Transcripts For BLOOMBERG Bloomberg Surveillance 20160810

This is bloomberg surveillance. We have a lot of news out. There is a new poll out. And we need to focus on bronze. An it has been extraordinary 20 four hours in finance and american politics in general. Lets get to the bloomberg first word news with taylor riggs and breaking news. Yes, we are following that news, a new Bloomberg Politics National Poll Shows Hillary clinton maintaining her lead over donald trump. Candidates, her lead goes close to the margin of error. Donald trump was in North Carolina when hes suggested that gun supporters could stop clinton. Abolish,y wants to essentially abolished, the Second Amendment. Judges,ets to pick her nothing you can do, folks. Although the Second Amendment people maybe there is. Taylor the Clinton Campaign responded quickly, saying what he said was dangerous. Quoted saying that he makes threats because he is a coward. The brazilian president has been impeachment trial. , turnbull winning reelection last month. Trying to derail the survey but the government defended the integrity of the census in the midst of calls of a boycott over privacy concerns. The most decorated olympian ever, michael felts, 12 more gold medals. Medals. As 21 gold the u. S. Womens Gymnastics Team lived up to expectations. The worlds best gymnast received the gold medals. Scoreboardads the overall with 26 medals. Global news, 24 hours a day. Powered by our more than 2600 journalists and analysts, in more than 120 countries. I am taylor riggs. Tom thank you. Equities, bonds, currencies. Futures up fractionally. Yields have gone nowhere. It is an incredibly nuanced second to screen. The two year comes back down. 0. 7. I am using the german 10 year as a marker on negative yields. That is a negative yield grinding ever more negative. Francine i like that you are looking at german yields. The dollar is weakening and it has to do with the binary market, Global Growth and the fed will wait or, you actually will hike sooner it seems every day, they decide. Oil, as wet to crude are expecting a day to update. One of the themes today is the bombshell of american productivity or the lack thereof. Here is a chart on the bloomberg , it is extraordinary. I didnt know this chart until i looked it up. Compensation within the productivity specifics. It comes down over the last 30 years. Down we go. You can see the sickness in the new rollover to compensation is revised yesterday. Wrote a fabulous detailed piece on this yesterday and his summary and simple the decade that we loved was an outlier. 19962005. It wasnt normal. It was the outlier. And that is a great theme and piece of attention of american politics right now. Francine the outlier in the gk. Is the extra mature ilt. This goes back to the fact that the program, this is 2060. Ice for in red is the highest program. D what this shows us is that the rcity of the longer investors offered much higher prices than actually what the market price was. Even then, they are struggling. Tom beautifully explained. The white line coming down on itght side judge basically says, we dont want to give you our bonds . Francine they are ready to accept a lot more for them. Boet an hour ago we had the coming out saying that this is the plan, going forward. How mark carney is getting crushed, here is mike amey. What the bank of england said is, we will sorted out in november. Mike so what they said is that they failed to buy what they try to buy yesterday. Is another buying program today. So if they wanted to make up a shortfall today, they could have done that. We dont knowsay, why we didnt buy the bonds yesterday so we put that one on the back burner for a couple of months and continue with the program as it currently is and workout when we will buy the extra bonds. To my mind, that is an interesting dynamic. What that tells you is that if they were reasonably confident this was a oneoff, the thing to do would be to say, fair enough. We will move off. More nuancedit than that. And it indicates to us that it will be a challenge to buy these bonds. This is a bit of a warning shot. Are soe if they attractive and people want to hold onto them, will it change the dynamic and how the government issues bonds . Mike attractive is a relative term. [laughter] francine least ugly. The issue is, can people afford to sell them . Guest noted,ous you have a large Insurance Industry that needs to buy these bonds and hold on to them. And the Regulatory Environment prevents them from selling them. Tom i love that idea. Bondicroeconomics of transactions. Lets bring up the charge. This is something we show every day but it shows what the bond is doing. There is the twoyear u. K. Ilt and there g we go. You can see the recent rollover to low yields. Do you assume that you will have negative rates in the United Kingdom . Mike we dont, actually, no. Willink the short rates stay positive because of the challenge it creates for the banking industry. And that is why you see the long bond yields crunching down. Thenu go up to the limit investors looking for a yield tend to stretch themselves. Keeley seems to be working with oversight. Tom lets go back to institutional mathematics. Is a big pension fund out ande and they have bonds