tv. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Jonathan from new york city this is bloomberg daybreak. Actionlook at the market ahead of Economic Data in the u. S. Futures are positive. Up about. 25 on the dow and the s p 500. Gains in europe, as well. On the bond market, yields a 19 le bit higher, two point on the u. S. 10year. On the fx market, a weaker yen and slightly weaker euro. Initial targets claims dropped, wasped even lower, 240,000 the print. 230 2000 was the previous number. We were at 232,000 and we keep hanging in there. 234,000, on a historical basis, is just remarkable. David creating jobs is not one of the problems in the economy. Than the kind of jobs david a quick read on the u. S. Economic data, which are back to jack ablin of bmo Wealth Management and Michael Fredericks of blackrock. Wage pressure,ng which is affecting Consumer Spending and a lot of those things. What is going on with the u. S. Economy . I think it is on pretty solid footing. Your point on inflation is something we focused on from the recent fed minutes. They seem a little less certain as to whether or not this is transitory, so we have had five straight inflation cpi mrs. It is becoming persistent. It is being priced into the bond market in terms of rate expectations. We think this pattern is likely to persist. At the same time, it is not just the labor market with strength of the margin, we have been encouraged about better news about retail spending, which was quite positive last week. The same was validated in q2 gdp. Consumption was revised higher. It looks like a good backdrop, but expectations to were growth was headed have moderated a lot. Picturemuch more upbeat than it was a few months ago. David jack, give a set sense of what your desk give us a sense of what your give us a sense of what your dashboard looks like. What do you look like to get your arms around the u. S. Economy . Strategy, the most important data point is wage growth. If we are able to continue to 200,000 wage pool at net jobs a month and do it at a wage rate less than 3 , then i think this party could continue. Because the fact is, as much as the fed would love to see a smaller Balance Sheet and higher Interest Rates, they are not going to be able to raise rates at the trajectory that is higher than inflation. They want to keep real rates not only low, they want to keep them negative. Right now, the last fed hike move did against this downtrend in inflation. That is not part of their game. So i think that as long as inflation stays low and wage growth is the key component there, that keeps the fed at bay. Jonathan there was a question on the labor story, the labor cost story, not wages. Ands at dinner last night, the gentleman i was with wanted to make the argument to look beyond wages and look at the bigger picture, the cost of employment because of things Like Health Care rising quite a lot. You need to account for that in the labor market. Is that something you think about . Absolutely. Part of the reason why i am banging the drum for health care reform, although my vision is more of an expansion in medicare rather than some cobbled together private plan i mean, the fact is we stand 9,500 per person for health care, and we are grappling with nearly 20 Million People that could lose coverage. Isada, which i am not saying perfect, but everybody is covered, and they are doing it for 4500 a person. That puts u. S. Companies that huge disadvantage. If we are trying to level the playing field, yes, taxes are important, but some of these other benefits are key. David talking about the economy, what about the lack of Pricing Power . To some extent, the wage issue is a lack of Pricing Power on the part of labor. We also seeing companies losing Pricing Power. Does that affect your concerns about longterm Earnings Growth . It does for me. There are a couple things going on. Talk about why we cannot raise wages, it is because if you are an employee or, you can only find wage growth from two places, inflation or productivity. If you look at a study that was done by the head of the council of economic advisers under president obama, it should not surprise anybody, it finds there is a concentration of business among the Largest Companies in 30 years ago,ere, the Top Companies controlled one quarter of their companys revenue, and now it is between onethird and onehalf. We are not seeing Pricing Power that is remarkable, but were also not seeing business startups and all the growth that it would bring with it, some productivity and price growth or jonathan for the Federal Reserve story, you come down from march, and unemployment is at 4. 3 and wage growth at around 2. 5 . About 1. 75 a month in terms of payrolls. What would you say about rates . Turning to what is priced into the fixed income market in some of the risk areas, we see that the market believes this path of underwhelming inflation trends will continue. I think there is a risk, although it is not a base case, but a risk that if inflation is transitory and inflation starts to surprise to the upside, i think there could be a big move from a u. S. 10year at 2. 19 percent right now to substantially higher, which is part of the reason were not running a lot of duration. Context, it is a great shock absorber to the risky assets. Lower do youch think that 10year yield can fall to help offset a selloff and your risk assets . 2. 50 ,n when we were at we were potentially heading to 3 , and then we rolled over and it was 2. 10 earlier this summer. About,ou are talking kind of inferring investor attitudes from the bond market. How much can we really do that . How much influence do investors have on the bond market are you have got now the Central Banks still leaving their footprints all over the place . To theink it goes expected path, so the market has been discounting, rightly discounting, the dax here it when you look at what is priced into the forward curve, the market is skeptical with bond yields, and this nfl inflation to push bond yields up. Balance sheet normalization will not change the premium to any great degree. We think there is upside risks, that the market is not expecting that. It is not even our base case. In terms of risks, it is harder for yields to move much lower from here. In our scenario analysis. But in the inflation picking up a bit, you look at why the cpi missed the last couple times, there were more volatile factors. There was lodging away from home, a volatile series, used car prices. These oneoff things have been holding back inflation. They could surprise positively as a point in the future. I think it is a risk worth watching. Jonathan gents, great having you on the program. An update on headlines aside the business world. Emma a hurricane warning has been issued for parts of texas on the gulf of mexico. The National Hurricane