Transcripts For BLOOMBERG Bloomberg Markets 20160706

Trading day, lets head to the markets desk where julie hyman has the latest. Julie a mixed picture after opening lower but stocks recovered to some degree after the selling we saw yesterday, just in the past few moments, all going green, even just last time i checked my bloomberg, the doubt was lower. All switches the doubt was lower. Was lower. Will the fed discussed the u. K. Boat and should the u. K. Boat and it should be interesting. What is gaining and losing, the losing front, and what volume is showing, the 10 groups of the s p 500 worse is the 20 day average, overall volume up 5 , a surge in volume within the telecom. If you look at the telecom stocks, among the laggards, today is the deadline for bids for jan who and the final four yahoo airlines falling today, Credit Suisse downgraded a couple of an analystmerican, says it is likely that thirdquarter unit Revenue Growth will be disappointing, she says there is risk of further currency headwinds and lower trans atlantic yields because of the brexit vote. 4 andn trading lower by southwest getting caught in a downdraft, down by 1 . Strength from an unlikely source today. Julie health care and biotechs. This is a group that has been underperforming consistently, a oneyear chart, a bear market and then some, down a yearly 30 over the past 12 months, in todays session, something of a bounce back, if you look at the nbi to today, a gain. Individually, not just within biotech the within health care in the s p 500, specialty particle similar local companies pharmaceutical Companies Leading the gains. Matt we will check back in with you. The first word news. More from our newsroom. Downesident obama slowing the withdrawal of u. S. Troops from afghanistan, he said he is leaving 8400 military personnel at the end of the year to help Afghanistan Forces coping with what he calls a precarious security situation. President obama this ensures my successor has a Solid Foundation for continued progress in afghanistan. As well as the fights ability to address the threat of terrorism as it evolves. Said u. S. Sident troops will continue to focus their efforts on training Afghanistan Forces and counterterrorism missions. Frustrated republicans want to grill fbi director james comey and Loretta Lynch about Hillary Clintons use of a private email server, james comey slated to testify in an Emergency Committee hearing tomorrow, lynch will appear next week. She will face questions about her impromptu message meeting with former president bill clinton. Former british prime and mr. Tony blair responding to a new report that highly critical of the u. K. Involvement in the iraq war 13 years ago. He calls the decision to join the Usled Coalition agonizing and said he takes full responsibility. He says British Military and Civil Servants are not to blame for the many problems that developed following the 2003 invasion. Oscar pistorius has been sentenced to six years in prison , he was convicted of murdering ,is girlfriend three years ago prosecutors had asked for a 15 year sentence. His lawyer argued that he was only guilty of being irrational when he fired for bullets through a door killing his girlfriend. News 24 hours a day powered by more than 2600 journalists and in more than 120 countries. This is bloomberg. Thank you. Just two hours from the fed release of the minutes from its june meeting which happen before the brexit vote but economists say it Still Matters and could shed light on a shift in tone happening within the fed. Our next guest change his own fed outlook and slashed his yield forecast for the year from 2. 8 , one of the highest, to now. He joins us thank you for talking to us. You are not the only one who has to revise down their forecast, how difficult has it been to pretty yields this year . Really tough because i am looking at the economic fundamentals and it seems like the economic fundamentals are not driving the show in terms of bond yields, the central bank policy, not just with the fed but also on the qb going on around the world and market development, and certainly the brexit vote is the latest pickup in the road. The twoyear and 10 year yield is rising, how much has this to do with those manufacturing numbers that we got earlier today that showed strength in that sector . I think that helped, a Global People still trying to sit through the brexit wreckage a little bit but if you remember one month ago we had a bad payroll number and my thought was that people might tend to shrug it off as the date went on but we got hit that same day at 10 00 with the manufacturing. Umber, a month ago, very weak we saw a nice rebound today and that helps to give us a sense of the economy, certainly prebrexit. I have to correct myself, manufacturing composite for june 56. 5. Of the u. S. , worrying signs, italian banks look to be collapsing, if they are not bailed out or bailed in, that could cause contagion, the brexit concerns. They create so much uncertainty, people might stop investing, then negative yields all around the world and people continue to buy. Why would you expect why would you see this as a glass halffull situation . Especially in the wake of brexit, things in the u. K. And eu are up in the air, my view is that i do not think that will have a major impact on the u. S. Economy, the u. S. Fundamentals are good, the consumer powering ahead and fundamentals continue to be good, labor markets are ishtening, the u. S. Economy doing all the right things and brexit introduces more risk as the fed people have suggested. My sense is we will get through that ok. Matt what about the yield curve . I was looking at the cleveland fed series which is the 10 year yield minus the threemonth yield, i have it up here on my terminal, you can see it on the bloomberg, 19. 15 is the code, you can see we have fallen to only one percentage point difference between these. If an investor is willing to get paid the same for three months as for 10 years, that doesnt that Say Something bad about Economic Expectations . That has been the historical interpretation, you have to be careful because Central Banks are distorting these markets by intervening. The fed did a lot of qe over the last five years, now others are buying securities and driving yields down. I find it hard to sift through the difference between distortions version versus thatconomic signals markets have traditionally sent, i am not sure they are clean. Talking about economic signals, we have to talk about inflation and the fact that Inflation Expectations are not there, week as he and oil plateau. We could see an oil plateau. You are right, it Inflation Expectations are solved. Solved. Ame time are we have Inflation Expectations are soft. They will be moving higher on a yeartoyear basis as Falling Oil Prices in the second half of last year. And the Court Numbers which were running at 13, all of last year it now at 16 and also will continue to be higher forward. That clash between the data and the expectation numbers is something that will be interesting to watch over the next few months. Matt have we come to the end of the road does it feel like for Monetary Policy and need some real physical change . Physical change . If im running a diner and give discounts to bring people in eventually give to it away for free, at some point i have to redo the whole diner . That is what we need with global infrastructure. A lot of what the fed did in the later stages of the easing earlier in this decade was not very effective. Others have taken it