you have to tell me, the reason they are doing this to Governor Carney is because they are waiting for a higher price, is it that simple . I dont think it is that simple. I think the regulator says you need to hold onto these bonds because you bought them on a contract with your client. Is that distinctive to germany and the United States . Mike no, it is not. What is distinctive is that you have a shift in the buyer base with the bank of england now announcing they will buy more than the gross supply. So you have a fundamental shift in supply and demand and owners who struggle to sell and regulator said, if you sell these, you need to hold on. Go tomar kearny have to the purchase of equities and equity equivalents . Mike i think he will be reluctant to do that. Differentvery program. I think the challenge he has got is whether he can do it without going outside of the sphere. We havenow, the moment gone to government bonds and corporate bonds, the bank of anland is relet didnt to be allocator of credit. And the further you go with capital structure, the further you are. Tom august is never boring. Francine we also have the yieldsbetween two year and the three year yields. It is the narrowest. Tom that is brilliant. To beght august was going boring but it has been anything but. Mike amey with us. In the next hour, Gina Martin Adams. On the bond vigilante. This is bloomberg. Francine this is bloomberg surveillance. Tom, lets get to the Bloomberg Business flash with taylor riggs. Taylor disney reported quarterly profit better than expected. Stronger views from finding helped to offset a challenging quarter. Disney will pay 1 billion for bam tech. It will launch a new webbased espn service this year. The sports channel continues to lose subscribers in the last quarter. As you look at espn, it is a great business for the company. It does have growth ahead of it. But it is not going to grow at the rates that we have been used to. Taylor tv channels are the biggest contributor to disney sales. Largest oil exporter pumped a record amount in july. Saudi arabia produced almost 11 Million Barrels of oil a day last month. That wont go well with other friends in opec who want to limit. That is your Bloomberg Business flash. Report saysd new that brexit will come at a cost for the Financial Services industry, no matter what agreement the government makes. The negotiation timeline could drag on. We have a great bloomberg article where we speak to the former Prime Minister telling us thanbritons will be longer three months exit. Is still with us. Also, john fraher. When we go back to greenland, it is the only template that we have so far. And how to negotiate with the eu. John thats right. This was in the early 1980s when the world was much less complex. A tiny economy and to end angle to untangle, it took them three years. And the guy who negotiated this back in the day, his warning may be that it is going to take a lot longer than two years. Went to be start . We dont have any idea yet on when we will see the trigger. But there is a false sense of security in the market. We are not seeing a fallout now. When will he start to see it . John thats the point. It hasnt happened. Even the negotiations for the exit happened happened. So at least 2. 5 years away at this point. What you are seeing right now is quite interesting. I think all of the departments are hunkering down and basically just looking at the full scale with a sense of horror at what is ahead of them. Tom how divided is europe on this matter . Article 50, article 49 i get the sense it will take years. Is europe even remotely on the same page . John i think there is a broad understanding that brexit happened. No one is trying to persuade britain to stay in. I think we will see differences of opinion with how to deal with the u. K. In theill be some people french cap who want to make an countries dont dare to leave with the french president ial election next year. They could talk about a referendum of the french membership. And on the other side, a more pragmatic approach from angela merkel, saying fine, it happened. We dont want to completely cut them off, either. It is a little bit too early to see those divisions coming through yet that i do think we will see them by the end of this year or early next year. And germany goes into an election season and we both the politics. Francine i have surprised by the number of people i speak to who think really nothing happened. The interesting thing is that the markets have moved because you have a lower discount rate on Interest Rates. Sterling has moved out of 130. So you have seen a revaluation with the market. We always felt that this was just going to be a multiyear exit and john makes an interesting point. It looks like in reality, the 2. 