center says Tropical Storm harvey could become a hurricane by tomorrow or texas has not been hit by one since 2008. Oil workers have begun moving platforms in the gulf. Airlines are preparing for slight disruptions. The u. S. Troop increase in afghanistan is underway. The influx ofsays american soldiers will continue over the next few months. Most of the new u. S. Forces will be used to Train Afghan Security forces. And migration to the u. K. Has fallen to a threeyear low in the wake of the brexit break. It is down 81,000 from a year earlier. Global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. I am emma chandra. This is bloomberg. David coming up next, we will talk with bill simon, the former walmart u. S. Ceo. Plus, more froms jackson hole, wyoming, and our interview with Kansas City Fed president Esther George. A beautiful shot of the grand teton, that big mountain. It is gorgeous out there. Live from new york right now, this is bloomberg. Is bloomberg daybreak. Coming up later, an interview with former minnesota governor tim pawlenty. That is at 1 30 p. M. Eastern time. Now to your business flash. U. S. Antitrust regulators have given a quick approval to amazons takeover of whole foods. The deal was approved within a 30day review period after determining it would not hurt competition in the grocery industry. Lawmakers have complained big deals could hurt consumers by being approved to easily. A struggling retailer being kept afloat by a billionaire in the second quarter. Samestore sales fell more than 11 for red ink, the third decline. Doubledigit that is your Bloomberg Business flash. David retail earnings have been all over the place, but it is safe to say the market really punished those who disappointed and did not give much reward to those who nearly beat expectations, particularly if they cannot provide robust forward guidance. There is that story about amazon buying whole foods, and now there are reports that walmart is partnering with google to let customers order online by voice. Louis, us from st. Missouri, is someone who knows retail and that transition to ecommerce, and that is bill simon, former walmart ceo. This appears to be a battle of titans, between amazon and walmart, as we go into ecommerce spirit who is winning the war . I think it is too early to tell. Amazon is clearly a power in the digital and online space. Their acquisition of whole foods is a game changer for them. Admission,an frankly, that with a brick and mortar retail, they cannot accomplish what they want to accomplish. I think you have amazon trying to move more to be like walmart and walmart trying to be more like amazon with the recent acquisitions of jet and other companies and their partnership with google. I think it is fantastic and exciting to watch. It is probably too early to tell who is winning. David this is your pedigree to it you did come from walmart. When you look at bricks and mortar moving into online or online moving into bricks and mortar, which strategically has the advantage . Which is easier to do . Physically easier to do, hard to say. I think you are going to find off a bign has bitten chunk of the elephant with whole foods. Brick and is not like online retail. Fresh is more difficult. Whatum fresh, which is whole foods is, is probably amongst the most difficult retail to execute. And whole foods was not doing particularly well before th is. It is equally is difficult to reinvent yourself as an online retailer. Issuesntally, with the are, and this is where the digital folks may have an advantage, the valuation that the street gives ecommerce stocks are not based on the same criteria that are for brickandmortar stocks. When you put them together, they tend to dilute each other. One is high growth and low return and the other is reasonably higher return and lower growth. Put them together, and they do not play very well on a Balance Sheet. Case, i would say the ecommerce guys have an advantage. But neither is easier to both difficult. It will be interesting to watch. David you had a Good Business in walmart and had your arms around the margins. Now they are going into online. Similarly, amazon has a different relationship with margins, but what does this do to margins . Does it compress them . It does. It requires a substantial amount of investment. All mark reported 29 billion in operating income in the last year, i think just below 23 billion. They invested as essential amount in operating income and a substantial amount of cash to become more competitive in ecommerce and their Digital Space. I think you will see the opposite from amazon. Now that they own whole foods, there will start to go up. Will start to go up. About realalk estate, managing the footprint is easier when you start from zero, in the way amazon has. You start were walmart is where walmart is in you see where it is shifting, how much of a headache will that be . How will they handle that at walmart . It depends on your perspective. Walmart owns quite a bit of it. There is value to it. It is underpinned by value. Those who predict the demise of physical retail probably are amongst the extremists. I think there will always be physical retail, particularly good physical retailers. If you are famous for something, if your customers respond to you, do y you do well. That is what youre seeing in the earnings reports. There will be some rationalization of real estate. It will probably have to come down and were certainly over stored in this country. Managing real estate, you can look at it as a burden or an asset. It can give you some lift, too. David i want to introduce costco. A piece says amazon has been getting into bricks and mortar and walmart has been getting says toine, but cosco just bring your minivan up and buy the stuff and put it in your car and take it home, and they are actually beating rivals in terms of samestore sales. They are not doing as much online, but they are doing well and samestore sales growth. That is a good insight that i have been talking about for a while. Cosco, Dollar General most of the time has been really good, ross and tjx, those guys are doing well. If you run your play and run it well, you can do well in retail. If you look at the landscape, you do not see very many people and i cannot think of anybody doing a really good job in growing with this omni channel approach there is growth and physical and in digital. Put them together, and they tend to inflict with each other on the pnl and in operations. I think coscos strategy is a good 1 i think costcos strategy is a good one. Physicalig a share and by being good at what i do. David bill simon is going to stay with us. On the bloomberg terminal, check out tv to watch as online and interact with us directly. Live from new york, this is bloomberg. David this is bloomberg. The nations ceos have had an off and on