father with negative Interest Rates and there was a time earlier this year when people got excited and it felt like negative Interest Rates were working and now i think people are becoming more disillusioned. Can the fed do anything contrary to what other central bank has done . To your original question, the broader issues in every country and major economy are not really demand based, they are supply based, that is something the Central Banks cannot do anything about. That entails fundamental, structural reform and various countries have Different Things they need to do that everybody has work to do. You, a pleasure having thank you for joining us, Stephen Stanley at amherst joining us. Coming up, our mystery stock of the day, todays pick is writing is best one day gain since march my going up from strong summer sales, it is trying to prove you do not have to be new to be good. Matt you are watching Bloomberg Markets. Lets go to the markets desk where julie hyman has the big reveal on todays mystery stock, here is a hint, it is writing its best oneday gain since march by ringing up strong summer sales, it is trying to prove you do not have to be new to be good. I should probably know this. Goodyear . Close. Something that resales part of its business is reselling something used. Autonation . Close, carmax. It has been helping the shares, they had been down over the past year, nearly 25 , an analyst today at a firm which is a Research Firm that used to be known as majestic research, says there is a strong increase in seen in thee have first two weeks of the fiscal Second Quarter. August,not end until the weather probably have a positive impact. That is helping the shares. Today, in contrast to the past year, up by almost 4. 5 , a bestperforming stock in the s p 500 or were earlier. Interesting reaction. Carmaxs salesf and profit from used cars first make up theed cars biggest proportion of it sales, two thirds, fleet sales, 19 , new vehicles ticking percent. Something else that could be the institute for supply management, nonmanufacturing report, it is a measure of Service Industries in the United States, faster expansion in june in seven months, that is something going into the u. K. Boat that show potentially a good sign for the u. S. Economy. Consumer discretionary shares, one Group Holding up well today, autonation, group 1 automotive and sonic, the auto portion of the equation, broadly Consumer Discretionary doing well. Matt thank you for the second date of car related stocks. A great sector to follow. Thank you. Time for a look at the biggest business stories in the news, the u. S. Trade deficit grew inmate by the most in almost one year, American Companies cars,ed imported more mobile phones, and industrial supplies, meanwhile, u. S. Exporters are still dealing with sluggish sales overseas. Matt for in home the u. S. Hit a threeyear low, sales to nonresident foreigners in the u. S. Fell from 54 billion to one 4 billion in the last year according to National Association of realtors, rising prices have made homes less affordable and the stronger dollar has cut into purchasing power for latin americans, canadians, asians, europeans, and britains. Definitely hear walgreens posted a quarterly profit that beat estimates, the drugstore chain was helped by cost cuts and rising sales of prescription , walgreens is waiting for u. S. Regular readers to approve its 9 billion takeover of rite aid. That is your business flash. Matt still ahead, european banks are taking another beating after the brexit vote, we will show you the chart that tells the story, this is bloomberg. Matt this is Bloomberg Markets. Turning to housing, another u. K. Property has suspended operations in the wake of the brexit boat, henderson has suspended two feeder funds with more than 5 billion in assets, this comes after three of the countrys largest Property Funds have frozen 12 billion of assets to stop investor redemptions. Or more i want to bring in jack setters. What are we seeing . The gates are coming down, investors cannot take their money out yet, not seeing these Companies Get rid of assets yet, are we . Liquidreal estate is not and it will take time for them to meet redemption requests. What is happening after the gates have come down on these funds, the managers are looking at the portfolios and thinking, what can we sell to raise necessary capital or get credit pay the order to redemption requests, now it is frantic, going through portfolios and deciding what is the most liquid asset, things in london which likely to be a bit more liquid, might attract International Investors who might be more in on monday and because of the devaluation of sterling. Matt are they levering up because when people start getting funds for their money back, they will borrow money to pay back the investors that want out, but the ones who are left over are left over with more leverage than before. Contextnk the overall is that these funds are very low if using they were punished badly last time around and have learned lessons. Happy to establish dealt lines in order to with these redemptions, whether or not that will be the auction they go for or selling assets remains to be seen. The expectation is these ,edemptions, most of them reviewed every 28 days, chances are they will be in place for several months in order to give them time to decide which assets to sell and then going through that whole process of selling a property which can take several months. Property prices, a chart that shows London Property prices in blue, the blue line going up to the volume of real estate transactions which has sharply inclined. Declined. Will we see property prices decreasing soon and how much threat would this put on Fund Managers . Ordinarily, you would expect a big falloff in investment volumes with followed by a followup on investment values, clearly the referendum, people were reluctant to put things on the market because word they may have to discount in order to get a bye so waiting until after the referendum, not that there was a lot of access in the market and not being bought, not as much on the market to buy. Interesting, a standoff between sellers and buyers, sellers who have it in their books and evaluations which is based on recent transactions which are all prebrexit, at a certain level, and buyers, if there are buyers who are thinking, if i will be buying into the u. K. , much more uncertainty, i will be looking for a discount. Our expectation is you will have three months of their a little happening before finally some investors go, we will put some stuff on the market because we need to sell to meet redemptions or because the year in is coming up and we have numbers to hit, then you will get a sense of where pricing is. There is a little bit of evidence that pricing could start to come off before the referendum. One of the brokers says they they publish a prime commercial yield and in april of this year, that went up relatively marginally, a few basis points but it was its biggest increase since 2010. There was some signs that we might be looking at some price drops anyway, regardless of the referendum which will not happen. Great talking to you. Thank you so much. Matt we have our chart chat focusing in on not the u. K. But europe. More specifically, the bank problem, the two crisis or the markets, the brexit and in what is going on in the Banking System in europe. Banks4, it shows you some want one italian bank, a british bank, unicredit in blue, Deutsche Bank in purple and barclays in pink. The interesting thing is