Transcripts For BLOOMBERG Bloomberg Go 20160712

Bloomberg exclusive, three hours to set you up, but first, a look at the markets. Yields moving higher from here. Mark lets get you up to speed. Futures on the front foot at the moment, firmer on the s p 500 after yesterdays alltime high. Look at the moves in japan. The nikkei up by two point five Percentage Points and it is a twoday rally up over six fourth Percentage Points. More stimulus potentially from the japanese government. The nikkei rallied and the yen declined. Weaker japanese yen and the dollar yen trading with a 103 handle an approaching one of four. Cable rates gaining as well. The pound doing very well. It is a firmer story for risk assets, but this is what i find the most interesting. We talked about highly correlated markets, equity markets at record highs and bond yields at record lows. Today is different. Equities on the front, bond on the back, little defensive. Yields going much higher. 30 year yields up seven basis points. Yesterday, there was an auction of threeyear notes. Today, we get a treasury auction of the 10 year. Look out for that auction and the demands there. The market has been reacting to it. Aroundor now, lets go the world and check in on a Bloomberg Team for indepth coverage of our top stories. In new york, record highs and john in london on theresa mays imminent appointment as Prime Minister and mark carney speaking this morning. Plus, the European Finance minister meeting today and, kinsey in beijing on the historic ruling in the dispute over the South China Seas. I went to start off with the stock market record yesterday. Danny, s p 500 futures trading above that closing level, which was 2137. What is driving that higher . Are higher this morning after the s p 500 posted alltime highs yesterday. What kicked out the rally was the jobs made do on friday, which was better than forecast trade that bind the Economic Outlook without increasing the odds that the federal would move. What that really has propelled are the more economically sensitive sectors. We had financials, industrials, Technology Leading the gains yesterday, which is reversed with what we have seen this year when we have had safer industries that have led the gains in your today with utilities and telecom, which were the trading. Big question is, can stocks keep rally without banks . 30 stock and s p 500 are below the record high in 2006. Dani you have to keep in mind that we have bond yields at record low. We have sort of a scarcity of fixed income around the world, which has led a lot of refugees pouring into stocks that are not necessarily based grade you have low volatility stocks, quality stocks, dividend payers, which have been propelled to alltime highs and investors will look at Corporate America on whether or not we can get higher and we had a good ticket that you share with good earnings at about collect. Alix and Bank Earnings taking on thursday. See why. Thank you. Of course, you cannot talk about you cannot not talk about the turmoil. Jonathan as david put it, a layer of uncertainty has been removed. We now know who the Prime Minister will be with theresa may. I wanted to bring in john fryer from london. We know it will be theresa may, but i guess that is all we know. What do we need to find out next . John basically, we need to know now who is our team . You would say the most important person that the city wants to know about this he will be the next chancellor, and of course that appointment will remain important. There is an added dimension that we need to know who will head up the brexit negotiations. She has said that her brexit will come from the probrexit team and that will stop a number of people come so that is what people are looking for over the next 36 hours. She will be appointed tomorrow evening and then after that, people will want to know the remaining appointments. Meeting onhe thursday, the market has been building up expectations about what may or may not happen this thursday, but Governor Carney going in front of the committee and people in the United States thought they would go against congress, but this is incredibly political. I have not learned much about Monetary Policy or Financial Stability looking at it today, but i have just turned politics. What have you heard from Governor Carney and the committee so far . That it saw perhaps will be taken out of the brexit debate. Carney came in for a lot of criticism four understating the risk of brexit, but this is a problem that will not go away. No one is sort of thinking about another bank of england governor, but there is the question of whether mark carney will stay or leave after the five years or you will serve a full eightyear term. Part of the conservative party are not letting people forget that he was very much in the remaining camp and he was very much part of this team of giving severe warnings on what will happen in the brexit aftermath. Central bankers never liked to have the role politicized but his role now is politicized. John, we appreciate your insight. Governor carney has had an incredibly bad day over the last couple of months in terms of accusation. David he has been on most all alone in leading the government and now we will not theresa may, but there really has been no one. Jonathan one man standing. David we want to go to brussels , theying in Ryan Chilcote are meeting today, and one of the things we have heard about is the plight of the italian banks. As that of the agenda . Banks are not on the agenda, though i am sure theyre talking about them on the sidelines of the meeting. There are two stumbling blocks to getting a deal done with the them. Ld help the eu is divided as to how they should proceed. The second is that the italians are looking for something unusual. Come in the capitalizing their banks, protect bondholders, specifically, protect those subordinated bondholders. Theyre not supposed to do that. The italians are in a hurry because they want to get some kind of deal in place before july 29. That is when the result of a stress test comes up and theyre concerned that the results could show that a tiein banks are not in good shape and the could have a run on the banks. There is a report out this morning saying the European Commission, the eu, is talking to the Thai Government about how to protect the bondholders, so they could get something but not today. David why is this so important to the Italian Government to protect the subordinated bond holders . So therey interesting, could be as many as 50,000 of these bondholders. Most of them, and pot investors, and these are people that could put down as little as 1000 euros investors, and these are people that could put down as little as 1000 euros which they think is as a present of bank deposit with a little return. As the rules dictate, they are the first to lose their shirt, and then they go vote on that frenzy anduld push his government out of office. There will be a referendum in october november and italy and it is not about the Italian Government, but the Prime Minister has sponsored that referendum and he has said that gethe referendum does not voted in, then he will step down. He is very concerned about what gets decided here and protecting the bondholders and their votes. David thanks. Ryan chilcote will be coming back with us throughout the morning. Now we go to beijing with tom mckinsey about the International Tribunal ruling on the South China Sea. Please, tell us what was the ruling and why was it important . Right, thes Arbitration Panel but this is a significant ruling. It is a significant loss for china because it was a very clear bowling against them and in favor of the philippines. It says that china has no historic claims to the 80 , more than 80 , of the South China Sea that they claimed. Lineso says there is this that china consistently refers to that links to a 1947 map that gal basis and also that the spratley islands that they claim as well, china cannot claim the waters around them reefs andere are some they also accused that china has harassed the looking fishermen. A pretty clear ruling against china and we are looking for the reaction from beijing. David they said they will not recognize it, but to anticipate further action, such as military action in the area . We have heard statements from the Foreign Ministry and they have dismissed this. They have all along christmas the Arbitration Panel and they dismissed the ruling. They say that what we are looking for is any movement on the ground, in the area, and will they put an air Defense Identification Zone in place and will be step up patrols of their fleets . Any other actions, building a military facilities on the island set they claim . That is what we will be watching for. China, beijing says theyre committed to peaceful resolutions, as does the philippines. David thank you. Alix breaking news concerning opec. Rising oil demand will happen in saudi arabia will be pumping near record levels. This comes from opecs monthly report, saying nonopec supply will decline next to buy thousands of barrels a day, but Oil Demand Growth will continue. T about 1. 1 million that basically means opec needs to pump that much more in order to sustain a balanced market. Basically, you are seen oil prices not move that much, up by 3 on the day. Jonathan coming up, so much for the brexit selloff. S p 500 now add a fresh record high. The attention now turns to earnings. Whether the global rally trades up or down, next. This is bloomberg. Onathan i am Jonathan Ferro the s p 500 closing yesterday at a new alltime high, and markets regionally becoming increasingly correlated. U. S. And european equities, the most in sync by some 120 day correlation since 2012 following brexit. Joining us now is cio of center funds. James, great to have you. Lets start with our some of the markets have become correlated across assets and regions. Does that make your life more difficult when you try to buy that portfolio . James yes, it is a dangerous time to be an investor, i would argue more dangerous today been march 2000. Lets not forget the price that you pay for an asset is probably the most important decision that you make when purchasing something. Ignoring all the shenanigans, lets just look at the multiple on cash flow for the s p 500 on equal basis. That means the average Company Trades around 17 times gross cash flow. Even back in march 2000, that was nine times because excess valuation was really concentrated in the Technology Sector and not so much in the other areas of market. You even look at a balanced account in march 2000, you had a tenyear treasury bond on a 6. 5 yield versus 1. 7 today. Even if you said, stay away from technology in march 2000 and he wanted to concentrate on some lieu chip industrial companies, you could go to Lockheed Martin back then with a dividend yield that 5. 