relationship with President Trump, starting the year with high hopes for tax reform and Infrastructure Spending and health care reform. But some ceos it appeared to be disillusioned at this point. Still with us is bill simon, former walmart u. S. Ceo, joining us from kansas city, missouri. Bill, what is your view on the relationship with u. S. Business on the when hand and the president on the other what are the hopes and what are the disappointment . Week, it was disappointing for all of us spirit the president s shortcomings are wellchronicled and have been apparent through the campaign and even into today, but he is the president of the United States. Anything that happens in this country has to go across his desk, and we still have to tackle infrastructure in tax reform. Whatever side of the political spectrum you are on, the Affordable Care act or obamacare, whatever you want to call it needs to be fixed. Repealed, replaced, fixed. By disengaging, i get clearly that the ceos expressed displeasure with what the president said, but we have got to move forward and find a way to engage. Somebody needs to step forward and take a leadership role to move some of these things forward, whether it is the speaker or senator mcconnell or the white house or the business leaders. This has to be addressed. Otherwise were going to sort of resign ourselves to three and a half more years of inactivity, and i do not believe we can take that right now. We do not have a parliamentary system where we can vote noconfidence and move on. We have to address some serious issues in this country. I would encourage everybody to, despite their dislike for each other, to sit down and get back to the table and get things done. David if or you can get to texas for or infrastructure, we have to get it debt ceiling raised, and we have to get the governmentfunded. Just this morning, the president tweeted again come indicating he is not getting together with Mitch Mcconnell and paul ryan. He tweeted i requested that Mitch Mcconnell and paul ryan tie the debt ceiling situation entered the popular v. A. Bill, which got approval, they did not do it, so now we have a big you with Democrats Holding them up on debt ceiling approval. Could have been so easy now a mess. So you have the president going after the republican leader of the house and republican leader of the senate. How do we get just republicans together as a first step . Of my kids,e doesnt it . It is time for these guys to sit down and start moving things forward. I believe that if the house and the senate can get together and presently on the president s desk, it will be difficult for him to veto it. Most of the things he would like would be in there. It is time to move forward. Were not getting any activity at of congress. And right now with the president s situation a little bit precarious, leadership probably needs to come from the house and the senate so they can start moving things forward. At walmartf you were in this situation was playing out, what would be your decisionmaking . From aknow, any time, business perspective, anytime there is uncertainty, we do not invest, we do not grow, we do not make that acquisition. You sort of wait for an outcome. We saw that with the health care bill. It took two years to get done and pick through, and then it was challenged in court for several years. Finally, the Supreme Court ruled on it. Then we had an election. Now talking about repeal and replace. Health care has been an uncertainty in business for eight years now, and businesses are still looking at, really, do i want to expand . I do not know what Health Care Costs will be. If we can resolve it and get some certainty, i think we can move forward. I think every board room is trying to deal with that. Yourhan really appreciate perspective to american business. Bill simon, former walmart u. S. Ceo. Coming up tomorrow, jackson hole, full coverage. Kaplan. More from jackson hole, wyoming, coming up over the next couple days. Speeches from janet yellen and president draghi draghi. You are watching bloomberg. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. Begins, jackson hole major central bankers convene in wyoming. President trump threatens to shut down the government. And the trade war of words intensifies, china says the u. S. Program to intellectual property practices sabotages the global trade system. From new york city, good morning, this is bloomberg daybreak. I am Jonathan Ferro with david westin. Alix steel is on assignment. Futures firmer by one third of 1 . The news flow is high. The volume is light coming into todays session after yesterday. Eurodollar at 1. 1 798. Down yen about a speech from chair yellen tomorrow. Central bankers will gather today and jackson hole for the Kansas City Fed Economic Policy symposium. Michael mckee joins us now. Not what necessarily they say about what the markets think they hear. The question is what is janet yellen and other central bank is going to say about policy going forward, given that inflation is the haven they thought it would . After the president of the Kansas City Fed, the host here and has been one of the most vocal about raising rates to head off inflation. I spoke with her and asked her whether she was wrong about the inflation danger, or maybe just premature. Think about inflation, i think about our mandate which is price stability. Relative to an aquatic an economy growing 2 and adding jobs, i think we are in a good place and we still have very accommodative Monetary Policy. That tells me we should begin to gradually ready be moving the accommodation. As long as the outlook supports that we are moving in the right direction. I think we are. That suggests you are in favor of another rate move this year . That was my last forecast an easy time we put those together is a new opportunity to look at the data and i will look at the data in the next you weeks as we get ready for the september meeting and see whether that still makes sense, based on what ive seen today, i think there is still opportunity to do that. By the end of the year, not necessarily in september . I do not take a meeting and do not consider projections a commitment. I think it is a general sense of where rates should go. To what extent is inflation a liking indicator . Is the phillips curve broken, or is nehru that it lower than it has been in the past and what has happened to inflation . Many people are studying that issue. The things i look at, when i look at inflation, the price of goods, that has been falling. Maybe that is because of technology, there are a number of factors that may be pressing down. Services is two thirds of the economy. You see those rates are staying at 2 and higher. In the context of the economy we have today, that is why i think you have to be careful getting to focus on a point estimate, as