the market cap dropped, after the brexit boat, they have already been coming down, european banks year toing crushed, date, drops of at least 27 , for santander but 63 for unicredit. The italian bank. Compare that to market cap of other companies, u. S. Companies, Deutsche Bank was less than snapchat worth less than snapchat. Out. I never figured that market cap growth lagging behind beverages, campbell soup, Deutsche Bank going in the negative when we are talking about market cap growth. , guy johnson scary was showing one earlier thats jeremy, nonperforming loans, it would scare me if i were a depositor in a italian banks, italy is the line on the top, the bottom line is u. S. , germany, the u. K. , none of these have nonperforming loans 3 compared to the entire books, italian banks have a percent of 18 of their books nonperforming. That is scary. We will be discussing more when Bloomberg Markets return. Shery live from bloomberg World Headquarters in new york, im a shery ahn. Matt i met miller lets get the headlines for the bloomberg first word news with taylor riggs in the newsroom. donald trump and Newt Gingrich are hitting the road today for a rally in cincinnati. May be a trial balloon to test chemistry. Once theaker paul ryan director of National Intelligence to deny Hillary Clinton access to classified information drink campaign. This comes as republicans continue to express frustration over her use of an email server during her time as secretary of state. Inquiryfficial british calls the invasion of iraq a failure. It criticizes Intelligence Services and the military. We have concluded that the u. K. Chose to join the invasion of iraq before the peaceful options for disarmament had been exhausted. Military action at that time was not a last resort. Taylor the biggest impact your reputation may be on tony blair who is responsible for britains involvement. Blair said he never used lies or deceit as a pretense to invade iraq. And the white man accused of killing nine at a church want charges dismissed. Charges they will drop if the state decides not to pursue the Death Penalty. State prosecutors are also pursuing the Death Penalty against him. Matt thank you. Bill gross has some advice for the fed take a lesson in credit from monopoly, the game. If only fed governors and president s understood more about monopoly and a tad less about liket historical models the taylor rule and phillips curve, our economy and its future prospects might be a little better off. Here is the latest outlook from janus capital. Theng up the same day as fed minutes which will be released in an hour and half. Joining us for a preview of what we might hear from the fed is john gills men and are and economist. Rg reputations expectations of a rate hike have in swept away after the brexit vote. Why should we care about the june minutes . Guest because we want to understand what are the reasons behind the downgrading growth projections and that is important to understand the feds thinking. Were on a campaign trying to boost expectations for a rate hike just a few months ago and all of the sudden, they decide to downgrade growth and move slower. Is it brags it or is it Something Else . Matt is it possible that the United States Federal Reserve lets little tiny Great Britain posco to leave the eu push them around as far as policy is concerned . Or is this a stanchion against global outlooks . Guest thats the question. I dont think the brexit will impact growth to a large extent, but we are hearing both sides. President williams said its not going to be that again issue for the u. S. That president dudley said it would be very important and it would be a big impact. If this is not just an excuse for the fed to give us another 200 as we pass go, it seems a fairly of fish fed, at least a fairly dovish chair. Do they want to do that which bill gross advises them not to . What bill gross is saying is that you need to get more than 200 to pass go for the economy to expand and low Interest Rates policies are having the reverse effect. Instead of increasing the money supply, they are leaving people to put money in their mattresses and save. Its hurting pensions, insurance companies, banks, and credit isnt growing. He says for the economy to grow, you need private credit. Matt so is he saying helicopter money . Guest he says helicopter money and as he has been saying for years, the fed needs to raise Interest Rates and get off zero and give an incentive for people to do more than save, to put their money to work. To get more than 200 when you pass go. Shery turn to the made jobs report. We have this decision by the fed but we had positive data from the nonmanufacturing composite. Factor into their decision and what are we expecting to see in the minutes . First of all, looking at the data, the data have been mixed. Very encouraging signs from the surveys, but on the hasr hand, growth decelerated. Maybe a lax impact from slowdown in growth in the first quarter. Think growth will rebound in the Second Quarter and we are seeing signs of that. But its not going to be something super great gross. By thehas been limited lack of credit growth and consumption, personal consumption growth has been limited by the lack of credit growth. So the bad numbers could be good news for wall street if the fed decides to take the data and make it rain. For is what hes pushing and they are not going to do that if they get good or just decent data. I dont know what the fed is going to do. But the needs to be more money in the system according to bill gross and that money could come from fiscal stimulus, like folks in washington saying lets do Infrastructure Investment or just shower people with money. Or it could come from the private sector which hasnt happened. People have not been borrowing because they are concerned about taking on risk. They have been deleveraging and the deleveraging continues. People say of times, things they think the fed should are goingn what they to do. Does bill gross think the fed is listening to him . , het a few years ago called the fed increasingly addled. I dont know how much attention they are paying to him. He only manages 1. 4 billion dollars, thats just chicken feed. Are for shrinking bloomberg word is for no fed hike in the next couple of years. It doesnt look like is going to be a rate increase coming from janet yellen. Shery tell me about the deglobalization concerned. Guest the brexit vote was part of that. People are saying we dont want our local economy did hated by an Internationalist Group and we want to limit immigration. That is something that has happened in britain and is going on in france. There are a lot of aspects to Donald Trumps campaign that appeal to similar instincts or feelings among people, concerns they are being left behind by globalization. Matt a fascinating story. Coming up at 3 00 eastern time, bill gross will be joining Bloomberg Markets with reaction to the fed minutes and his advice for fed chair janet yellen. Shery you are looking at live pictures of live pictures of Hillary Clinton speaking where she is questioning Donald Trumps business record. You can watch her whole speech at the Bloomberg Live go. This is bloomberg. Mark you are watching bloomberg. Lonnie another blow to apple in six plays, drops to losing ground in its biggest overseas market. Milan is close to being sold to a chinese group. On berlusconi assists insists on buying a buyer on finding a buyer. Vonnie is there a case to be made against the latest gold bull run . Apple is losing ground in the battle