2 and it is less than half of that today. You see that across every asset class, even private equity folks. Historically, i started my career in corporate financial valuation and you always paid in private equity because of the discount of rocket ability six times are seven times gross ash flow. There at 11 or 12 times now. Given the fact that you dont have alternatives in fixed income, i would argue commodities and equities are dangerous place for investors. I think the price of hedging, although it does cost something, is a worthwhile endeavor at this point in the cycle. Alix im glad you mentioned price to earnings because i have a chart, 2021 for those of you who can pull it takes a look at the 50 year price earnings. Yes, we are high and we have been higher many times in the past. We tend to sort of loose site. E. Level. A record p james the only debate i would have is if you look at price time earnings today versus other point in time, i find it in better exercise to look at things on an equal weighted basis, that is the average company, so you eliminate the distortions of technology back in early 2000 or banking stocks and certain points when they are depressed, etc. , and when you and equal weighted basis, it shows the market is higher in terms of valuation today than it was back then. More importantly, pes give a false sense of value because margins today are at much higher levels than they have been in the past, and they have been rolling over. Lets not forget when you look at the market from its origins, the bull market in 2009 through today, the market was driven by lets just start with basics. Markets go up for two reasons, price and earnings multiples go up or down or onions go up and down, and from 20092013, it was driven by earnings. Since 2013, it has been because of pe expanding and not earnings. David there is a critical element in times ratio. If earnings are going up, the p e ratios do not look so bad. The question is, as we start earning season, what are we to . Ing james if you look at the market fundamentally on the trajectory of earnings that we are, i can make a better case for the s p 500 the net hundred and i cannot 2200. What i mean by that is if you look at what is essentially the kick in todays earnings, lets ignore this quarter because i think the market because of energy and so forth are expecting minus one Revenue Growth this quarter, but if you are looking at and applied growth rate, what the market is saying, earnings are going to grow for the foreseeable future, right now, that figures a little over 9 . Earnings have grown on a compounded races over the last five years at 8 . We have just been through what we thought was a recovery and an economic extension. We are at peak margins, which rolled over in 2014. A big contributing factor of earnings is the Banking Sector, and that to me is going to face quite a bit of distress because of the flat yield curve a negative Interest Rates, so it is tough to find growth and to find Margin Expansion in the market. Jonathan do you think there is real stress in the Banking Sector right now . How stressful do think it is and how bad can it get . James you have to step back. I started as a financial analyst in the late 1980s, and i think it is a bit back to the future now because when you look at banks, i think you just look at a shortterm perspective, particularly in the 2000 erik, you look at banks in the growth sector. I remember a seasoned analyst told me, how do you value banks . We are kind of back to the future in that respect because why . Lets give the banks and credit. Out of the recession, they were able to increase the return on assets back up to the normalized 1 , but the beauty of the Banking Sectors that you are able to leverage that at because of the increased capital cushion bins the regulatory burden. That roa of 1 , which translated to be 20 return on equity and give you a premium book value, is now in leveraged, essentially. That is why the trading is at depressed prices. The problems at the bank now is the flat yield curve is basically documenting earnings. A long time ago when i was at credit suisse, i used to run a global sector funds on top of American Funds and iran a Global Financial services fund. Anded to have a simple rule say, where do you find investments in various countries and i would say, well, in banking, you want to employ what i call the free 63 role, and that is fine countries with the yield curve dynamics allowed the banks to borrow at the percent from the depositors, lend out at 6 and they can be on the golf course at 3 00 in the afternoon and still make money. What do you have now . Negative, negative, how will anyone make money in that environment . Jonathan james, great to have you with us. Alix i am impressed right now. I want to go by gold. The race for up, the white house heating up and the new bloomberg poll has telling results about collegeeducated voters. This is bloomberg. Vid this is bloomberg i am david westin. The new bloomberg poll Shows Hillary clinton is ahead of donald trump in collegeeducated voters. This is one that no democratic nominee has won since eisenhower won. We bring in megan murphy on more of what this means for this is remarkable. I do not realize that white collegeeducated voters almost always a republican. Megan that is what is interesting. If you take in isolation that Hillary Clinton has a huge lead among collegeeducated voters and voters of postgraduate degrees, that does not seem surprising given the attack donald trump is taken in the race. You have to go back to eisenhower to look at another democratic president ial nominee that has won this demographic and it shows just how they are both really trying to dial into their respective strengths. Donald trump will look at this poll and not be surprised. What it shows is that Going Forward for him, the important thing is going to be to try to increase white turnout, the white working class, which has been his strategy throughout. It can get that demographic higher, he needs to bring it to the 70 and 80 , then the poor will mean less to him. If you cannot do that, because you are not stage together other demographics, this is a problem for him. David Donald Trumps approach is a whole new ballgame come all the rules are different and he will bring in all sorts of new voters that have not voted before. The rules of not held true so far. How accurate is he in his production . Then he is accurate in sense that when people say he has not turned up new voters, he has. He got people out to the republican primaries to a level we had not seen in many cycles and i do not think that can be underestimated. What he is having difficulty doing is turning out this sort of demographic that he needs in hispanics, latino, black, and that will be the real problem. Can he make any and roots there . David thank you so much. Tomorrow, we will talk about trump. Fundscoming up, property at the total of 23 billion frozen, so where are the opportunities in property as investors flee the space . That is next. This is bloomberg. Get ready for the rio Olympic Games by switching to xfinity x1. Show me gymnastics. X1 lets you search by sport, watch nbcs highlights and catch every live event on your tv with nbc sports live extra. Im getting ready. Are you . X1 will change the way you experience nbcuniversals coverage of the rio Olympic Games. Call or go online today to switch to x1. Jonathan this is bloomberg. An ugly picture in the city of london. Over one percentage point, the biggest move since june 23, the day of a referendum. We see the effects market. Lets get the broader picture for you. Equities gaining , we saw that in asia. A twoday rally of 60 Percentage Points. 6 full Percentage Points. In the fx market, you see the bullish tone reflected. The pound is stronger. The yen is weaker. Is a weaker japanese yen story , as the government will at some point deliver a stimulus package. Outside of that, this is the fascinating point for me. Equities rallied, bonds rallied alltime highs for the equity market. Today, a distinction needs to be drawn. Equity on a firmer footing. Bonds not doing well at all. 30 year yields up six basis points on a 30 year. We had a big move on the bond market a couple years. A step back today in this session. Youre looking at a couple movers. Alix games, cars, and movies. Lets take it up with games. Movendo, a monster today on the pokemon go release. The game is so successful, they are having to boost server capacity to keep up with traffic. P 40 in two days. Looking at cars, this is the almost 5 nce 2015, up despite the fact that profits are a surprise even though you had a one billion euro right off in one time cost. You have mercedes going gangbusters in this company. I want to wrap it up with movies. Two. S buying it is the first deal post brexit company. It says it is committed to the deal to buy carmike cinemas. Nonetheless, investors seem a bit worried this deal may be falling flat if amc is buying two others. Lets get an update on what is making headlines outside the business world. China has lost a Landmark Court battle over the South China Sea. The court of arbitration found that china has no historical right scenario. The chinese claim the entire sea and hass rebuilt runways. For the first time, bernie will Campaign Today with Hillary Clinton. This it will appear at an event two willmpshire the of your at an event in New Hampshire, and sanders is expected to throw his support behind clinton. Says thatobama expresident should attack the price of prescription drugs. The president laid out a Health Care Game plan for his successor. He writes the government should be able to negotiate prices for highcost drugs. He says subsidies to reduce insurance premiums in obamacare should be more generous. Global news 24 hours a day powered by more than 26 originals made a list in more than 120 countries. I am taylor riggs. This is bloomberg. David thanks. Our friend and colleague joins us now. Jamie dimon has written an oped in the new york time. He writes that we just for americans have gone nowhere for too long. This is part of jamie dimon announcing a race for the lowest paid people. 80,000 people who make roughly 10 an hour will be moved between 12 and 16. Tim a huge buzz this morning, and it reminds me of sitting in davos a couple years ago where aetna was way out in front of this. The ceo of ethnicities is ridiculous. We are paying people next to nothing. We have to change this. What i like about this essay is training calls it to to get people into entrylevel jobs and go from there. Some of the inspection they are doing and the training they are doing, the amount of money they are spending appears to be larger than the amount of the cost to give the raises. Tim it is a rounding error for jp morgan. One of the biggest errors they have is explaining how big they are, how they the operating income is, but what is great about this training money, it is a hunk of the Bank Business medium we ignore. It is a lot employees, whether at wells fargo or jp morgan, that have really been struggling with stagnant wages as mr. Dimon mentioned. Some of them going back to 1989. David what does this mean for the rest of the industry and more broadly . Will the corporations tim i would suggest getting out front on the linkage between flat out team morale, and it is gone. People are upset how little they are taking home. The idea of morale and linking it in further education, none of this works. Whether it is a bank or a Pharmaceutical Company o unless you get the education level going. David you have to wonder whether this ties back to the phon brexit vote in england. Tim i would build us with brexit. The rumors and the new administration, he will go to for. David jamie dimon will go to foreman. That is the only other johnny with it besides chancellor. Tim i thought it would be archbishop, but what do i know . The idea that jamie dimon is doing this is very much about mr. Trump, about senator sanders, and frankly about secretary clinton. This is about a political scream over lowwage and not knowing where you are going five years out or 10 years out. David thank you very much for being here. That was covering the morning mustread which came out of the new york times. Tim can i cut in line . David absolutely. At disney, we had a rule you could never cut lines. To any every day for bloomberg surveillance radio with tom king. Alix no cutting lines . That is shameful. Separate Property Funds in the u. K. Have 18 billion pounds of asset and all frozen withdrawals. Estate prices in the u. K. Could fall as much as 20 over the next three years. Joining us now is steve brown. He oversees 2. 