opposed to the broader trends and expectations. , speaking of expectations with inflation not rising, five months and disappointment in the cpi Market Expectations are alling, is that a problem for fed that is always set expectations are key to keeping prices stable . Carefulave to pay very attention to that and i would include myself there. You have to know what drives those expectations. That is the challenge, looking at what is going on in the economy and what may be reflected in those numbers, as opposed to overreacting to some specific point estimate that you see. Question, what does the fed do when inflation does not meet their target . Suggests she is willing to go ahead with another rate increase this year and we will have to see inflation turnaround if the majority of the Committee Goes in that direction. David thank you. It is a lot brighter than when you take the interview. The weather looks a lot better over the grand tetons. Joining us now is our fed reporter and our intelligence chief u. S. Rate strategist. Her,me, as you listen to what does that tell you about what will go on with rate . Four Esther George in december, she is on track . I think that there is the possibility they do something hawkish in september. Will that the reduction of the Balance Sheet, starting that policy starting october, or a rate hike . Not going to be a rate hike we do not think. A 0 chance priced in right now and a low chance of one more rate hike this year. The rates markets are pushing on a string because, if the fed see some, you volatility, particularly on the front end of the curve. Eurodollar features and twoyear notes could wind up seeing a lot of volatility, if the fed starts the hike again. Jonathan Esther George is a hawk. Observation would be the following the Federal Reserve in the past, waited as been uncertain about certain situations, the price policy has been to hold and do nothing. Over the last 12 months, the by is to hike, is that still the case . That nails where we are right now. When risks were on the downside and not a farm as long in the cycle, now, they are treating is the exact opposite and we getting we get these oneoff lowinflation ratings that to the fed do not look like they are demand driven, cyclical phenomenon they need to worry about and therefore the bias is to keep writing good hiking. If the unemployment goes below the neutral level, it is right now, the inflation will rise and even if you have one all come you still need to be raising rates to get to the socalled neutral rate level, or else you have a problem later down the road. Jonathan why the market is pricing in so very little to the potential of the Federal Reserve doing anything . The on the next few months, even tomorrow, Market Pricing is nowhere to be seen. It as if the jackson hole speech is not even happening by janet yellen. Topic is not overly conducive to Monetary Policy, she is supposed to talk about regulation. Not obvious you will get a hint about what policy will be to the end of the year. The market is looking in aggregate, unimpressive growth, lowinflation environment, and the market does not want to believe that the fed will hike, or has a high probability of hiking with the 2 inflation goal nowhere near nowhere in sight. Over time, we are going to wind up evolving the fed expectation and the market expectation to probably some medium where they hike once or twice next year, and probably not at all this year. David that makes sense. I can understand that theory because inflation is disappointing. On the other hand, the fed has hiked four times and gotten away with it. Financial conditions did not tighten, they loosened, and they may want to put something away for the rainy day in case there is a downturn. They have rates to get back. That is 100 correct. The Federal Reserve probably wants to hike 2, 3, four, times. Debate, where is the neutral right . Is it too percent, 3 . 2 , 3 . Where will the fed stop because they fight enough to slow down the economy which may not be that far away. It could be two or three more hikes and the Federal Reserve would be done. That gives them the ammunition to take back some hikes later, should the economy slowdown in any meaningful fashion. Jonathan what happened to the debate of going early and going slowly and keeping the rate hike path really shallow . Some in the fed have lost their conviction over that story, they are maybe faking maybe we do not go at all and run the risk of going quicker . Strategy of going sooner and slower is still very much operative which is what you are seeing and why they are willing to continue, even no inflation is so low. A lot of the people you have on the show and talk to, investors, they believe the phillips curve does not work, we are in a secular disinflation tech driven environment where we do not get the inflation. It is too early for the fed to acknowledge that and throw out their old models at this point. They are sticking to their story. Maybe a year from now, if we do not see pickup and there is more evidence that this is obviously the new world we live in, maybe we have to change the tune. There has been talk about the models being a little bit old and outdated for some time, over one year. Why do they need another year . It has been a wild we have been crating 2000 hundred 200,000, 170,000 jobs from up. Minutes ofook at the the last fomc meeting, a paragraph on why do we have low inflation and low unemployment at the same time . Most of the reasons brought up at the meeting had to do with the parameters of the phillips curve. 80 it is flatter now and maybe that nafta rate of unemployment is lower. It still points to a still there is still a phillips curve and when we drive unemployment low enough, we will get this reaction. They feel like maybe they are not there and we will continue going down our estimate as the natural rate of unemployment, because it does not look like were quite there. Since they believe that Monetary Policy works with long and variable lags, you can keep doing that for as long as you want. Unless there is something clear to show you, ok, there is a different way inflation works and we have to throughout the last years of very to acknowledge that. Theory to acknowledge that. Jonathan how important would it be to populate the fomc with people who are not traditional demandside economists to look at the situation a different way . It looks like a lot of the people in proposed for the fed toward our dashboard are more traditional board are more traditional and spent a lot of their professional careers developing. It looks like maybe we are headed more and that traditional phillips curve direction. It remains to be seen who we get but so far those are the indications we have. David lets come back to chair , i heard itech would be about Financial Stability which could be