for smartphones. Buyers made up less than 11 of phones sold in may, down from 12 a year ago. While way has increased its lead with a 17 market share. Samsung is said to boost spending to maintain a revival across the country. They may boost Capital Spending by at least five billion dollars for its semiconductor units. The Smartphone Market shrinking, they want to build up other major businesses to bring out new products. Mark a transatlantic merger British Company agreeing to buy nor tech. A premium over their Closing Price yesterday. Melrose is an Investment Company that wants to benefit from the growing u. S. Construction industry. Brexit may be an opportunity for south america. Talks it is an opportunity because the European Union can expand. I think it is natural that we should work together. He has been pushing for a trade deal since he took office last december. Close burlesque own he is to selling his a seem a lot of football club. He says he has agreed to a deal with the chinese group. Titlesvent won any recently. Funny time for our Bloomberg Bloomberg quick take. Investors are turning to golden the global uncertainty. Is the boom and bust just another cycle or a change in appetite . Golds record high in 2011 came as the Global Economy struggled in the wake of the financial crisis. In late 2012, gold jumped 20 at the start of 2016 is turmoil rocked equities. Here is the background. The dollars pegged to gold ended in the 1970s, after spiking in the 80s, prices slumped in the following two decades, causing Central Banks to shrink their reserves. Investors flocked to gold backed afterge traded products they were listed in 2003. The bears say there are a few reasons to own it now because Central Banks have engineered an economic recovery without sparking hyperinflation. The dollar is another favorite haven and higher Interest Rates make gold less attractive because it does not earn a return. Throughout history, gold has proven its worth among the arsenal of investments. Olson say threat to the global stability is uncertain and gold is one of the few possible havens. For more stories, visit bloomberg. Com. A very interesting look at gold there, one of the places people run for safety. A more popular safe haven is in sovereign debt. Seen that trade ramp up, pushing the yield down as people pile into u. S. Yields. We saw the japanese twentyyear debt go negative for the first time. Seeing 10 year yields rise and german bond yields rise a little bit but they are at levels they have never been before. Basically hovering around record lows. 10 trillion of Government Debt trading below zero. Lets look at currencies because the japanese yen is strengthening for a second session. Since the u. K. Referendum, you have the pound sinking to a fresh 31 year low. We saw it climb back slightly. Now headed currency to the longest losing streak since february. Currently unchanged. Matt lets look at u. S. Markets. European markets down and the major averages started out red as well but you can see they have turned around and they are recovering. Averagejones industrial and nasdaq gaining. Shery investors have a lot to digest. We have the fed minutes coming out and about an hour and Service Providers expanded in june, showing a stronger u. S. Economy. Blow toead, a fresh apple. The smartphone maker losing ground in its biggest overseas market, dropping to fifth place in chinese sales. This is Bloomberg Markets. Im shery ahn. Matt im matt miller. Lets get down to Abigail Doolittle looking at some of the big movers on the nasdaq. the nasdaq higher by half a percent. It is a broadbased recovery. Only two major sectors trading lower. The best is coming from health care, reflecting the strength we see in biotech. The nasdaq biotech index up 1. 9 . Helping the Biotech Sector the up 3. 9 amidne, multiple reports of being one of three companies to have signed a confidentiality agreement with high growth a highgrowth biotech companies. Many see this as a first up toward acquisition and many investors believe this is a positive. Isther pocket of strength Randgold Resources with shares higher 2. 7 today. But on the year, they are up double for one a of the gold mining companies. This reflects a few factors. Gold is up 25 on the year and with all the volatility, it could be an indirect play for investors. Another pocket of strength here. High,r almost at a record matching its record high in 2012. Shery gold is seeing its best year since 2010, so that chart, does it offer any clues on what could be next for gold . Chart suggests a suggests an Inflection Point is ahead. This is a longterm chart and we see a nice uptrend, a bull market, in fact. We see the stock hitting resistance, moving toward that record high but this says theres a lot of selling pressure. Crack inmarket did 2011, so this suggests buyers have their work cut out to go above that level of resistance. Putting it another way, the strength we are seeing may not last, but we will have to watch and see. Sometimes the buyers can take out a strong platform of selling pressure that we see in that chart. Matt apple is losing ground in its biggest overseas market. 10. 8 ofnly made up all devices sold in china in may, down from 12 a year earlier. Joining us now is john butler, a Bloomberg Intelligence analyst covering all things apple and the hardware side of things. What happened here . They have not been number one a have in losing ground to the runnersup. John there are a couple of things that work here. When it rains, it pours, and it is pouring on apple right now. Lets start with the currency. Year ago 8 from levels. That makes it a lot more expensive. And you have better phones coming out of local vendors like huawei. Companies have done withy good job coming out lowcost, featurerich phones. And frankly, it is at the point where quality is getting comparable to the iphone. So it is coming down to price. If prices the problem, should apple target higher and consumers . Should they expand to the masses and cater to that audience . i think they out to do the latter. They started with the iphone and it is basically an iphone five s, but they updated all the specs. It is all current in that regard and has a starting price point of 399, so it puts them in the midrange segment. I think they have to do better in china. They have to get a lower market to compete. Should they move on to other markets like india because that is where the next phase of growth could be . indias a separate discussion. Its a different culture there. Everything i have heard is that it is a much more price sensitive coulter. You can see it in the average selling price. Above 275 in terms of the average price. I dont think thats the answer. I think the answer is to move down market within china. Like the ipad, i would like to see more product line extensions. Matt remember when apple used to innovate and build better products that were a cut above the rest . It is hard to get new and different on the hardware side. Shery coming up, bill gross joins us. About his latest Investment Outlook in which he told the fed chair to take a lesson on credit from the game of monopoly. . C sv matt it is 1 p. M. In new york, six p. M. In new york and 1 00 a. M. In hong kong. Shery welcome to Bloomberg Markets. From bloomberg World Headquarters in your, good afternoon. Im shery ahn. Matt im matt miller. We are talking treasuries out of tokyo and the Brexit Effect from london. Here are the top stories we are watching bond yields rise and fall and rise japans 20 year yield dropping. We will talk to Gary Shilling who is sticking with his or cast 41 on the 10 year and 10 on the 30 year for u. S. Treasuries. U. S. Apartment rent keeph slows and developers calm on highend units. In an hour, we will get the fed minutes and we will find out how much members were concerned by the may job numbers and the Brexit Impact on the Global Economy. Lets head to the markets desk where julie hyman has a look at the market reversals. It is almost across the asset class universe that we have seen a lot of turnarounds going into these fed minutes where investors are looking for insight. Here is the s p 500 starting its climb around 11 00 and going decisively positive. We did get data on the Service Industries which makes up the bulk of the economy. We did not see stocks go positive until much later. We saw movement in the 10 year note which hit a record low earlier in the day before it began a slow climb to little changed. Prices, whichil were battered yesterday and today, seeing a reversal as the day has gone on. Lets take aar, look there to see the movement a similar situation, except it turned lower. Now down about. 