3 billion in assets. You will want to put money to work, right . Where is the best value right now . We had rented happen a couple weeks ago, and what we saw was a 20 to 30 decline in and itoperty prices, rebounded 10 since then in the last two to three weeks, but the primary u. K. Property stocks are trading at a 20 to 25 discount. Many top names are lower leveraging 25 so they can make acquisitions. If there is a mass selling of offsets of some of these profit funds that close the door to investors, these are private real estate funds, not publicly traded stocks. Alix where would you be looking for value . This is actually an opportunity even though retail guys want to get out of it. Steve yes. The core or the class a u. K. Property stocks are trading at a 25 discount, and we believe the class a properties will tell you much better than the b quality. There was a property transaction last week actually. It was an Office Building with retail in downtown london. It closed at a sub three cap hit, which is a very attractive price. The buyer was a wealthy swedish institution bought it because it was highquality london real with the pound falling as it did, people are more attractive, but they followed through on the transaction. That says the meter is demand internationally for highquality london assets. However, if the u. K. Property funds are the story owning b quality assets and they need to raise funds, we can see values of b quality assets fall 15 to 20 from today. Jonathan i believe it was the governors building on oxford street. With a lot of this in mind, we have seen is a lot of retail money in these funds take all the money back. Big reductions. Do you expect there to be a lot more regulatory scrutiny or investors that are not savvy enough to appreciate when these are heavily liquidated assets . Steve that would please me. Are concerned about the future. They can sell it in one day. These Property Funds, if they sell to real estate investors, if they are concerned and they cannot redeem their money in a timely manner, that should be something followed up, but our fund has got with liquidity. With these Property Funds, i think liquidity is an asset, not a liability. Alix i was talking to one hedge in california, and he said it is going to be awesome. We are going to see a lot of investors go to california. Do you think this winds up bleedin leaving for investors ot of the u. K. . Steve i think it will be winners and losers. Post brexit, we have a lower growth, lower Interest Rate environment. The winners today have been the u. S. And parts of asia pacific, including emerging market asia. That is because of a better Growth Profile and the fact that lower rates whether it is the u. K. , europe, or frankly japan and the u. S. , supports real estate values because they are income producers. Some winners we have seen and soontobe so, the u. S. , emerging markets, asia, and to a lesser extent, japanese. , u. K. Loser category property stocks and the perception European Growth will slow down, too. Moving . Ery money sure. It is a lot cheaper today that it was a month ago. Jonathan you think about where the money is going to go and there is two reasons why you might want to invest in a u. K. Property. Just playing devils sure. Advocate. You have seen the yield get pushed much higher also. With the alltime record low yields almost everywhere at this point, there has to be an entry point for the u. K. Property to be attractive again once the dust settles i assume for american investors and elsewhere. You see if i yields as an entry point that is attractive. Steve the class a property stocks are an attractive entry point today because we are 220 g at a 15 20 discount, to and they will attract an international bid. We expect written to be flattened down in london over the next 1218 months, so you will see flattened down rents in the next 1218 months 12 to 18 months in london. In terms of buying u. K. Property directly, we think those prices will drift down over the next 12 to 18 months. Alix the more we talk, the more i think we hear gold. Thank you so much. Coming up on the program, chinas prestige is a rising that at a rising global power took a blow. We will discuss the ruling of the South China Sea and what comes next. This is bloomberg. Alix this is bloomberg. I am alix steel. Coming up in the next hour, kid will join us talking currency stocks that new record highs. In a pot a. M. Eastern on go 8 00 a. M. Eastern on go. Mercedes is moving closer to his goal of being the bestselling luxury carmaker. Rip citys sold 20,000 more vehicles than bmw in the first six months. Bmw has been the bestselling luxury brand for a decade. The head of a bank is signaling job cuts have come to an end. He spoke to bloombergs Erik Schatzker about the size of the workforce after thousands of jobs were eliminated at the swiss bank. At this point in time, i think that we are exactly where we should be to face the environment that we have, to face the regulation we have, to face the voices that we have. Now, at this point in time, our challenge is to execute correctly what we have in front of us. Fewaylor there are a caveats. Regulations could forced to cut more. Amc entertainment has agreed to buy two cinemas. The price, 1. 2 billion. By european chain is owned that is your Bloomberg Business flash. I am taylor riggs. This is bloomberg. David thanks. We will go to china. It has lost one fight over most control of most of the china South China Sea. 5 trillion of trade passengers travel there every year. Joining us is a professor at the Harvard Kennedy school and ambassador to greece. Welcome back ambassador burns. Explained this to is because it is a bit obscure. It is a national tribunal, not necessarily a court, under u. N. Conviction. This is a very important decision. An important rebuke to the chinese. The chinese have been asserting since the nationalist government in the 1940s control over most of the South China Sea. That is incomplete various with china law. Today by theuling Permanent Court of arbitration, which is the Relevant Court essentially saying the chinese position has no legal standing. It is very important for the maintenance of International Law, which is one of the foundational points of our world today. A very important signal to china that they cannot run over the rights of small countries like philippines. The philippines was the country that brought this suit. David ambassador burns, often these International Law issues feel a bit abstract. This is quite concrete because there is a show about china has been building out land around and they have military presence there, dont they . Could that impede some International Trade across the South China Sea . Ambassador burns it could, and some of the great industrial economies of the world are in asia. Goes nearlystrait half of the container traffic and energy and gastric in the world so commercial fleets have to travel through the South China Sea. To be about to have their rights of not being impeded by Chinese Naval vessels also. American vessels have the right to express freedom of navigation. This is one of the most important Building Blocks of the world today and the last several years, freedom of passage, freedom of navigation. Todays ruling did argue that chinas legal claim is absolutely without foundation. They have been Building Military installations on the shoals in the philippines. They have been contesting the rights of indonesia, vietnam, and other asian countries. The chinese will define this ruling. From beijingsent they will not recognize it, but the pressure will be on china. Willme point, i think they go to negotiations because they are isolated completely internationally on this issue. David naval vessels going into the area, and it feels like it coming closer and closer to each other. What is the danger of engagement out there . Ambassador burns the risk would be of accidental conflict, and that the two might not be in communication with each other. You dont want to see that happen either on the high seas were in the air so there has been a great deal of work by the United States and china over the last year or two to increase transparency between our vessel so they know where they are at all times. Transparency between our vessels so they know where they are at all times. President obama has been sending American Naval vessels in international waters, what everyone else believes to be aternational waters, to make point in these exercises that every country has the right to transit through this space. Preventingcceeded in vessels from going through these waters, it would be a fundamentally negative signal for the World Economy and for politics. You spent your entire professional career as a lament for the United States. Anticipating what china is thinking about, what do you think the ultimate endgame is here . What you think they are trying to accomplish . Ambassador burns there is a great deal of nationalism now in the chinese public and within elements of the chinese government. What you are seeing is china is asserting from these ancient ancient times, these letters were under chinas control, and that is how it should be now, but that is incomplete various with International Law, particularly following the second world war. The chinese are struggling. They dont want to be rented and international outlaw, but that is what this ruling today essentially says. They have to placate their own population and nationalist elements of the government. This is a very difficult balancing act for their president. With the United States will do is try to encourage china not to react in a harsh way, not to have for instance a Major Military exercise or declare there is autonomous air zone china would control, and hope that persons will cool at passions will cool. David thank you so much for being with us today. Nicholas burns, a former undersecretary of the u. S. Alix coming up, it is but versusbezos buffet bezos. We will compare the two in office charts next. This is bloomberg. Alix it is a big battle in off the charts. Berkshire hathaway versus amazon. This is bloomberg. This white line is amazons market value. The blue line is Berkshire Hathaway. Just yesterday, we saw amazon slightly surpassed Berkshire Hathaway. Over 350 billion in ma market value. Why . Lets take a look at profit margins. You can see the difference between these two companies. No surprise, Berkshire Hathaway 11 where amazon has almost 1. 