regulation, but there are ways in which Monetary Policy can affect Financial Stability. How much of a risk that we will not know that we have failed to hike when we needed to until it is too late and there is a real problem . I do not know if there is a version of too late, especially with inflation being too low, it may mean that, if the Federal Reserve does not hike for the next six months and they seem uptick in inflation, particularly core inflation measures, you get higher prices ,or things like cell phone data which has been depressing the core cpi over the past several months. You wind up with three hikes next year instead of three sites over the next year. It would be a slightly faster pace. That could create volatility in markets but is not necessarily have to derail the economy or derail risk assets like credit and equities. It does generate more uncertainty. Aybe that is a good thing the fed communication policy has subdued volatility quite a lot. Jonathan great to have you with us. Thank you. We are about 18 minutes away from the open with futures softer. Stocks softer yesterday and futures firmer this morning. Movers andou some crossover to abigail doolittle. Retail winners any premarket, tiffany shares up more than 2 after they did beat top and bottomline estimates, beating bottomline estimates by six cents to put up . 92 per share and samestore sales exceeded estimates. Lady gagas promotion of the new hardware brand is helping and that ating, i just heard first look at the results suggest there was not a disruption of their Flagship Store in new york, in the trump tower, security efforts have disrupted sales before but not this time around and shares higher. Williamssonoma up about 7 . After they also beat samestore sales, up 2. 8 by the same amount sequentially. Much better than what analysts and investors had been looking for. It appears great was driven by pottery barn and west elm brands and deep with their digital efforts. Some could be a short squeeze. Finally, yes, sure guess, . 94, up 40 , earnings by it represents a return to profitability. Stock was upgraded over to a long from a no position. A practical Rating System at ever core. , we will have a former United States ambassador to germany. And an interview with the dallas fed president from jackson hole, wyoming. This is bloomberg. Trump if we have to close down our government, we are building that wall. Let me be very clear to democrats in congress who oppose a border wall and stand in the way of border security. You are putting all of americas safety at risk. I do not think anyone is interested in having a shutdown, not in our interest to do so. While we work on doing what we said we would do. Which is to control our borders. You do not have to choose between the two. David that was the president and paul ryan with different views about a Government Shutdown. It is not just the border wall that could shut the government down, many republicans concerned about increasing the federal debt. A time not so long ago when ceos share that concern about the deficit. They change their tune after donald trump was elected president. Wall streets worst from deficit panic, some of the same people anxious about the debt sounded delighted by Donald Trumps plan to cut taxes for corporations and high earners. As a way to fuel growth. Max is here in person. What is this, flipflopped for the ceos . You said it perfectly. Five years ago, around the time i first got to bloomberg, ceos of banks and private equity firms, it is not like they love chatting it up with the journalists. They did love talking about and would call me to talk about was the horrible apocalypse facing our country if we did not get the fiscal house in order. They would say, you have kids and future generations, this is a big problem. I think it is fair to say it was their number one political issue they cared about. The donald trump tax cuts, even conservative estimates, the Tax Foundation which leans right, say it could cost trillions of dollars. But the people i talked to across wall street are really excited about it. David lets be fair to Lloyd Blankfein, jamie dimon, might they say, if they were here, we were concerned about entitlements, social security, medicaid, which will kill our children and grandchildren financially. We are not talking about that. Only fair to bring that up, Lloyd Blankfein would say, in 2012, we were facing 2012 problems. Today, the picture is healthier. I would point out that five years ago they were warning about problems that they said were longterm. Those longterm problems, if you believe them then come exist today. Although they still talk about spending, back then, they said they would be willing to they more in taxes to solve this. Someone literally asked mr. Blankfein, if you had to pay 5 more and he said, who would be nonpatriotic to not a more. The pland trump he and Steve Mnuchin and gary cohn said, personal taxes and Corporate Taxes will be cut. And the alternative minimum tax or estate tax, those common one version of the plan will be gone. Jonathan 2012 was different in the United States and in europe with a debt crisis. The points you are making, the longterm points that have kind of gone missing and corporate United States, Corporate America , still in the Republican Party. That is a fair point. There are some republicans who worry about the deficit. I have to say that, what just happened this week, the discussion of the afghan war dragging on for longer, there is a huge loss part of the Republican Party that love spending on war and the militaryindustrial complex. If you will hold everyone to account, you have to take it the consideration that there are certain kinds of spending that everyone loves to do. David also certain kinds of cuts you love, if it hurts someone else. So true. Jonathan great to have you with. S, thank you for joining us it proposed tax cuts may give investors something to cheer about what the president s threat to shut down the government is sparking concern across the globe. s worst day in nearly a month and treasury yields went to their lowest level since june. In a chiefets bring Market Strategist from new york. Something we have to explore for a month, how significant to the event risk to be at the end of september . In our view, we have talked about how in the shortterm treasury market for the last in the shortterm treasury market for the last month when trump said he would have a possible default because of the debt ceiling debate in october. This change of use between the house, the senate, and the executive branch is creating stress in the tbill market or emerging stress in the tbill market which bloomberg has reported on today. It has exacerbated by the fact that the money market rules that change forced the money market into the tbill market and makes it that much more