1 . All of this coming. All to the u. S. Averages, meaning we are in the green across the board. Pretty much in burning the moves we had earlier in the session. In anl see what happens hour when we get the fed minutes. Matt we also got a prominent note from a prominent market strategist. We could see a pullback of between 5 and 10 and perhaps see a lift to 2100. His note is titled flat is the new up. Essentially, the s p has traded more or less sideways and essentially, if we are going to have a flat year, thats almost a best case scenario. He says you are looking at a maturing lyrical cycle, decelerating buybacks and Political Uncertainty that puts pressure on stocks. He says return to positive but slow Earnings Growth and a lack of investment alternatives and a cautious said should put a floor under stocks. The average. Heres the s p. Heres the wall street average the average is 2154. To be fair, strategist have cut their forecast, but they remain steady since the big cut at the beginning of the year and have not trimmed them recently. Ont lets check in bloombergs first word news with Ramy Inocencio in the newsroom. John hickenlooper already has the job as governor of colorado but at the sun valley conference today, he told david gura in an exclusive interview that hes open to a new pursuit, running mate for Hillary Clinton. If you are someone who has if you are one of the people who can make a difference and your company and your country need you, you take it seriously. He has been the governor of colorado since 2011. President obama will slow down the troop withdrawal from afghanistan. Instead ofbama going down to 5500 troops by the end of this year, the united troopswill make it 8400 through the end of my administration. Ramy the president says the security situation remains precarious and the taliban is still a threat and Afghan Forces are not as strong as they should be. The department of justice is launching a civil rights investigation into the shooting of a black man in baton rouge. He was outside a convenience store. Police went to the store because he had allegedly threatened someone with a gun. The shooting sparked outrage and protests. The two officers have been placed on administrative leave. , thousands of people dancing and singing in the streets, dousing each other with wine. The festival starts with the mid they launching of a firework from the balcony. The famous running of the bulls starts tomorrow. And some news that just roca couple of minutes ago tennessee senator bob corker says he is withdrawing as a potential Vice President ial. Hoice for donald trump that is according to the washington post. We will have more as that news develops. Inocencio. This is bloomberg. The flight to safety is underway. The yield on the 10 year is hovering around a record low,at. While yields on 10 year government bonds in the u k, france, australia, japan have all hit record lows and many are negative. How much lower can they go . I called up my friend and noted president y shilling, of the company of the same name and now weve got him on the phone. This . Go much lower than is there a lower bound . Gary sure. Eventually. Although we have seen negative rates in europe and japan, so zero is not necessarily a lower bound. Over a year ago, my target for 32 and for the treasury, 1 , and we are closing in on those numbers rapidly. Do you think when we hit those numbers that we will turn around and recover again . Inflation is the odds on that. If you had 2 nominal yield on the 30 year treasury and 2 deflation, that would be a 4 real yields which by historical standards is very high. What i dubbed in 1981 as the bond rally of a lifetime and that wouldwas 15. 2 , be over. I have up until now never bought long treasuries for myself. I couldnt care what it is as long as it is going down and that treasuries have outperformed the s p by six and a half times. We are a lot closer to the end than we are at beginning. Shery i want to talk about the flattening yield curve. The spread tightening to the tightest since 2007. Red. N see the areas in do you think this is forecasting a recession . Gary probably not. Thats why i am not in the studio. But it is very different. Normally, the yield curve hasrts because the fed gotten worried about an overheating economy and jacks up short rates. We get a flat or inverted yield curve, it is quite different. The fed would be reluctant to go negative on short rates while you have investors driving down the yields on treasuries. Longerterm treasuries are attractive. Becausesafe haven yields are higher than they are in most relevant countries, so Foreign Investors get a higher yield and with a stronger dollar, they get a currency gain to boot. A lot of foreigners see it as a safe haven and if we are headed to deflation, that is another reason. Longterm yields will further flatten yield curves and thats tough on the banks. Banks have been relieved of the origination of securities, derivatives throughout proprietary trading and so on. Not been thats attractive, particularly when the yield curve is flattening and the yield curves are getting compressed. Matt let me ask you about stocks. Joe weisenthal put this together this morning and it shows the yield on 30 year treasuries going down below the s p 500 dividend yield. Shocking to me. Is this a sign investors might want to get into stocks . Is it paying more than the 30 year . Question is what is the yield telling you . This is goingow to come out, but i think if we look back on this in another five years or so, we will conclude this wasnt extraordinary time and was foretelling some things we dont fully comprehend. Yields aree lower foretelling that there are big problems out there, then the dividend yields on stock is not safe. You could get that compression because of dividend coming down. Yields could go down as stock prices go up but dividends could come down as well. Matt thank you for joining us. , stickinging their with his 1 forecast for the 10 year and 2 forecast for the 30 year. He has been right so far. Units coming up, luxury filing up in major u. S. Cities as growth in up hartman rents slow. How it is affecting builders enjoying a fiveyear spree. You are watching Bloomberg Markets. I matt miller. Shery im shery ahn. Now a time for a look at the is this stories in these right now. Frankfurt is a favorite destination for banks considering a move out of london after the brexit. German cities beat new york