7 . We know that profitability is an issue at amazon, buy this in the chart is the reason why investors really want to own amazon. This is Revenue Growth. This blue line is amazon Revenue Growth coming in at 28 , and it is continuing to grow. Hathaway has really flatlined throughout most of the year and has actually declined since september. It is a really interesting comparison when you say, why would you want to own amazon without a lot of profit margins, and it is quite expensive . Growth,mazon is a huge and Berkshire Hathaway has the well over the last few years. Alix the moment of trading is really hot in the beginning of the year, but it died out a bit, but amazo. Jonathan coming up in the next hour, kit will join us to talk about stocks selling an alltime fx. S and volatilities in this is bloomberg. David global stocks rally. Kickoff on the right foot as they hit an alltime high word by the prospect of more stimulus. Jonathan the conservative party rallies around its new leader and the pound gains, but one layer of uncertainty is removed. Alix stuck between a rock and a hard place. Banks. Ing action on the david welcome to the second hour of bloomberg. I am david westin here with Jonathan Ferro and alix steel. We set you up for the u. S. Open with the s p 500 at a record high. Jonathan the global rally continues in the u. S. European stocks gaining for a fourth straight day. A bull market coming from a february low. Alix what do you do if you are an investor . Joining us will be kit juckes, global strategist, and he will give his forecast on the pound and the yen. How much more downside will we see . We will have exclusive interview with andrea orcel. First, it is a big shift we have seen in the markets here. We are no longer seeing the rally in stocks and global bonds. Jonathan a real shift i will walk you through right now, but the real news this morning is the risk across classes. We close the much higher in japan with 225 up by 2. 5 Percentage Points. Equities higher. A weaker japanese yen. You know the story. We approach 104, trading at 103. A weaker japanese yen. A stronger pound. It is the kind of risk you would expect to see on the fx market on a day like today. We talk so much about equity markets in the u. S. Closing yesterday at an alltime high. We have also talked about bond yields at the same time being a record low, but today, falling from very elevated levels, yields are pushing higher. Germany up five basis points. 30 year yield up by almost seven basis points so that diverges with stocks and bonds. It might be only one day, but it is a story worth paying attention to. Alix lets go around the world and check in with our Bloomberg Team for indepth coverage of all of our top stories. U. S. Stocks hit record highs. John is in london. Mark carney speaking early this morning. All of her, we went to start with you because the start somewhere around record edit s p futures are any indication, we could see another record high in the s p. Obviously yesterday, we had our core earnings kicking off with some solid numbers beating estimates. We are looking at a roughly 5 expected yearoveryear contract in earnings this quarter. It is getting close to breaking even. We know that typically, Analysts Expect lower numbers for earnings than what we actually get, so it is usually a pretty good time to be in stocks in the earnings season. The closer we get to breaking even and turning into positive earning territory, that will be a catalyst here. The other thing people focus on, even as we continue to hit new highs is the fact that there is a, bit of a lack of participation in the market. This rally came amid higher Short Interest relative in the past three years. It came amid outflows of funds. There is still convincing to be done in the investing community to get people in, convince them the market is solid. I would not be surprised to have these gays where we keep turning up to new highs. Alix i love the statistics. Who is buying . What is the support . All over looking oliver the two Companies Buying havehares we Companies Buying up shares. Stocks are not indicator for the market direction. Alix thank you very much. All of that starts in the u. K. Jonathan the politics. A layer of uncertainty removed yesterday. We know who the Prime Minister is going to be. It is going to be theresa may. Global investors, they know who the Prime Minister is. They probably spent the last 24 hours tried to understand what she stands for and what negotiations may be like in use Going Forward. What do we know so far . Not a lot so far. Theresa may is known for keeping her cards pretty close to her chest. We are probably going to have to wait until tomorrow afternoon to get any concrete sense of who she wants to put in these top positions. For ais a man tipped leading role in her government. He has been one of her allies for a long time. Also, the business secretary. He has been out in front the last 10 days or two weeks saying what he would do to fix the economy after brexit. Of course, there is another in the mix as well. Will you stay on tomorrows to give him another job such as foreign secretary . Today is supposed to be a quiet day, but tomorrow is when we are expecting a lot of news on our new cap. Cabinet. Jonathan on the politicization, taking another b beating from politicians. Talk me through the accusations being thrown at him and his defense at the moment as the chief of the bank of england. John this is not going away. Debate we saw in the run up to the referendum is continuing. He is accused of being too biased in his warnings in the runup to brexit. He was saying a lot of the things he was wearing about, the decline of the pound, the decline in business investment. He would say a lot these are actually transpiring. He says it is his job to tell it like he sees it on the economy. One of the lessons from this morning is that the mood surrounding the brexit debate, they are not going away. Going forward, you are going to see them playing out in the debate about what kind of brexit u. K. Should pursue. Sense inthis lingering the brexit camp, in the conservative party, that perhaps teresa is not to be fully may is not toresa be fully trusted. Theyre going to make sure she is pursuing as hard a brexit as possible. Jonathan thank you very much. What is fascinating about this is the International Investment community, but what is happening at the moment, whether it is in front of the press or whether it lawmakers, of aggressively asking questions about politics. U. K. Lawmakers asking about politics. He wants to talk about Monetary Policy. David it is an important job he has, but i bet he never would have expected this kind of job when he took his position. Jonathan no way. A lot of people talk about the luck of the irish. Wow, things are turning. David they are holding up well for him at this moment. Now we want to check on the European Finance ministers meeting in brussels. We know that the ministers have voted on sanctions for spain and portugal because of excessive budget deficits. Is this a slap on the wrist, a public shaming of them . Look, i think what is real about this is this is the first time the European Union as moved against any member to sanction it for spending too much money. They are supposed to be less , and in bothp cases, they last year were higher than 3 . More than that, the countries really have not delivered on the promises they made to the eu on cutting back spending and introducing structural reform, so they feel like they have these rules. They just introduced these rules. If they dont actually impose the rules, then what is the point. The other part of this is why they are introducing the sanctions, they are actually recommending the Commission Imposed sanctions. In all reality, we are probably going to get is zero sanctions. And other us, they are going to get a slap on the wrist as you said. They are not actually going to get fined for their behavior. Post brexit, no one here in brussels wants to embolden any of the antiestablishment parties in spain or portugal because they are concerned that if they are seeing as seen as really hurting his countries, people will say why do we need brussels . David come back to brexit. Since they started meeting, they have a new Prime Minister about to take office in london. Is there any reaction from the ministers over theresa may stepping in . Absolutely. I think they were pretty pleasantly surprised. The irish finance minister put it best, saying this is the first step in removing some of the uncertainty. There is still plenty. On the other hand, i am not sure it will move up the timetable for negotiations between the eu and the u. K. Because as far as i can tell, everyone is saying the u. K. Has to hope article 51. As you know, the soontobe Prime Minister of the u. K. Said she may not be that until next year. David thank you so much. Now, lets get an update on what is making headlines outside the business world. Taylor riggs is here. Taylor china is calling a Landmark Court ruling on the South China Sea null and void. The court of arbitration ruled china has no rights to the historic waters. China claims territorial rights to more than 80 of the South China Sea. It has reclaimed land and built runways and ports. President obama goes to dallas today two feet with families of five when Police Officers killed last week by a black man. He will speak at a memorial service. Is the time during his 11thdency it is the time in his presidency he will speak in a town devastated by shooting. Hillary clinton question in a demographic curshing donald trump in a demographic. White voters with a College Degree Hillary Clinton backed Hillary Clinton. Globaglobal news 24 hours a day powered by more than 26 originals made a list in more powereduntries. By more than 2600 journalists in more than 120 countries. Jonathan the s p sitting at an alltime high. Could earnings throw cold water on the market . Kit juckes joins us next with his outlook. From new york city, this is bloomberg. Alix this is bloomberg. I am alix steel. Recordhat was meant as closing high on the s p, but how long can it last . Joining us now is kit juckes. Kit, i wanted to share a chart with you that shows the s p versus the euro stoxx 600 and the 10 year yield on a normalized basis. It shows ever since the very lows, the s p has slowly gone higher. How long can the divergence last . Kit well, i think there is going to be a war in since that there is a point equity markets get people to say hang on a second. One day, the Federal Reserve will have to raise rates. Anythinganalysts, bear has been so beaten up that they will be very cautious, and the more