5 years will realistically be what can we have arranged while he go through time of negotiations. So our senses that this will be longer than a couple of years. And that is one of the reasons why the markets are relatively saying that things that take years to work out dont have the same shock factor. Fraher, traveling the world for Bloomberg News. Morning. So much this we will continue our discussion. Aszheim, really looking forward to speaking with him. This is bloomberg. As it is not championship ball but in boston last night, new york with red soxyankees. It a dustup. As the yankees lose to the boston red sox. That is your new york sports reports this morning. Francine this is our morning mustread. I want to get twitter of. We have taken something out of is notardian and it Party Politics as usual. The latest blender from donald asmp which some are taking an incitement to assassinate Hillary Clinton. It is an attack on democracy that is as personal as it is politically vile. Trump was talking in thinly veiled terms about the most personal kind of attack, an attack on the body, and specifically, an attack on the body of the first female president. I have to go back and listen to this. I had to go back and listen to every word to try to understand what he is even thinking. Tom your comment in trying to understand i would suggest that this began with john f. Kennedy in 1963, but before that, lincoln in 1865 there is a sensitivity here and that is James Garfield assassinated 1881. Hugely popular and the nation was hugely shaken by the garfield assassination. And waye is a process of discussion in america on assassination that is uniquely andican, going back to 1865 1881. Francine something that you pointed out this morning was that after donald trump spoke, whether it was a joke gone bad, we had a tweet from the secret service saying that they are aware of the comment. But this is not a joke. Tom no. It is not my place to criticize secretary clinton or mr. Trump but it is a group of americans tone deaf to the history of assassination in america. Code, a process and cadence that was violated last night, no questions about that. Francine and we should not take this lightly. , of course he would come up with Something Like that. Coming up, jason gammel. A Research Analyst about the oil market. This is bloomberg. [ hip hop beat throughout ] [ fans cheering ] olympics 2016, let me get you on my level. So you never miss a moment, miss a minute, miss a medal. Why settle when you can have it all . Soccer to wrestling. Track and field to basketball. Fencing to cycling. Diving to balance beam. All you have to say is, show me, and boom its on the screen. From the bottom of the mat, to the couch where you at . Show me the latest medal count . Xfinitys where its at. Welcome to it all. Comcast nbcuniversal is proud to bring you coverage of the rio olympic games. Hohey s woiit ghong, estcak . Hoestcak. Th lais p hceotas hke hyso wn arett ey llkelica hotkes . Cwithstomcain business rnan fid e. Ju ddst aus a czetomimed ytowioua llkelica hotkes . Ud yo ll yeachr somer eie esr a adylr ju ddst aus a czetomimed ytowioua iresevic hotkes . Or upder. itha tstn jui, wif c itelan howp grr younebusiss. Odintrg ucin pwifiwiro, fi hthatpsw usur bs. Ines u doe t eth dvery. Ascomcbu. Ss t builbufor sssine tom good morning. Bloomberg surveillance. We are interesting looking at american as yields grind lower in the United Kingdom. Now, to the first word news. Taylor a new poll shows that Hillary Clinton has retained most of the bounce she received from the Democratic National convention. The poll shows clinton leading trump among likely voters. When thirdparty candidates are included, her lead shrinks to the margin of error. Donald trumps twist of words is leading the campaign again. He was talking about gun rights and the supreme court. Clinton wants to essentially abolish the Second Amendment. By the way, if she gets to pick her judges, nothing you can do, folks. Although the Second Amendment people, maybe there is, i dont know. Taylor the Clinton Campaign and elizabethkly, warren tweeted saying that donald trump makes Death Threats because he is a pathetic coward. News thatmp told fox there could be no other interpretation. Delta is likely to cancel more flights today. About 700 flights were canceled yesterday. Customers,message to elses ceo apologized. He said the airline spend hundreds of millions of dollars to avoid such a failure. And the richest person in the u. K. Has died. On duke of westminster was land the country had owned since the 17th century. According to the bloomberg billionaires index, the family had a fortune worth more than 12 billion. Global news, 24 hours a day. Powered by our more than 2600 journalists and analysts, in more than 120 countries. Im taylor riggs. Thank you. Oil extending the decline for a second day after Industry Data shows crude stockpiles expanded. And saudi arabia raise production. Now we will get the Monthly Oil Report later today. Lets get more now from jason gammel. Great to have you on the program. What will you be looking at with the opec report . A single supply equation . Or do we need to make sure there is enough demand globally for oil . Jason both are important factors. A look at demand as being quite healthy right now and it is supported by the opec report later today. The supplyside is where we have seen issues. Morenk the market is affected by refined product right now rather than crude oil. So maybe it wont be as important but the Inventory Data later will be impactful. Chartne am looking at my , and there is a range when the price of oil would stop. Likee new range more 3845 . Going tothink we are be in a relatively bearish market for the