and dublin. The report says 77 of respondents expect relocation within two years and london could lose about 80,000 jobs. Henderson Global Investors is suspending it five billion Dollar Real Estate Fund over liquidity issues. Thesehe fourth asset right now. Frankfurt is a favorite destination for banks considering a move out of london after the brexit. German cities beat new york and manager to halt withdrawals after britains decision to leave the most watcd televisionit is considered to bf the gateway markets. You get a High Net Worth Investor Base and a base of customers you do not typically see purchasing real estate assets. New york functions is a little bit different. Seeing this are we happen . Guest a lot of technology markets, even california, where theres a perception that is difficult to build because of supply constraints and regulation, you see construction in northern california, in denver, in the big texas markets. A lot of the markets that were the leaders in this recovery are grappling with i would not call it a supply glut more supply than we have seen in the last five to seven years. We are showing urban apartment rents coming back down. Growth has decelerated. I thought rents grew by. 9 during the Second Quarter and it was a rebound from the first. Guest rents are bouncing back a bit. But if you look at it on a yearoveryear basis, you are seeing a bit of a deceleration. It thisds to happen and point, it becomes hard to sustain rent growth. Bloom is off the rose as supply starts to flood the market. It takes a little wind out of the landlords sale to push increases on to their tenants. Matt still ahead, the business of drones its not just for the military anymore. Now investors want in. That story is next. This is bloomberg. Matt you are watching Bloomberg Markets. I matt miller. Drones were once reserved for the military, but now that they are gaining in commercial use and just for fun, the entire industry is changing rapidly. Companies are working feverishly to thought technology that make them cheaper and costeffective and investors are noticing. Its good to carol massar and cory johnson. Im joined by mark siegel, hes very much involved in the cutting edge of what is going on with runs. Talk to me about what kinds of deals you are seeing. Mark we are seeing a lot of interesting software companies. Their big Hardware Companies supplying the drones. Companies are doing interesting things for surveillance and photography, for collision avoidance, which will be a Core Technology to make drones. We have invested in a company doing delivery. This could be for food, for pharmaceuticals. Company whichve a is detecting drones. Becausethe other side criminals are getting creative and using these to get onto wifi networks, to interfere with airplanes and believe it or not, prisons are having a big problem. Cory tell me about the prison problem. Used toones are being deliver drugs and weapons into prison. A typical prison has multiple week and they want to see who picks it up and try to figure out who flew the drone and go arrest them. Egg are is a much issued and i realized it was, but it turns out this is a problem at every single prison and airports probably have an incident once a week. So they are able to detect the drones, determine the trajectory and, depending on whether you are a prison or airport or stadium, how you deal with that rep might be different. Carol what kind of Regulatory Environment will be watching over the drone environment and you are investing in these companies. What kind of Regulatory Environment the want to see that keeps it safe and smart but does not impede the growth of drones . Mark the Regulatory Environment is going to be key. The faa requires drones are operated within line of sight of the operator and that does in pedal the distance that you can use these legally, but what is going to happen is that eventually, thats going to go to an operator being able to pilot these looking at a camera on the drone and ultimately, what we hope and what we are planning on is that there will be autonomous flights once there is a safety record. Buts going to be a process, the faa has indicated they are willing to work with these companies and be forward thinking, but there will have to be a lot of flight hours accumulated to prove the safety of these drones is adequate to be flown over populated areas. Cory is there an underlying makingogical advancement this happen . There certainly an interest, but i wonder if there is something that has happened technologically that is making this more possible now . Are has been a Remote Control airplane and Helicopter Market for a while. The components of these drones have gotten cheap and the computational power to fly them i think the other big factors are that you can now fly these with your iphone. To be a hobbyist, you dont need to invest hours and hours to control them and the highquality cameras. Imagery and surveillance was one of the initial applications for these and that is part of what created this upturn. But it is going to be all of these software applications. Cory they sound like they might be really commoditized. The our feeling is hardware pieces going to become very commoditized. It will probably always be specialized and purpose built. Cory for drug smugglers, apparently. Even for legal applications. I think the services are interesting. A human beingave that has to climb to an unsafe location or go somewhere remote, think about utility type line inspections. Theres an Interesting Company in San Francisco that does commercial roof inspections. All of those buildings in new york with scaffolding. Mark any of these laces were people go into dangerous conditions. Cory it has to be fun to hear all of those pitches. Going to toss it back to you at bloomberg tv. Ahead, the chairman of Societe Generale warns of an italian banking crisis. This is bloomberg. You guys be good. Ill see you later [ bark ] [ bark ] bye. See ya pal. Ever wonder what your pets do when you leave home . [ laughing ] aw you cutie pie. Aw. Aw. Aw. Aw. [ barking ] [ washing machine running ] partys on know what your pets are up to with xfinity home. Xfinity. The future of awesome. See the secret life of pets, in theaters july 8th. By switching to xfinity x1. Rio Olympic Games 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. You are watching Bloomberg Markets. Shery lets start with the headlines. Has thank you, bob corker taken himself out of consideration to be Donald Trumps running mate. He informed company the decision yesterday. He says the vice presidency is a highly political job and thats not who i am. He appeared with donald trump at a rally last night in North Carolina. Frustrated republicans want to grill the fbi director and the u. S. Attorney general about the probe into hillary positive use of a private email server. Loretto lynch will appear at a hearing next week and will face questions about her impromptu meeting with bill clinton last week. The Justice Department is asking a federal judge to hold them for mentation of the North Carolina bathroom law. Minor tweaks to the law last week but kept the requirement that people use the bathroom of the gender on the birth certificate in place. Former u. K. Prime and mr. Tony blair responded to the scathing report about britains decision to go to war in iraq in 2003. He expressed sorrow and regret over the war and its aftermath and he reflected on the difficulty of that decision. The decision to go to war in iraq and remove Saddam Hussein a coalition of over 40 countries