cautious they are or the more reluctant they are to drive treasure yields higher, then the mood continue to run. Eventually, we Start Talking getting rate hikes next year, and we will discuss the thoughts that you can get a rate rise in 2016, biomass and that was given anybody until they see signs of something more serious. Jonathan we know it is the greenspan put so to speak. The very idea that markets rally and then all of a sudden there is a lid on that because the fed steps in a toss about hiking rates again. Looking at fed funds futures, 0 probability all the way through next year. Is that reality or a little bit of complacency . Kit i think it is a reaction to the way the market has behaved in recent months. People are not betting too much against it. I think it would change if you numbers. More strong after labor day, we will see where we are, and the market will make its mind up. I cannot see much happening on the inflation front to escape as over the next few months. Along,onomies tumbling and we are talking about a very slow, very careful normalization. Esther george yesterday it is notwas saying just the jobs numbers that made me not want to raise rates. She was quite hawkish in that sense. The market was not paying attention at all. It will take a fair amount of strong data to get the rate hikes, and prices in a couple for next year, does that radically alter the mood yet . Alix good point, especially when you wind up having the global bond yields still so low. They offset of that has been very record high global premium. It feels like a very unloved rally. How much longer can that dynamic player . Kit well, the risk premium i suppose in a sense has been european investors buying treasuries, everybody coming up looking for something to buy. In equity market, i have heard it said to me if we price in zero in zero Interest Rates forever, the right levels is infinity and equity market can go to the moon. That is sufficiently stupid that you have to put in a risk premium to come back to the real world, but the more we price in low rates for longer and longer, the better the risk premium has to be to keep the equity market just in touch with some kind of reality. David i wonder how much the Market Pricing and where we are right now as opposed to what we are anticipating Central Banks might do in the future, that is further easing. We had a former bank of Japan Official say just overnight that we can do in japan. It is generally became accepted the marketplace that there is not going to be any further easing present opens, what would that do . Kit i think people this is back to where we were last week. The market is on this narrow path between fear of higher rates in fear of the Global Economy hitting stall speeds, slowing to much. Much. O we were worried of getting very close to stall speeds last week. It is pretty narrow. I think that you do feel at the moment the bigger danger is that we get back to eatin being worried. We start seeing Global Economy approach stall speed and we have no ammunition and how much of a plan of what to do about it. That is what is given the market the most, but we have just backed away with it with the help of one statistic. David kit juckes is sticking with us. Next, we will spend time with him on the 5 trillion a day fx market. This is bloomberg. Jonathan this is bloomberg. Called thes yen todays drama queen. You have a much weaker japanese yen on the other side. The removal of some of uncertainty over her th who the u. K. Leader is in the kit juckes joining us from london. Todays drama queen, this one. When we talk risk gone, this is risk u. K. Kit juckes the. Gone. Is this the day trader in you speaking . Kit more of a day trader than anything else. Yenad a huge rally in the on fears about the Global Economy losing momentum on superlow u. S. Yields and the market buying the yen since the end of january 1 of bank of japan made a mess of cutting rates in negative territory. The brexit excitement to see the yen gain even further, today more so than yesterday. On the first day, we have seen news that slightly reduces the uncertainty, the yen is on the back foot as japanese investors go hunting for yield. The pound is on the front foot. The paltrow 150 on the day of the referendum down to 128, we have corrected 2 , 3 of that. That is nothing. The mood is right. Bright. It was my coming out of the u. S. Equity market. This will capture all of that sentiment shift. Jonathan before we focus on the yen, i want to focus on the cable rea quickly. Where is the attractive entrylevel to get short again as far as youre concerned . Kit between 130, 135 was the best answer for myself this morning. There is no science in that. I would like to play out some of this. We have a probable rate cut this week that most people are expecting. I dont know if that will be too negative, but having gone past this one level of uncertainty, we still have uncertainty about the timing of invoking article 50. Uncertainty about the nature of the negotiations that start with europe an. I will play out for a few days. It is more than a day trade, but it is not a week trade yet. Alix which brings us to the obvious selloff, how long is that . A look at Morgan Stanleys yen trade index going back to 2013, 2012, which is the first big round of stimulus from oabe. We are seeing a bit of a roll over in the yet now. What is the Downside Potential . Kit i have not given up the idea that dollar yen, having to 100, 115y much to 120 is not inconceivable. There is a good correlation between the dollar yen and the yield on inflation protected securities in the United States so between real yield and dollar yen. I have not given up hope of dollar yen moving high. Japan does still need a lot of help to get it out of his current predicament. David finally, Prime Minister is talking about a stimulus. Kit it is just a question of what else comes with it. The question is not whether we get fiscal stimulus. This is a new development with buys in Central Banks have for space on the grounds that euros are superlow. We can do more of this, vote was Structural Reforms come through . Jonathan kit juckes joining us from london. Thank you very much. Coming up, it is the brexit blueprint. How to manage the countrys transition out of the eu. This is bloomberg. Alix this is bloomberg. Jon a global bond market selloff. Equities have been rallying gains. A rally in europe continues as well. Dollar yen very briefly with it 104 handle. It is risk on. That means a weaker japanese yen and a stronger pound. In todays session, it is an equity market, but a bond market on the back foot. Germany 10 year yields up five basis points. A story weve been telling for a wild. For a wild. For a while. Taylor in southern italy today, two trains collided headon, killing at least 12 people. Dozens more were injured. The crash happened near the town of andrea. Rescue workers pulled survivors out of the wreckage. For the first time, Bernie Sanders Campaign Today with Hillary Clinton. The two will appear at an event in New Hampshire and sanders is said to be ready to formally throw his support to clinton for president. Newt gingrich may not end up as trumps running mate but could end up with a role in a trump administration. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Im taylor raikes. This is bloomberg. Jon italian officials, the Italian Government would like to recapitalize the banks, the European Commission would like them to do that without using public funds. Angela merkel speaking at the moment saying she is convinced the italian bank issue is to be resolved. Italian bank stocks rallying throughout the whole of this session. Can we finally find a resolution . Lets bring in jim milstein. Angela merkel says she is convinced that can find they can find a resolution to the situation. Jim this is more muddle through. The conflict between the state aid rules and the new Bank Resolution and recovery directive. The latter is like our own. Frankwhich has no dodd the state no writing a check to recapitalize the system as we did with tarp. They had been muddling through since 2010. My guess is there is a strong desire not to have another conflict with a member state. That could lead to further pressure for renegotiating the eu. They will muddle their way through this conflict between state aid and forcing losses on bondholders. Jon you get the muddle through and get that middle ground situation is that enough . Lets say they make this a fund to recumbents eight compensate. Is that enough . Jim no. The estimates vary. Books not ae complete writeoff, but a huge problem sitting on the bank balance sheet. The level of recapitalization that implies a significant and the consequence means 50 billion and a guarantee fund of another 150 billion euros would need to be employed. This is really one of the big problems the regulators are now confronting. This would be one of the first big valence done. Ins done. Wasting losses on bondholders and shareholders, but what we are seeing in italy is the bonds were sold to depositors. Toe sell subordinated debt largely to depositors. You are inflicting damage on the people that would otherwise be spending money. An agreement between italy and the European Commission over paschi she liked the yield and she bought it and all of a sudden finds herself in this situation. Some people watching the program say that is capitalism, who cares . If he doesnt win, hes gone. think they will find a weight jim i think they will find a way to muddle through here. Effect ofave an potential contagion assisted ecap, we could see open bank assistance. Which is what we did with tarp. David you know a lot of workouts. You were in the Treasury Department responsible for restructuring. A different sort of restructuring, brexit. They have to redo that deal somehow. How do you analyze where the levers are . The markets one day our 2d reaction to the vote today reaction to the vote two day reaction to the vote and next day, no reaction. The real consequence for a big member state like britain saying ive had enough, i want to renegotiate the terms of trade, whether it has contagion effects on france or spain or portugal of the laste path 50 years in europe has been one of increasing integration among the countries in europe. The eu has been the vehicle for that. The currency zone has been the latest innovation in that. A series of constitutional changes made over the years the voters in the eu are saying not for us. Their leaders who took them there have all resigned. We are getting new leadership. Leadership, the tories and the labour party, never thought the populists would go along. The European Union has to be careful in this negotiation as the brits did. You saw the statement of the big five or six ministers shortly , clearly,e they said there is a different ambition for integration among the member states. Headlonggnize that rush to integration among the states and centralization of government power is being resisted all over the periphery and in some of the biggest countries. Jon i wonder how this results in itself. In october, its expected that when we will get the referendum. If he loses that, we face a of how dol those guys get to the table to negotiate with u. K. With that as the backdrop . Jim i think you are looking at more muddle through effectively. The consequences of the disintegration of europe in the short term nothing will happen fast. These elections are just mandates for renegotiating the terms of trade. The benefits to the populations cannot be denied. The 1500s, cents Martin Luther nailed his theses on the door of the church, these people have been slaughtering through been slaughtering each other. In the last few years, youve had peace, with small exceptions. That has been unusual in the last 500 years for these populations. Economic integration has done the trick of moderating the nationalist impulses. Shares halted after rising 12 . The optimism is some kind of deal will get done with these banks. David i wouldnt be surprised to see some volatility. Unicredit down 59 this year. These banks have been beaten up badly. 