course of the next five weeks. Until we get into the refinery maintenance season. You will break out of that range again. And i think we will go into a five handle. We are looking at fundamentals not being supportive in the near term. But in the very near term medium, if that is the correct term. It is quite bullish. Tom you are wonderful at the arcane dynamics of downstream. Of what singapore is doing, stuff i try to memorize once and i said, i will let jason gammel do this for me. What is the distinctive feature of downstream dynamics now that will force the price lower . Aren i think what we seeing right now in singapore and the Atlantic Basin is a real downward pressure on margins. The profitability you get by taking crude and turning it into gasoline. That means these refineries are going to start lowering and clean up the refining product. Tom does that give you a delta on oil price that nudges it from 43 down to 39 . Or can it be a bigger nudge them that off downstream dynamics . Jason i think you are probably in the right range. I dont think it is much worse than that. The oil markets will recognize this as a transition. So i think there is a lot of support when you get to 40. Tom what is the mystery on oncoming supply. Where is the supply geographically right now . Jason it is down to a couple of places. Libya is the big unknown. Do see rapprochement between the governments there it will be significant downside. Saudi arabia is the other one and i think it will be a small movement. 200,000 barrels a day from them. Other than that, tapped out. Francine where do you see the price of oil . On thehortterm, a risk downside. Your chart makes an interesting point. You talk about opec and the rig count. Is brent the purple oil. Blue is wti. That and that tells you the demand is staying relatively healthy because the rig count has gone back up. But once the Oil Price Goes back down, you have a natural stabilizer. I think we will see Downside Risk in the short term but ultimately we will be stable for the next year or so. Francine stable for everyone . Yes. Stable at 45 50. Doing ishat we are learning to live with the oil price. I think what you are seeing now, it is a response out of the Oil Producers who are right citing their spending programs. It is probably a reasonable outcome. Tom i cant november where i sell the chart yesterday, but idea is that productivity is a global phenomenon. When you see where Global Productivity was part of that, does pimco take that over to other nations . Or is the productivity mystery discrete to america . Mike i dont think the productivity mystery is discrete to america. What you have seen everywhere is the availability of labor remains high. And the price with which you can acquire labor relative to capital remains impressive. So you have a situation whereby companies are not just capitalintensive, but it is relatively cheap to the longterm investment project. Productivity growth will stay low. It will be effective to labor rather than capital. Ncine is there a risk every time there is an opec meeting, markets get a little bit hesitant. Jason the news is already out in the marketplace. Pretty much shrugged off. I think there is a lot of skepticism. The iranians have not put as much into the market as they can. Jason gammel, thank you so much. Key oil data in the next hour. We will speak of productivity in the next hour. Gina martin adams will be with us. Schoenholtz. I. This is bloomberg. Francine this is bloomberg surveillance. Lets talk about the italian banks. If we look at spain, there is a sharp difference. Four years ago, the Prime Minister decided against the rescue a lot. Today, it has a Financial System known as too big to save and too big to fail. The basis of your piece is that he says well, i wasnt wrong to not accept a bailout. Yes, it is. With all of the headlines of italys trouble, we thought it would be worth to say, why did they take so long . Why didnt they take the bailout when spain did . That you would expect of italy is quite complicated. But at the time, they said they were facing a sovereign bet crisis. It would have been incredibly expensive to try to bail out at that time. Moreover, he thought that the banks could get through the trouble as long as the economy started to grow. So we didnt make sense, at that time, to seek something so radical. Problem is made the even worse and if he had taken a bailout, and hindsight is a great thing. With the italian banks be in better shape . When you look at 360 billion euros not performing faiththe equivalent to a of italys gdp, a lot of that would have been rectified by a rescue. What was the political cost of a bailout, that was the question. Francine it is a different angle than what we talk about. Bond yieldspanish at the 10 year for under 1 . Is this the crazy world we live in . Mike i think what that tells still that Central Banks have quite a lot of power in financial markets. You have the ecb bond buying program. Suppressing yields and repricing assets. So i think the reason the spanish yields are so low and the italian yields are higher than the spanish yields so what that tells you is that a andof entities are liquid can be concerned with low Interest Rates. That is ultimately what is