led by the United States was the hardest, most momentous, most agonizing decision i took in my 10 years as british prime minister. Today, i accept full responsibility. Ramy the official inquiry called the british involvement in the invasion a failure. They said it was based on overstated intelligence. Matt thank you. The italian banking crisis could spread to the rest of europe. What is needed to prevent systemic crisis coming from the italian banks . What is needed is a european solution. I think that has not happened so far. Had National Solutions but we need a european solution and a clear back up to the selffulfilling expectations that drive the contagion in the Banking System. Some italian banks have a couple of problems and one is nonperforming loans on the other is profitability. So ifre not profitable you put in more capital, you dont solve the problem. That will not be sufficient to generate good returns so you need restructuring of the Banking System and an opportunity to consolidate the italian Banking System to make it more profitable. This requires some political determination. Consolidation means restructuring, less jobs, costcutting and this is the hard part which is not really been addressed in the italian Banking System. Other systems like the german Banking System, if you look at the stock prices, they are also going down. There are also too many banks in germany and they are not profitable. The capital is not attractive to the investor. Let me pick up on the political angle. Lets talk about the political will to change the way the bad loans are dealt with. Is there any point dealing with the bad loan story until you have changed the legislation that would allow quicker resolution . Are we getting the sequence wrong in tackling the problem . The government has tolemented some legislation speed up recovery. Its not clear if this is sufficient or not. There has been said movement there. Now they need to deal with the stocks of nonperforming loans. They need to incorporate the losses, whatever they are, they have to be recognized. And then you need a division that clears the way. The next step is how to make these banks viable and avoid them being zombie banks because they cannot be sufficiently profitable to generate new loans. There are a series of steps which are politically costly. Banks are delicate issues and you have to reduce employment and put money into banks. Its not politically very easy things to do and to sell to the public opinion. That was the Societe Generale ceo. Vragling says he does not see a threat from italian banks. I hope italy finds a way to recapitalize but i dont think its a moment to give up the framework we created over the last few years. The Banking Union is a major achievement for monetary union. The ecb has done a tremendous operational and an important part of that is the socalled drid and our states. This is important to make it possible to have a common supervisor for the 130 systemically important banks in the euro area and have a common framework. Its very important to protect this framework. The framework also allows many ways out even in a situation like we see today. Is inalian government dialogue with the European Commission how to apply the framework to these specific circumstances. I am confident they will find a think its ad not moment to give up the framework that was not easy to create and which is, in principle, very useful to have. Be drivingld it investors . To run the banks . That is part of our new system. That has to be a mandatory bilin before public funds can be used in thats part of the Banking Union, the brd. There are many other ways along that. Indeed, that is part of the system, yes. Are you worried this could become a systemic problem . Spanish and portuguese banks and other banks be involved and sell off like the problems in italy . We see true that weakness in the Banking Sector since the referendum in the u. K. Its surprising because thats not much of a direct link. There is an indirect link because now the Market Perception is that Interest Rates will remain lower for longer. That has a believe negative impact on profitability. ,hat is the indirect link otherwise its not so easy to understand white banks have these additional problems why banks have these additional problems since the referendum. We are not all in a crisis. Worldwide,rope and many steps have been taken the last two years to strengthen the Banking System. Also in europe, we have done that. The banks have doubled their capital since 2008. And thenew regulations bank and system is stronger than it was before. I think we see the benefits of that now. There can be problems. Were that but i think much more able than the past to deal with it. Coming up, we hear from the colorado governor about his meeting with Hillary Clinton and that interview is coming up next. This is bloomberg. Matt you are watching Bloomberg Markets. The Bloomberg Business flash, look at the biggest business stories in the news right now. U. S. Chemicals manufacturer ferro is drawing final round interest from Apollo Global and others. Equity firms are expected to hand and final offers this month. They make coatings from products made from ceramic tiles and dinnerware to smart phones and cars. Americans Service Industry is expanding in june. It was the fastest pace in seven months. The ism index measures everything from retail to construction and the data suggest the u. S. Economy was picking up speed before the british vote to leave the European Union. Much of the credit goes to Consumer Spending. Foreign homebuying in the u. S. Will hit a threeyear low. Sales to nonresident foreigners fell in the u. S. From 54 billion to 44 billion in the last year according to the National Association of realtors. Rising prices have made homes less affordable and a stronger dollar has cut into purchasing power for everyone around the globe from latin america to asia and europe. And that is the Bloomberg Business flash. Colorado Governor John Hickenlooper said he and Hillary Clinton briefly discussed her search for a Vice President during a meeting last week. He said he would seriously consider the job if asked. Insat down with david gura sun valley, idaho where they discussed the economy and politics. I think we are the fourth lowest unemployment, around 3 . You look at how much oil and gas we have and have had, to have that low unemployment after you have seen such a setback is remarkable. The key is to diversify your economy. 