of an important deal. I would totally debate that any republican or hopefully any american leader would actually want to spend for war. They want to spend for defense and the potential to win a war. I would hope that none of us, republican or democrat or congressional leaders, would want to spend for war. Jonathan we would hope the same thing. At the end of september, the markets, no one expects or anticipates the u. S. Will default on anything. The symbolism that we are having this conversation has got to mean something. So many investors talk about how we priced out the trump put, breakevens have rolled over, treasury yields have rolled over and small caps have rolled over. Is there anything else that needs to be taken out, if so, where . The indexes, we have a target of 2800 for next year. You have a synchronized Global Recovery and a Corporate Credit market that is still on fire with a record Corporate Credit new issuance. Investment grade corporate indexes are near the 52 week lows for debt. Nobody can say the credit markets are in trouble, could they see a worsening any the debt ceiling debate as we go through a market correction, yes. The fundamental backdrop is terrific with market correlating to the direction of earnings driven by Economic Activity and the slope of the yield curve which is still very positive. You have had two prior times of this debt ceiling debate that has caused this problem or fear and angst in the Treasury Bill market. Our new as a craft classed rather just brian has pointed this out in the past, both of those costs every corrections because the u. S. Will not default on his that. The risk that is perceived in the marketplace in the market that has not seen a correction in a long time, that creates an opportunity for a pullback in the major indexes. It has also happened in the individual stocks. Jonathan lets put out an index, what is going on fear of what will happen with global interestrate. You have had the airlines a rolling over of it. I have to be careful to say it is telling us something. [phone rings] sorry about that. Jonathan it is janet yellen. We have to be careful about transports as a leading indicator, they were telling us, when they were making a new high attribute market, we daytoday activity inappropriately two different things. Jonathan someone did not like to recall any market. Your call in the market. Lets go through the action as we count down to jackson hole. Yesterday was the softest section and today a come back with dow futures up 61. S p 500 futures positive six. The bond market, treasury yields have been grinding high throughout this morning and we stay there, up two basis points. Like. In the market light. Maybe you do not expect that ahead of jackson hole. A speech from janet yellen tomorrow at mario draghi with a speech afterwards. Muted price action in the fx market. You are watching bloomberg tv. Jonathan from new york city, this is bloomberg weber. Bloomberg daybreak. Gauges are positive, of a quarter of 1 on the s p 500 with the dow up 59 point. Political chaos, we talk about it but for the markets, does it matter . S p 500 for the week of three quarters of 1 , despite the nervousness. Volume light. Jackson hole tomorrow. Yields are creeping higher in the bond market. Muted price action in the fx market. A weaker euro and weaker yen story, pushing the dollar index up 0. 5 . To the open. Small gains for the dow, s p 500, and the nasdaq but small gains after yesterdays decline. Some of the uncertainty that investors have been demonstrating recently lifting a little bit but small gains may suggest investors are on hold ahead of jackson hole and especially janet yellen tomorrow. Lets look at the bigger movers on the open. Fiat chrysler higher by about 4 after republic of reporting they could be close to spinning off its parts business with shares surging 7 yesterday on a similar report. They say it is not a done deal but investors seem to be pricing it in. Turnaround,es have they have been lower in the post and premarket, now up slightly after eight beaten quarter. The reason they are not of more, the low end of the guide, a penny short of consensus. And analysts says it was a clean quarter. Up 1 up chipotle about. Expectations are bottoming and they expect improved marketing to help. ,ackson hole we could hear investors want to know about the potential unwind of the fed Balance Sheet. Chart, in blue, the fed Balance Sheet, after the myths of 2008 and 2009, soaring to 4. 5 trillion, steadying. As that occurred, rates going down towards historic lows with the s p 500 in yellow being inflated by that accommodation. However, the 10 year yield is firmly in this channel. If it stays in the general, it may suggest the unwind of the Balance Sheet may be slower than some would think but the chart would make it think unwind will be difficult to not disrupt the Financial Markets in a big way. Jonathan nice work. Have you ever been to chipotle . David once. Jonathan did matt miller take you . He is always talking about the long lines. Dwyer,re, tony Central Banks, the Balance Sheet and the project for indigestion in the markets. Set to remove accommodations in and the Federal Reserve already doing it with the only test are a few hikes from the Federal Reserves. When the done it alone ecb and the bank of japan continues to do a lot of heavy lifting in terms of easing. How difficult will it be for the ecb to step back and the fed to carry on hiking at the same time . You have had a synchronized Global Recovery which is Economic Activity now allowing for that kind of synchronized global Interest Rate accommodation withdrawal. I think we have to be careful and extrapolate that too much into equities at this point because credit is still widely available. Also, think about a year to maybe two years ago, how Many Research reports were written about how the only reason the u. S. Stock market has been going out is because of the expansion of Balance Sheets. That has not been expanding in the last couple of years. It is the same. You have had a little bit of a withdrawal coming. The market does not correlate to the fed Balance Sheet. As directly as it historically correlates to the direction of earnings which remains positive. Jonathan that is because the market was obsessed with concentrating on flow at the Federal Reserve in terms of the Balance Sheet but the stock has to be important still. The sock providing after qb ended. It is Corporate Credit that created the upside in the equity market. The historic issuance of Corporate Credit has allowed companies to buy back stock. We have a chart that shows, if you look back, the only net buyer this cycle of equities is corporate repurchase programs, Everything Else is basically nets out, pension funds, sellings on setting, passive investing. Out, it ist it all corporate repurchase