2010, whenropeans in the banking crisis first emerged, took truly the muddle. Hrough approach the ecb extended extraordinary credit, but they never got around to confronting the need for serious injections of capital. The capital standards have been enforced but not as strongly and as rapidly as in the u. S. There is a real need for bank recapitalization. Led era of central bank negative Interest Rates is destroying Bank Earnings. Would hope what you a banquet recapitalize is through earnings over a , putting period government borrowing rates into reverse. That will penalize Bank Earnings. Alix profits, whats that . Profits, banks, i dont know. Jon jim millstein, thank you for joining this program. Credit suisse just released its latest annual survey. The numbers are pretty interesting. We will reveal the results, next on bloomberg. David this is bloomberg. Damon serve us will be here with his advice for investing with stocks at record highs. Zervos. I jon there is a Global Equity market rally. Alix three big names watching today. Tesla not doing much in we heard yesterday that perhaps the sec is investigating tesla that they did not fully reveal potential accidents with autopilot cars. Teslas as did everything we were supposed to do. Nevertheless, this is a stop to watch. Alcoa reported its earnings yesterday. Not that bad. The prophet Engineering Components Business Beat out the weakness in aluminum prices. Profit engineering. A welcome relief for alcoa. Wrapping up with seagate technologies. Jobs come up 14 of its workforce for 2017. They were originally going to cut 3 of its workforce. Three names to watch today. Recently, weve heard a lot about Pension Funds thinking about leaving hedge fund investment. Credit suisse has just released its annual Global Hedge Fund investor survey. Bob, welcome. Tell us what you found as you othered Pension Plans and Institutional Investors. We set out with a focused effort for our midyear survey, a followup to our annual survey which occurs in january. There was a lot of news around redemptions in the first half of this year. We wanted to drill down and get a better handle on where that was occurring and why. While 84 of these institutions we spoke with did indicate there was some institutional retention activity redemption activity come 82 said they would be reallocated to hedge funds. A very targeted, specific types of redemptions based on individual fun performance. Fund performance. 82 said they would recycle to other hedge funds. I believe what weve seen very much as a performance oriented marketplace at this point. Have thrown out the baby with the bathwater. Theyre having thoughtful redemption conversations around strategies that have performed. Funds holding their own commit hedge funds and investors continue to move forward. David its not just pensions we are talking about. Theres a variety of Institutional Investors you look at. Bopp we did find a difference when you looked at the respondents by investor type. Those many would consider to be the stickiest types of investors said they stayed put. Endowments stayed put them about a quarter. Bit of fund had a turnover. , a quarter of them stayed put. What portion of the overall market is fun to funds fund to funds . Bob maybe less than 35 right now. Some Institutional Investors ,ave money with fun to funds but those that have had a large retail component have shrunk a bit. David what about the hedge fund side . Was there a difference in the retention . Bob it was very much performance related and strategy related. We saw quite a bit of interest in strategies like equity long short, low net exposure, fundamental market neutral, global macro, all of which you can make the case for physician strategies position strategies. Even within the strategies come you have individual managers underperformance who did get hit with redemptions. David you do this survey quite regularly. How does this compare to past years . Bob the redemption cycle has been somewhat similar. Of people dont recognize is over the course of the year come Institutional Investors are constantly tweaking their portfolios. 84 of them actually did have redemption activity compared to last year as a whole were 90 said they had redemption activity. That is not unusual. What is more the focus now is how much of that money stays in the space. Weve seen the accounts of the Insurance Companies lately having made changes to their allocation model moving out. Picked up no largescale significant indications that any of these institutions are making changes. David how do you square that with numbers weve seen with funds coming out of hedge funds . Bob you in capital coming out of hedge funds. Youve seen capital coming out of hedge funds come in 15 billion moving out in the first quarter. Second quarter numbers not published yet come i suspect we will see something similar to that. There is money coming out of hedge funds, but it is being positioned on the sidelines to come back in for strategies and or funds individually that are outperforming. Coming up, a tale of two contango. Can a tale of two tan tango. Can tango. David this is bloomberg. Time for battle of the charts. We have a rematch today of alex deal versus scarlet fu in london. Topic,y favorite contango. This is a current contango. When it goes lower the prices are cheaper now than in the future. You have a lot of supply in the market. Last year at just around the same time, we also had a very widening big widening of contango. Oil prices last year followed the contango line and fell 31 from 60 to 41. Oil prices have not participated in this record high stock rally. The concern is this current contango we are seeing might be a rebound of 2015. Will we see another 30 selloff in oil . Scarlet im talking about Bank Earnings. The big banks begin reporting their earnings this week. Jpmorgan kicks it up on thursday. Wells fargo on friday. Were in the world are the big banks going to get Revenue Growth from . The answer is not Interest Rates. The white line is the 10 year yield. It reflects the rally in 10 year treasuries. The blue line is jpmorgan quarterly revenue. The fed we know is on hold this summer, probably this year. Cannon was telling laura keller, lower for longer has turned into lower for ever. The problem for the Banking Industry is a lot of these big players were generally position for higher Interest Rates until early june when you had the may its report come out, making clear that the fed will take a pause on normalizing Interest Rates. We dont know whether the volatility caused by all the credits is enough to result in any meaningful pickup in trading revenue for these big banks. Big unknown Lower Oil Prices or lower bank . Tocks now ise most newsy right chart, but contango this early in the morning, i have to go with alix steel. David alex deal wins for today. Alix steel wins for today. Will be with us for the entire hour. The u. S. Open is next. This is bloomberg. Jon from new york city, this is bloomberg. And futures are firmer Global Equities are rallying. A dekes in germany up by over 1. 5 . In germany up by over 1. 5 . Is a bondests me market on the back foot and equity market on the front foot. 30 year yields up seven basis points. Bonds coming into the market today that extra supply means a steeper curve in todays session. We will debate that as we count down to the cash open 30 minutes away. David we are just 30 minutes away from the opening bell in new york. This is bloomberg. Ubs, andrea or tell from david zervos and david kelly. The risk rally front and center. Itx it is risk on jon is risk on. London to new york. Lets begin with julie hyman in new york city. Julie a couple potential deals to talk about this party. Carmike cinemas and amc cinemas. This is the first big deal, multibilliondollar deal weve seen post the u. K. Votes to exit the eu. It also consolidates and growing petermcs empire. Theater empire. Continueit will pressing on with the acquisition of car mike. Carmike. This company has iron Catalyst Partners to explore a so after it got unsolicited takeover interest. The shares are lower this morning. Finally come alcoa, the Company Coming out and really reporting fromgth and its stuff made alumina business rather than its raw aluminum business. Alcoa shares up 5 . Abigail we cannot go a day at the nasdaq without a bio pharma mover. Depressiontum drug did meet the endpoint in the face to study. It is set to open about even with leering saying it is set up for the best case scenario. Tesla, one stock you would think would be moving after the of investigations over whether or not they should have had disclosures with the recent autopilot crash a secret master plan discussed by the line musk elon musk. You might think there is a turnaround here, the stock is down huge, 60 from its peak. The longterm threat could still work. Mark the longest stretch since july 1, the highest since june 23. 4. 