25 years ago, we were a one trick pony. Our Civic Leaders worked very hard to make sure we have a fully diversified economy, not just oil and gas and not Just Real Estate development. We are a Technology Center and aerospace center, Cyber Security center a lot of these Different Industries that in some ways complement each other. Theyyou go through a dip help make sure things stay steady. David were you nervous when you saw oil plummeting . Did that make people think about the 80s . Obviously, you look at any industry that is significant in colorado and our oil industry is 30 billion per year. Its a significant part of our economy. Wethe same time, we thought had a diversified economy and i think we were pleasantly surprised to see our economy kept moving along. David there is a concern about wage growth nationally. What can you do to encourage wages to grow in your state . Within the present system, wage growth is a function of demand. If you have more jobs out there than you have workers, if your economis growing, you will see wage growth. Thats a basic fact of capitalism. Weve got that and we are beginning to see wage growth finally. Probably not as faster as much as we would like but we are i worry more about these whole industries where people lose you have a career for 20 or 30 orrs and then Technology Innovation somehow gets rid of that and dramatically diminishes the number of people you need in that industry. We are spending a lot of time trying to figure out how to rapidly retrain people to get them from an old industry thats going away into a new industry where we know it will grow. David asking about politics, you had an hourlong meeting with Hillary Clinton. You might be thinking of Something Else . You have not read my memo. David would you entertain a vice presidency . Sure, especially if you look at the challenges this country and the world faces right now. Asked are someone who is and one of the people who can really make a difference and your country needs you, of course you do it. David can you talk about it . Of the timemost talking about workforce transition and just what we were talking about. More rapidly transition people from old careers into new careers. David when you became mayor and then governor, people talked about your style and bringing Something Different to colorado. Is that something that could translate well to washington . But i do think that we need more people who have a Small Business that ground. In the lifetime Public Service and people who understand how politics in washington works. At the state and city level and the national level, getting more people from business into Public Service we started a Fellowship Program in colorado with local private equity guys and one of them is helping fund a government fellowship where we st our Largest Companies ceo who have an inclination to Public Service may will commit in a highlymonth design curriculum by which we will let them see that being in Public Service is not all bad. There is a huge benefit that more than compensates for the loss of privacy for some of the other sacrifices you make. We can figure out how to get more people from the private sector and successful leaders, it to come into Public Service either in a cabinet or as a mayor or governor or running a large nonprofit but not just sitting on the ward, i think that makes the world and the country dramatically stronger. David you talked with Hillary Clinton about the economy. What other issues are most important to you . You spoke forcefully for more gun control. Do you think that will be a big issue in the general election . I think security, especially when people have economic challenges lets say they have lost their career so they have a level of financial insecurity, their safety becomes more important to them. Whether its the threat of terrorism, of violence in urban and suburban areas, all these things weigh heavily on peoples minds. As elected officials, we have a responsibility to address those concerns. , we used totarts say quality of life starts with a good job. People have to have work. Wrapped around that, you need security, education and weve got to control the cost of health care. Those three things right there are kind of crucial. It all comes back to jobs. Matt that was the colorado governor. Up, the fomc will release its minutes at the top of the hour and we will discuss how bill gross thinks the boardgame and monopoly can teach a lesson to the feds. This is bloomberg. Matt you are watching Bloomberg Markets. The fomc is set to release minutes from his june meeting at the top of the hour. Bill gross has a message for janet yellen and the fed of they are listening. He writes in his latest outlook i think he does not mind if they are listening or not. Joining us now is someone we always listen to, carl ricka donna. I was thinking that bill gross has a lot to say for what the fed should not be doing or doing wrong but is he really telling them what they should be doing . Does he really want helicopter money and another 1 trillion on the Balance Sheet . But tos offering advice say they are making a mistake is a stretch at this point. We have a sluggish economy and a fad that is moving very gradually to globalized Interest Rates. The course seems to be relatively on the mark. Shery taylor and philips models based on inflation, false idols, what your take . And think Janet Yellen Company dont subscribe to closely to the taylor rule in the first place. It provides a rough policy framework for the element of human discretion is much more powerful than using a simple black box model. I dont think they are adhering to that too much. In macroelevant economic terms is the commentary on the phillips curve. We cannot say that the phillips curve is broken until we have convincingly moved through full unemployment and we have only recently done that if that decline in the Unemployment Rate in may holds up. 75 l employment could be 4. So we dont know if that will create inflation pressures in the economy to we blow through those levels. If we continue on a downward trajectory matt how much lower could we possibly go . At the end of the 1990s, we had a free handle on the unappointed rate. Its definitely low in the phillips curve has changed its slope and its flatter. Until we have blown through full employment, we dont know if its broken. I suspect it is not and you see increasing evidence of the types of clues where we are close to full employment with increasing evidence of wage pressures across industry sectors. A little labor inflation could go a long way to boosting inflation, one of the feds goals as well as providing a significant tailwind to Consumer Spending which would really change the feel of the economy in the second half of this year. Shery the feds meeting happened before the brexit vote and they became more dovish. What does this tell us about the future of the economy . The june fomc of meeting, the fed clearly took a dovish turn. That was the point where most folks thought the brexit vote was going to fail. Now we have a reassessment of the domestic economy from the see that things are worse in light of the constriction and uncertainty caused by the vote. Matt what you are saying is these are shortterm problems to deal with. The u. K. Leaving the eu is not going to have massive fallout on the u. S. Economy, right . It shouldnt, however we have to watch financial contagion. You see whats happening in the italian Banking Center and credit spreads, if that continues to worsen and Bank Lending Conditions continue to worsen, all of this has a risk of crossing the atlantic. Shery we will have those minutes out in a little bit. Thank you so much. The fomc minutes will be coming out in a few moments. At 3 00 p. M. New york time, bill gross will join us and we will get details on his monopoly notice. . C sv vonnie breaking news. We are moments away from the release of the minutes from the. Une fomc minutes julie we have seen a turnaround midday in u. S. Stocks. The 10year note touching a record low earlier before bouncing, now at 1. 39 . Lets go to Michael Mckee in washington for those minutes. Are looking for guidance and future fed moves, you will not find it in these minutes. Committee thata is groping to figure out what the prospects were poor the u. S. Economy. For the u. S. Economy. Grexit gets surprisingly little mention in the minutes. An acknowledgment the vote could be a risk, but no detail on what members thought the risks might be or what policy might be appropriate. Get surprising little mention in the minutes. Just 38,000 jobs were created. Many participants felt t