programs which come down to the corporate debt market. I do not want to make the case that a lot of debt and too big of a Balance Sheet is good, it is not. We are just years away from it inning badly. A good thing on the horizons like many claim that it is. David stay with us as we turn to retail. From worst to first, whatever we say, some retailers are making a comeback, extending their rally today with better expecting earnings from the gas, Albuquerque Abercrombie guees, abercrombie, tiffany. Tiffany outperform today. Explain why they did well. Thank you for having me. Callny, with regards to line withey came in expectations, they continue to deliver high singledigit yearoveryear growth in terms of earnings. The first half of the year has been consistent. The full year, and regards to a growing high single digit rate yearoveryear for earnings. I think, even if you see weakness in the back half of the year, they can still deliver on Earnings Growth. David past tiffany, are there general trends . Highend versus not so high in . With regards to highend versus lowend, in the midst of a earnings, i would note that it is down to the company level. Company specific. I do not know if we are seeing a trend versus highend versus lowend gear cost go delivering numbers cost go delivering numbers that c costco delivering numbers. Across highend and lowend, ecommerce continues to gain share. Today, their ecommerce business for the last three fiscal years has not grown. This morning, on the earnings call, we heard ecommerce is starting to gain share within the tiffany ecommerce platform. That is the thread we are seeing. Jonathan so difficult to get access to the 5th avenue store. You have to go on the website. I am joking. Ish tiffany, the big story the strength of the dollar and how difficult it has been given their geographic footprint. How much of a tailwind was it . It is becoming a tailwind and not just a tiffany specific story. We are seeing this across the landscape for u. S. Names that sell into other markets. That applies for pvh,. Under armour Small Business in europe, they reported for the second quarter, on a reported basis, European Business was stronger on a Constant Currency basis. A meaningful inflection. Or the longest time, on a constant basis, numbers stronger. That is something the street is thinking through. For the back half. More importantly, for next year, fiscal year 2018, particularly we need to think about the currencies, particularly the euro and the renminbi, those will be tailwinds from next year. David specifically the move into ecommerce. I want to play something we just heard from bill simon, a former walmart u. S. Ceo on amazon going into whole foods. In theon is a powerhouse Digital Space and the online space and their acquisition of whole foods is a game changer. It is an admission that, without brick and mortar retail, they cannot accomplish what they want to accomplish. David this is another industry that is undergoing extensive disruption from digital. If you look at it from an investors point of view, are you better with bricks and mortar going into online or online going into bricks and mortar . I would rather leave that to an industry analysts, i am a macro guy. I would suggest it is proven you need a combination. Those going more in increasing their ecommerce exposure will benefit. The amazon deal is a game changer with whole foods. Standpoint, think about what we have been talking about. Tiffany is doing better with the weaker dollar a tailwind and europe is inflicting. All of this is the first time in the cycle where we have actually had an outlook for better growth all around. , 2. 5 growth throughout the cycle and starting to get companies that have this global diversification doing better. That will be a bigger story that will benefit the more cyclical sectors. Again, the only sector i can find historically that peaks and ative performance around is the Consumer Discretionary around the fed rate hike cycle. You will have a valuation headwind with a consumption tailwind. That will offset each other. Jonathan we have this discussion about retail with so much clarity and certainty about what we may or may not get but at the same time, price action following earnings this quarter has been violent to the downside and upside with massive price swings on the back of earnings. It tells me that the Investor Base is a big disconnect away from what they are seeing and the kind of numbers they deliver. Why are we having such big swings in retail this quarter . You are starting to see that increasingly over the last few quarters, real movement, doubledigit up and double digit down. T is around expectations they are a little bit off in regards to what the companies are delivering. With that said, i would say that for this quarter, generally, starting to see an inflection with regards to the points we just discussed, fx becoming a tailwind, europe seems to be doing a little bit better. There are expectations there is more money in the pockets of u. S. Consumers with regards to discretionary spending. I would also add, in regard to havemazon discussion, we noticed in this quarter is that the vendors, the brands, the guys who actually own the product, that means nike, amazon, tamerlan, a number of names increasingly talking about the partnership with amazon and taking it to the next level. David i am sorry to leave this on what may be a down note, Department Stores. You do not cover sears. They had another quarter which was really bad. Is there a future for Department Stores . Are the series of this world going to be around one year from now . I do not cover sears, i mainly cover the vendors, vendors are the right space to be. We will continue to buy clothes and shoes. With regards to the Department Stores, you are hearing across the space, the Department Stores delivering better numbers this quarter. Generally the trend is against them in the longterm in terms of traffic declines yearoveryear are consistently down. With regards to the vendors, the vendors are starting to parse out more about how the Department Store customers are impacting their numbers. Obviously, the Department Stores are down and the vendors are down. We are starting to see this isdwind for the vendors being offset by tailwinds with regards to new partnerships. Partnerships with amazon and in europe we have the equivalent of amazon for apparel and footwear. In asia, there is a lot of vendors that are global and talking about this upswing with regards to the possibility of growth with Ecommerce Partners while the Pharma Stores are declining. Time. An appreciate your 13, 14 minutes into the session, here is the action, small gains across the board with the dow up 1 10 of 1 and the s p 500 positive a couple of points. This is bloomberg. This is bloomberg daybreak. Tomorrow, mohamed eastern. At 9 00 a. M. I am david westin. Blackrock, t. Rowe price, vanguard, three of the recent funds to got there were valuations by as much as 50 . Ber gyrations by as much as 15 . 