happening. Tom if rates are a measurement of the real economy, then we have the idea of rates being lower due to deflation and Economic Growth, currency can be the adjustment. Weeksvernor carney, does sterling keep him away from negative rates . Because of inflation in the system . Mike i think it does. Ironically, it is part of the world that would like Lower Exchange rates at the moment. The u. K. Has the advantage in that it is a midsized economy. So what happens with sterling is much less systemic than what happens with the euro or the dollar. So he has a bit of wriggle room than other polishers other politicians. Bigu. K. Still runs a current account and the trade data yesterday was poor. So u. K. Policy makers will take whatever stimulus they can get. Edouard, what is the spanish distinction . I am asking you to help me out with a smart answer. What is the spanish distinction of their economy . Edward do you mean why are they rebounding now . Implement aad to number of structural reforms, especially in terms of labor. In 2012. F the bailout and that bolstered confidence that the economy would return. But the main reason that spain is different financially, i think, has to do with the pain that a lot of the households in spain have taken. Wages are down on the order of 5 billion euros. Unemployment is above 20 . It is a process of eternal devaluation and that has ability ofreated the spain to rebound in a post growth. Tom i love that phrase, eternal devaluation. Robinson, from Bloomberg News this morning. Thank you so much. We will talk more about the pimco call. In the meantime, the dollar is weakening and government bonds are rising. Im not sure what happened in the last 24 hours but the market felt it would be a little bit more slow. This is bloomberg. Tom good morning. I am in new york. Francine is in london. Now, to the Bloomberg Business flash with taylor riggs. Germanys biggest utility reported a firsthalf loss due to the upcoming spinoff. The company took more than 4 billion in charges. They will offer a fossil fuel power plant. They will focus on the noble energy, networks and retail consumers. The British Labor Union Planned seven days of strikes against. Uro star a fourday walkout will start friday. Later in the months, the dispute is over scheduling programs for train managers. They hope the strike will force them to cancel two trains a most trains a day at most. Nbc released data saying that the audience is bolstered by people viewing online. For 9 viewers accounted of the audience on monday. Fridays broadcast of the opening ceremonies saw 35 fewer viewers of four years ago. Francine . Francine thank you. Its stake inuced government debt, and that comes with a rally in treasuries. 86. 8 billion in assets. Lets get more from the pimco portfolio manager, mike amy. Treasuries, was that the best bet . Mike i think you saw yields going in the opposite direction. There are a couple of things going on. And risk assets continue to rally. And generally speaking. Overweight in the way of highquality risk assets and the marginal flow has been to shake that down. So to shake it down, where else can you put the money more attractive opportunities. That is what you see securities go up. Francine what happens to treasuries from now on . Mike a couple things are going on. A couple of risk assets are rallying hard. That puts downward rusher on u. S. Treasury yields. Yesterday, we saw an example of that when treasury yields when u. K. Government bonds were where the action was. So there seems to be a downwards pull. And some of that is what we are trying to reflect. Tom i want to bring up a chart of the real twoyear deal. It permeates all the european and u. K. Debate and the u. S. Debate. The green is where we were, lets call that nirvana. The yellow line is the demarcation of the crisis. And we cant get it going. Central bankers want a low yield that it just leads me to nothing more than chronic. Continuation of the great distortion. How do we break the cycle of real yield pain . Mike we need to shift the focus to theom Central Banks, sole supporter of growth. It has been all about Monetary Policy and Central Banks. But i think if we are going to move away from that, central bankers have started talking about this we need to get a better balance between Monetary Policy and fiscal policy. If there are indications that is happening. Indicationseir are we do see there are indications in the u. S. And the u. K. And ultimately, that balance is how we try to get ourselves out of this. Of you have the advantage working with pimco. Anthony is the best shortterm guy in the world. Held you splinter me what would say if janet yellen raise rates and again to normalize the structure . Just once. Just raise them a little bit. What would happen . Once,if they raise rates as long as the messaging was ok, and it doesnt necessarily have to be a very bad market outcome, they have raised rates so far but it has been a big struggle. We do think there is a brief chance they can get one through by the end of the year. What you have to respect is that tony is a limit the market expert. Are going up in the u. S. Already so there is a bit going through. Front end and Mortgage Rates are Different Things in the u. S. , so as