5 . Risen by banks are up 3 . Among them, italian banks, unicredit, doubledigit gains today. Angela merkel playing down the italian banking crisis. Check out the correlation between the stock 600 and the xx 600 and thecks s p 500. U. S. ,e3 went down in the ftse volatility has plunged. Ends in a bear market yesterday. Look at sterling against the dollar in the last three days. The biggest gain today since june 20. That is yesterday when it became clear that theresa may would become Prime Minister. Since then, sterling has risen by 2 . Rally seeing a three day in sterling. More, david zervos is joining us and jeffreys chief Market Strategist at that chart us,avid zervos is joining jefferies chief Market Strategist. We love that chart. David people are coming back into stocks because they see Central Banks coming in quickly stop markets. Thats what we have witnessed post brexit. I firmly believe in the efficacy of qe come i think it works right magic, but im a little concerned that weve taken bonds to record low yields and stocks to record highs at the same time. Usually, bonds are supposed to hedge equities and what we are seeing now is what the Central Banks are doing in particular, what the fed is doing, running this very hot. The traditional outcome of that is not always a good. At record highs and im getting nervous about what the fed is doing. Im not sure that backstopping the world, backstabbing the yen, backstopping brexit, backstopping everything that could possibly go wrong in pushing the u. S. Economy into a heated place is the ideal scenario for buying right now. Jon which asset class are you worried about the most . David the developed markets have been the ones that have outperformed very significantly. That has lacked looks more interesting to me, whether it is emerging, whether it is commodity related. In particular the u. S. A lot hotter than we otherwise would if we do not have to care about a lot of other things, particularly yen and now brexit and one could argue the u. S. Election. Im actually most worried about the most successful things over the last seven years. David the uc and asymmetric risk in the s p 500 and do you see and asymmetric risk . David in 1998 and 1997, Alan Greenspan did not hike rates when a lot of people thought he should have. He became the maestro because that pressey and behavior pressey and behavior present got a huge bubble in 1999 into 2000 and a crash, i sort of feel today that we are doing the same thing with the fed come of the fed is telling you theres headwinds from china, theres headwinds from commodities, theres headwinds from brexit, theres always been a headwind. There is a reason to be positive come the efficacy of qe im just not so sure you are supposed to be doing aggressive easing like keeping the funds rate at 35 basis points when you have a 4. 8 Unemployment Rate. It seems like a little much to me. An accident potentially waiting to happen. Saying the bull market is over. Very well continue and a happy to participate in the bull market for the last seven years. Im worried that we are running things a bit hotter than we probably should for domestic reasons in the u. S. Alix take a look at the bloomberg here, the s p 500 p e areo the red bars recessionary indicators. Not as high as we were in other areas when pe was running much ter, but around 20 times that is a two standard deviation move. We arehe level that worried about or the move weve had, how quickly weve gotten to the very expensive level for the upcoming . David we have been here for the last year and change. Weve had these dips down to 1800, 1850 end that comes running back and and they n. Me running back i its not as though weve had some huge blow off, it feels a lot bigger because we gassed severed present thats 7 lower after brexit. The fed finally puts the brakes on to the point where the curb inverts come others too much taken out and ultimately, the excesses find their way back into the mainstream. Right now, the buying mode is excessesent and the after touching record highs could get even more excessive. I think you will be better off the developede of market equities, things that have performed the best in the last seven years and start looking at what has performed particularly badly. Has been sending me over to looking at em. Onid lets get an update whats making headlines outside of the business world. Taylor china is calling the Landmark Court ruling on the South China Sea nolan boyd. Null andoid void. Y have built runways and Hillary Clinton crushing donald trump in a demographic that the republicans have carried for decades. Voters with a College Degree back clinton over trump 4837 . Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Jon coming up next, we sit down from ubs. As jon Futures Trading Firm or come up about 11 for site er, up about 11 points. How many positions could be relocated in the next best Erik Schatzker posed that question to Ubs Investment Bank president andrea ocel. Good day to you, eric. Its been almost three weeks since that stunning vote and brexit remains the hottest topic for banks worldwide. Because nobody thought this was going to happen. Nobody had a plan. The conservative government in britain did not have a plan. No bank had a plan, including ubs. Thats why started the conversation talking about brexit and what it means for ubs. Most probably, we would need to consider moving a number of our employees to europeanbased locations. Remote booking from other countries which are not european. Nion based would not change the part of the business that is eu Business Done from london would be to be done from elsewhere. Erik were talking about 5000 people whom you currently employed in london. How many of them are we talking about moving . Andrea it is very difficult to tell because at the moment, the who deal with remote booking from other countries, people who deal with European Union my people who deal with u. K. Only, that will take a lot of work to establish what needs to move. It will be very much dependent upon the characteristics of the agreement. It will have a significant impact. Organization has plans to follow the we will have but to adapt and prepare for this. Rik one of the reasons why im trying to push a little bit because the world needs to know the implications for london as a financial center. Are we talking about happier people . Half of your people . Are they going to zurich or frankfurt or paris . Whena i do think that i say significant people come it would be a significant percentage. People, it would be a significant percentage. It would require a complete reassessment of our model Going Forward. Where would they go . I dont care at the moment. Im sure youve followed the french government and german government, number of casenments are making a for people to move to their jurisdiction. At the end of the day, they would like to import wealthy people who spend, who earned, who create jobs for their economies into their own centers. The choice will depend on infrastructure. Will depend on the nature of the deals one can have. With the shape of the rest of the eu will have at that point. Erik no passport and, no euro clearing in london means ubs will have to reassess their Business Model in europe. It is like unscrambling an egg. This uncertain future that the brexit vote has created , ubs does not believe it will have to cut more jobs. For the moment, it is done. The markets are a topic of your conversation. He knows Financial Markets better than almost anyone else in switzerland. Erik the s p at almost 2150 come upon yields at record lows, 145 yesterday. Andrea ocel thinks it is dangerous. Theres all this cash on the sidelines that has begun to move into the markets because everybody things the fed is on hold forever. Whats dangerous main does dangerous maean . Andrea if your question is how we are viewing this, very risk off, very conservative, very ready to take on the cost of being observed in the situation. I very large number of factors can move the situation quite dramatically quite quickly. Erik ubs is not holding a lot of inventory. It doesnt want to be caught on the wrong side of a reversal. Jon a fascinating discussion. You can find it on the bloomberg terminal and bloomberg. Com. Amazon creates its own shopping holiday, hoping to rival alibabas single state. Our consumers primed to check alibabas singles day. Are consumers primed to check out . David amazon is taking a page from alibabas singles day, holding its annual prime day sale. The retail giant sold more on prime day than it did on black friday. How big could this get this year . Davidg us is spoon a zervos. What is the goal of amazon . Is it to sell merchandise or get more prime subscribers . Get more prime subscribers. That customer is likely to stay prime. They dont give out specific stats, but they said it was the number one day of prime enrollments last year than on any other day of the year. Members grew 35 yearoveryear. They are having some difficulty with some customers checking out because of prime day. That could be a possible glitch or could indicate the magnitude of traffic. It definitely indicates the magnitude of traffic. The customer wants ease at checkout. Youes only so many times will hit that button before you give up and go away. About moreid to be than one million subscribers. It, butt disclose there is definitely a lot of prime customers. Prime i am a member of come i get the Free Shipping is it deeper engagement with their audience because you also get video and other services . It is critical to amazons business. Ableeason they have been to grow their sales is partly or mainly because they have been able to grow their prime member base. The fact that their primary base has grown made drives the repeat purchase. When you are looking for an item, you are likely as a prime member to go to amazon first because you know you will get it fast. Everyone wants their merchandise fast. Walmart is try to compete for some of that share. Dust trying to compete for some of that share. Trying to compete for some of that share. D david zervos. Rea oce opens and four minutes. Futures firmer. A weaker japanese yen. Yields higher across the curve on treasuries. From new york city, this is bloomberg. Jon this is bloomberg. Moments away from the opening bell. Features firmer come up 11 points. Fourday rally in europe, the dax up by almost 1. 5 . Equities gaining across the planet. There is the opening bell in new york city. At 131. 40. R pound the biggest pop on dollar yen since 2014. The bond market is fascinating could equities moving forward, bond markets going back. Lds of six basis points yields up six basis points. That is the situation across assets. We are on record watch again and we are getting another record for the s p 500. We the close yesterday are about that once again. We will see if it holds on intraday basis. Continues for a second day, at least for the moment for the s p 500 as we continue to see this risk on sentiment across assets. The dow also trading higher and the nasdaq catching a bit, up. 6 . We are getting into earnings season. Even though the broad prediction is for earnings to continue to decline, we are still seeing a lot of optimism reflected in stock prices. Gate, comingthe out ahead of estimates largely thanks to the finished products business, the step it makes from aluminum. Uff it makes from aluminum. Some of the companies we will be hearing from. Those three stocks are indeed up. We got some commentary around earnings from some of the airlines. American airlines saying income will rise in the second half of the year. Provided its Financial Update because it got a new permission mastercard. D alaska airs also coming out with its preliminary consolidated secondquarter revenue per available seat mile Second Quarter limitary traffic and capacity both up 11 . Our r donnelly xerox looking to acquire rr donnelly. Jon thank you very much. The s p 500 sending another record, the nasdaq in positive territory. Brexit nevere happened. Now, the rally in Global Equities, the correlation is fascinating. Joining us now is david kelly from j. P. Morgan asset management. Still with us is david zervos. Market will reflect one big fat etf. Just buy a bit of everything. Does it feel like that to you . David it does in the short run, but we should distinguish between cyclicals and defenses. This is a rally from the bottom in defenses because longterm rates have come down. The stock market has recovered. Longterm rates by anyek was so extreme valuation measure that rates ought to move back up here. The dow rising 0. 