50 . Luations by as much as 15 . R says the 69 value it billion dollars violation shows it is it was in a lifetime company. Joining us is our Detroit Bureau chief. As we look to reduce the evaluation, are all the problems that uber is facing affecting the number of people using the service, or just a issue of reputation . Both, investors by a management story and travis is out. He was seen as the visionary. But theydifficult guy were willing to put up with it because he was there is one must character elon musk character. They still do not have a permanent ceo and investors do not know who will run it. That is part of it. Have pretty they big losses, negative margins of 35 . A 700 million loss or close to 800 million in lost. That is a big hit. Investors expect that but do not see them having a return yet. The business is growing but you have seen cuts and how investors view this business. Lyft, General Motors body 9 stake in that which implied a 5 billion night when General Motors last year was negotiating to buy it, they offered 5 ft look for other investors but did not find them. Investors are interested in this business, they see growth but are not really excited about it just yet. This is a bit of a correction and a bit of a wait and see. David who will run the place . Why is it taking it this long . We have heard a lot of names, jeff immelt . Sheryl sandberg. What is going on . Looking for a marquee name. Travis kalanick had a hold of personality cult of personality. They want somebody pretty big. Those people are difficult to find. There may be Something Else going on with uber and lyft. You have seen questions about how the business will be managed once you have robo taxis. You see a rental Car Companies getting involved. I think now, you are getting the second phase of investors saying, what about what are the particulars and how will this be run and who will pay for the cars and maintenance and depreciation once you have to own these hard assets . That raises questions for the future of these businesses and how much money they can make. Jonathan we have established from the ceo search, what the objective of the ceo is, to clean up the company or to get the company to go public . What is the objective for the next to the executive . The next phase for this company, we have seen startup money and fast growth in the early five years. Now, you do not need an entrepreneur with bootstrap ability, you need somebody to manage it professional, who can stabilize things and start to get costs under control and look for revenue opportunities. Get a Management Team built around him and ready for an ipo. David thank you to our Detroit Bureau chief. Check out tv to watch us online, check out our charts and interact with us directly. Go to tv on your terminal. This is bloomberg. Jonathan central bankers head to jackson hole been well we are watching, and interview with dallas fed president Robert Kaplan at 10 00 a. M. And janet yellen later, 3 00 p. M. Eastern, mario draghi. I think his these may be more important than janet yellen that his speech may be more important ians janet yellen been will be paying more attention to mario draghi. Yellen not expect janet to be seen saying anything. Jonathan joining me is michael mckee. You have spoken to Esther George, the host of jackson hole. What is the tone of the moment . The anticipation for tomorrow towards janet yellen or mario draghi . Economist, i will take both sides of the argument. Mario draghis may be more interesting in that he bluntly, more directly he speaks more bluntly and more directly, something people are interested in. He could talk about the ecb withdrawing stimulus and make the argument, even if he does not provide details for tapering , it is time to get out of the stimulus business and start ratcheting it back. Janet yellen academically and talk about Financial Stability and how the markets are overpriced, which would get everyones attention. That is not her style. If you are asking me which one has the potential to make the most news, i would say janet yellen because, if she were to talk about an overvalued market that worried the fed, that would have a big impact on wall street. Jonathan the theme of this is fostering a dynamic Global Economy. Whatever that means. There has been a Research Paper behind the scenes, something people looked over the following day, anything that is becoming the hot topic of the day . Michael nothing that has been publicly released. You will see over the next couple of days is a debate focused on the shortterm versus the longterm. The Central Banks around the world need to start withdrawing them it was in the short run. What does it mean for the longer term and sustainability of the Global Recovery. And how do you build on the growth of their is . That is the big conundrum. If you leave rates low, you risk Financial Stability but if you raise rates, you start choking off the twoperson level we are seeing around the world, when everybody would like to see it higher. David the honest, will you just go find a horse and ride into the distance because that is what i would do . Jonathan of course he is. Michael with my fishing rod. Jonathan he pretends to go every year to pretend to interview Central Banks bankers and gets his expensive written off. A 10th on thedown dow and s p 500. Thank you for watching daybreak. The coverage continues right here. This is bloomberg tv. Got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Find your awesome with the Xfinity Stream app. Included with xfinity tv. More to stream to every screen. Youre searching for something. Whoooo. Like the perfect deal. On the perfect hotel. So wouldnt it be perfect if. There was a single site. Where you could find the. Right hotel for you at the best price . There is. Because tripadvisor now compares. Prices from over 200 booking. Sites. To save you up to 30 . On the hotel you want. Trust this birds words. Tripadvisor. The latest reviews. The lowest prices. From new york, im vonnie quinn. Mark welcome to bloomberg markets. Vonnie this employee of at jackson hole is underway. Stocks are lower but first we have breaking news. Breaking Economic Data in the United States. Abigail existing home sales looking at a bit of a mess. They were looking at 5. 5 million homes sold in the month of july, but it said 5. 4 million. Here iit represents a month over month decline. They call for a. 5 increase, instead down 1. 3 decrease. Not much of an influence in the major averages. We have very small declines for the dow, s p 500 and nasdaq. Prior to this report we were looking at small declines after opening modestly higher. A bit of flipflopping alread