long as it is relatively balanced and the dollar stays relatively stable, we think there is a decent chance they could get one through. Francine what is your best call, right now . Mike best call in the next six months . , risk assets. Investment grade credit. A vote of those, you can get a little bit more. Anything in emerging markets . Mike emerging markets, there are one or two that you can think of, we are a little bit long on the currencies. Related to currencies. But i would say highquality could withstand economic volatility because there are a number of uncertain events out there. , thank youike amey so much for your time today. We have plenty coming up. Bloomberg surveillance continues. Streaming on your phone and tablet. A quick markets check. U. K. Equities overall, fluctuating a lot. Stocks a lot of the focus in the next hour will be oil. When we get the opec report. Then, look out for currencies. I would keep my eye on the japanese yen but also the pound. This is bloomberg. This morning, the brexit vigilantes tell Governor Carney to get used to negative rates. Gilt yields plunge. Will they just say no to the governor . Don straszheim on failed productivity. And mr. Trump speaks without a teleprompter. The secret service is aware. Good morning, everyone. This is bloomberg surveillance , live from our World Headquarters in new york. Francine lacqua is in london. What most interesting day. Focus, United Kingdom gilts. Francine as qe picks up, there was a snag yesterday when mark carney could not find long maturities that he won it to buy. That he wanted to buy. Tom part about covers this hour. Right now to our bloomberg first word news. Here is taylor. Politics new bloomberg National Poll Shows Hillary clinton maintaining her lead over donald trump. The survey has clinton leading 5044 among likely voters. When thirdparty candidates are included, her league goes close to the margin of error. Donald trump was in North Carolina when he suggested gun supporters could stop Hillary Clintons agenda. Hillary wants to essentially abolish the Second Amendment. By the way, if she gets the pic k, her judges nothing you can do, folks. Although the Second Amendment people, maybe there is. I dont know. Taylor the Clinton Campaign responded quickly, saying that what trump said was dangerous. Elizabeth warren said that he makes Death Threats because he is a pathetic coward. The Trump Campaign said later that he was referring to the political power of gun supporters. At the summer olympics, the most decorated olympian ever was back on the victory stand. Michael phelps won two more goals winning the 200meter butterfly and anchoring the 400meter relay. He has 21 goals in five olympics. The u. S. Womens Gymnastics Team lived up to expectations. Simone biles led the team with two gold medals. China is next with 17, and japan has 14. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. This is bloomberg. Tom . Tom lets power through the data check and get to the bloomberg and we have a packed our for you. Everything is flat, flat. The markets churn this morning. It gets interesting, the vix showing those good equity markets. Gina martin adams with us this morning. Is showing10year the european challenges this morning. Francine . Overall, the European Market is struggling to find a bid for the european stocks are fluctuating. Above 1. 30, yen at 101. Crude at 42. 24. Tom i want to get to this quick because francine has a killer bloomberg chart. This is compensation off the productivity data. I love what ted wiseman did off Morgan Stanley. He killed it in his analysis. Down we go, nominal conversation go, nominal compensation to the recent rollover in compensation is one of the sideshows of a lousy productivity report. Critical, francine. Ted wiseman shows the boom for critical productivity from 1996 to 205 was the outlier from world war ii. Francine i like the outlier call. This is on gilts. It is a little more complicated than usual. His is the second day of qe it shows that we are paying more than the market price, and yet the opposite price is the white line. At 1. 94 is there highest accepted price in the boe operation. , what thison window tells us is that the scarcity of these longer bonds led the boe accepting off admissions. What try to figure out that means. For more on all of this and how mark carney is getting crushed by the markets, lets bring in dan hansen. When you look at the response from the boe today, they basically are saying we will sort it out in november. Does that automatically mean they expected to get worse in the coming weeks . Dan quite possibly. The thing with the qe program that the boe wants less week is that yields were already extremely low. People worried about the efficacy of this policy. Yesterday we saw this. And the fact that they have pushed the can down the road. They might have concerns about the liquidity of the market and pushed the can down the road a little bit, to wait to november and reassess. Francine what do they need to reassess . Do they need to put out more of these funds because there is an appetite for them given the Current Conditions . Dan quite possibly. It goes back to the point about the efficacy of policy. They put out three strands of Monetary Policy. We