5 . Who is participating in this rally . Who is buying this . Bull markett hated ever, is it not . Weve got all this liquidity and the bottom market closed in terms of low yields, so this money is getting funneled toward equities. It has nowhere else to go. A great chart that illustrates the who is buying this point. U. S. Net Foreign Investment in equities. Negative since last september. The blue line is the s p which keeps rising higher. We are in a buyback freeze. Who is in there buying at these levels . Usual suspects. Money funds, Pension Funds come Insurance Companies, banks. And lower ands lower income generating activity from Corporate Bonds and the doing exactly what david said, forcing that portfolio balance channel that has been in place for the last seven years. The only question i have, why are we still doing it in the u. S. When we have a 4. 8 Unemployment Rate and we have largely hit our inflation targets . It feels like we are doing something a bit suspect in the u. S. The europeans have some issues. I can understand mark carney won it to the significant changes from brexit and the chinese wanting easier policies. The fed is doing it for others, but it is sending the wrong message here, i think. The money supply is growing faster david it is getting a little worrying to me. One thing this expansion has expansion is not always a monetary phenomenon. Moneyuge growth in balances this huge pileup of liquidity. Some of it will go into general inflation. Down iting up and might wake up. Jon yields grind it down into the floor. Core seen this on every market. David they been waking up the dragon with a sedative zero Interest Rate policy does not stimulate anything. Confidence ands certainty. You reduce uncertainty, you will get privatesector demand. What made the United States different from japan mothers not animal spirits in this country still to push demand up so that we get that bit of liftoff. We had a great article yesterday about the japanifica tion of the u. S. Are we looking at that scenario . The nikkei ataw it0 in 1989 and it went has jumped from 8000 again to 20,000. Property markets are still significantly below the prices in place in the 1980s. We reflected our assets but we have record highs today, house prices largely recovered. The japan story is a very different story from what is happening in the u. S. And what is likely to happen in the u. S. David if you are the ceo of a big company and your stock price is going up and up, it is a nice thing, but that is also a promise about future earnings. You could be in a heap of trouble if you dont deliver on those promises. Low, youtes are so leverage up and buy back your own stock manufacturing earnings per share. There istors, yes, if not much Profit Growth and not much economic growth, for investors, you do need to look around the world. Right now, this is a u. S. Story. We have limited room to grow. David it is a big change for me. Andtarted at the end of q1 i was tiptoeing into it. Im getting warmer and warmer to the idea that that is the place to focus. Is a debtme here expungement trade in the developed markets and it will involve a deep discounting in the value of the currencys associate with those developed markets. Associated with those developed markets. The u. S. Equity market bubbled up from 1998 into 2000 and ultimately crashed in 2001. That was the start of the em bull market that lasted for 10 years. These things come and go in cycles. A lot of our market in the u. S. Came at the expense of a pretty deep and ugly bear market in the yen. This idea that we all correlate together is not a particularly good longterm idea. At em economicok growth, what we think is going to happen is that gap is going to widen out again. Japan doesnt have room to grow. Europe does have room to grow. That should level out in the next few years. David zervos of jefferies and david kelly of j. P. Morgan asset management. These two. Kets with growing nationalism. This is bloomberg. David this is bloomberg. Hank greenberg, the former head of aig later today. Coming up, it is Bloomberg Markets. Its all about the risk rally we are seeing. Vonnie absolutely. We are talking about all of these indices are raising their post brexit losses. Also talking about the impending ftse 100 bull run. Withll also be speaking richards all done i will about the equity rally. Negotiating good deals for the u. K. And where we live at the International Airshow speaking with the pga cio about their interest in gambling. Thats all coming up at 10 00. Pick and in the sea and you will find a record. A closing s p is on an intraday basis record year. As dow has gotten there well. At least on a closing basis. If the dow closes here, it will be a record. Not yet on an intraday basis. Still, the fact that the dow has gotten there is definitely notable. The nasdaq positive on the year. If we look at the groups on the move today come Energy Shares are the best performers along with oil prices. A big gain there. Utilities, consumer staples, telecoms are lower. Cyclical led rally. Energy shares rising along with materials. Steelmakers have been gaining some ground as well. Still prices and shanghai rallying after a local government in the top producing robbins in china province in china ordered mills to restrict output. You guys were talking about amazon a bit earlier. The self designated prime day. Driving prime customers to sign up the shares little changed today. There are some disruptions being reported at checkout. Amazon saying it is working to resolve that issue. A situation to keep a watch on throughout the day. Equities pushing higher. The nasdaq positive for 2016. Abigail that is a pretty remarkable statistic you just gave there. The fact that the nasdaq is positive on the air. Back in february come the nasdaq was 1 away from an official bear market. Shire shares up after the fda disease its dry eyes drug. The stock may be one worth taking a look at. Huge doubledigit growth on the top and bottom line. Is soaringeutics this morning come up more than 40 on the news that its postpartum depression drug did meet the primary endpoint in a midstage study. Those losses are paired with leering saying the stage is set for the best case scenario. Alix a consensus here on the desk, you want to maybe be and emergingmarket assets. David zervos is back with us come along with david kelly of j. P. Morgan asset management. my movement away from the u. S. Is partially because i think that that is overheating the u. S. And partially because i think there is a rise in populist politics going on in all developed markets, led by brexit. If there is a clampdown on the Free Movement of labor and capital, the returns on capital would be lower. That is a risk to the u. S. Capital markets going into the november election. You have the rising nationalism come investing in an era of more populist politics, you have the latin american set of countries that are trying to throw populism out the window, particularly argentina and brazil. Hopefully something will happen in venezuela. Those are good signs to me. That theme of focusing on capital and Labor Mobility and open markets coming back versus were trenching from globalization seems like an interesting theory to pursue when thinking about emerging markets. Alix for you, wheres the value for emerging markets . David i think as earnings bounceback, people will appreciate that. Emerging markets and europe look better. You have a at valuations and fundamentals. The fundamentals are positive for places like india. The workforce is growing fast. If you look at commodity producers, they are so beaten down in terms of ice that any in terms ofn price that any stabilization you should have a good Portfolio Manager helping avoid landmines and take advantage of some of the opportunities. Commodity importers will do the best. The fed hikes at some point and all of a sudden, all heck breaks loose everything blows up. How do you factor that into an emergingmarket thesis . David the fed is like a friend who is always late. You are always wondering what excuse they will concoct. Will raise rates slowly but ultimately, i do not think that is a threat to emerging markets. This is a kneejerk historical it will of investors be so slow that people will refocus on longterm growth much more than what the fed might do. You only have to see a bit of movement in the fx market at a time when investors are very concerned about china for everything to come out of em david it is getting worse in terms of debt. They will be fine in terms of growth. At some stage, china will blow. Consumersage, chinese will end up absorbing all the debt and the chinese corporate sector one way or another. Will it be clean or messy . Im not nervous about a shortterm this is still a few years away. David zervos the fed is backstopping everything and forcing that access heat into the u. S. Markets at precisely the wrong time. I dont think they will do anything to drive the dollar higher. They dont want to go to the full featurelength film. For me, it is the same story, the fed is keeping the dollar week. Weak,ping the dollar undermining the credibility of what the fed is actually doing. Like a friends whos always late. Alix he remembers your analogies. David zervos and david kelly, thank you. Speaking of stocks from investors are not playing games with nintendo. Shares in soaring 57 over the last three days. Shares in soaring 57 over the last three days. David this is bloomberg. We want to end with talk about nintendo and pokemon. Nintendo stock shot up 57 because of this new game called augmented reality were people take their smart phones and go out into the real world to find these pokemon they can collect and fight against each other. By 14yearold son first introduced me to this on friday when he said im being summoned to this thing, he went to a park , engaged with his friends is or is this a fundamental transformation away from video games that are based in units that you buy to your smartphone . Nintendo market cap or has jumped 58 in just days. They have been busted because they were not licensing their programs to other consoles now, they have found a different niche. Jon can we put a fiveyear chart out . You beenhat take up all the way out on a fiveyear chart, the move has been absolutely huge. Are in investors saying i dont care about nintendo, you will care about that move. Gamingevery other venture is looking at this. Jon that does it for us today. Equity markets at alltime highs. From new york city, this is bloomberg. Francine bonnie this is Bloomberg Markets on bloomberg television. Vonnie were going to take you from new york to london in the next hour. Were covering global stories out of china and japan and brussels. These big stories. Season kicked off on the right foot as equities hit an alltime high. Chinas prestige as a rising global power suffered a major low. The efforts to assert control over the South China Sea were nolan voided. What is the greater impact . Nintendo has a monster hit. Can the popularity last