have qe, and a call for bond buying. The guilt buying the gilt buying, they could get to 60 million. Tom help me with the word efficacy. What is the transmission mechanism of the markets telling the bank of england what to do . Do the vigilantes have an efficacy . Qe what i would say is that , the different qe programs coming in the u. K. , the First Program was seen to be a lot more effective than the second program. It might not be the case, this program is not going to have an effect on the transmission mechanism, the rebalancing, bank of england searching for highyield products, pushing up pushing upices, prices that Wealth Effects just might not be coming through. Tom we show this earlier in new york. Down we go, we roll over, and there we go. A minute thator negative rates will not happen. The charts is lower yields. Francine that is a fair comment, tom. If you are the bank of england and you think it is worse by doing negative rates, you will transfer everything you can in the economy before you get there. Tom with us in studio to begin the hour is Gina Martin Adams from wells fargo. We usually Talk Straight equities with you, but we cannot because you are buffeted within your world about by all of this discussion on economic productivity. What is an equity shareholder to do . Gina right now they are following the technicals, pushing the fundamentals under the rug. Tom so you go with the trend . Gina unfortunately, that is the trend. Closely toy speaks margins on the s p 500. You get a little more concerned about whether or not we can sustain expectations in the year ahead. When the technicals are breaking out at the same time, you cannot be left behind. Tom we have Don Straszheim and we have you. This is ultimate bloomberg surveillance. About margins, you worry about earnings. Can your corporate world cut costs fast enough to keep up the earnings flow and the cash flow . Gina they can for a short time, probably for three or four quarters. A lot of it depends on how much we bounce back in the second half. Since the Second Quarter, you had a strong july jobs number, suggesting the companies somehow saw much better output starting in the third quarter. That would be the only justification for hiring so many people. If the productivity number was potentially of a less negative number and we are starting to see a turnaround in out would growth into the second half, maybe the earnings numbers can sustain themselves. The other big complication is with energy. We went from a massive decline in oil prices to a very substantial bounce back. Tom within the literature of the last 18 hours, it is peoplel, the asterisk put on the productivity numbers, what that does to the implosion on the Energy Markets in the United States. Francine i do not know whether it is more to do with the energy figures than it is with just the more. Start communicating for example, all our social media must affect productivity on a longerterm basis. Tom how can you say that . Francine i am trying to make a serious point. Deflationaryto pressures. Gina i think the real part of it is that we are a Services Economy rather than a productivity economy. The fact that we are so Services Based and we really struggle to measure how services grow, it is probably compressing productivity over the longer term. The Energy Component has really pulled back the manufacturing segment. Tom we are going to come back on this. Thrilled you are with a spear Gina Martin Adams, kim shown holtz, Don Straszheim as well. On hisstraszheim americas productivity. Globally, this is bloomberg. Francine this is bloomberg surveillance. London. Ncine lacqua in tom keene is in new york. Lets get straight to the Bloomberg Business flash with taylor. Fromr job performances finding dory helped offset a challenging period for disney. They will pay a billion dollars stantec. It will disney says the source the sports channels continued to lose subscribers in the last quarter. As you look at espn, you have to conclude it is a great business for the company. It is a Large Business for the company. It has growth ahead of it. It is just not going to grow at the rate we have been used to. Tv channels are still the biggest contributors to dizzy sales to disney sales and profits. Tom im going to be delicate here with Great Respect for american political institutions. Tom friedman writes it up in the new york times. He is scathing. Tom that is one tone of the angst, the anger, and the support of mr. Trump we have seen in the last 18 hours. Marty schencker is head of all government and economics annually. Ofuggest we are bouncing off lincoln, mckinley, jfk. Explain to our global audience the collective memory of america. Marty sure, tom. President ial politics has been strained by assassinations over the years, and it plays right into the Second Amendment rights that give americans the right to bear arms. In a modern society, there are a number of people who think that should be adjusted. When donald trump makes a suggestion that Second Amendment people can take it into their own hands, it conjures up all kinds of dark images of american political history. Images of the assassination no one covers any more per all know lincoln and many no mckinley at the turn of and we allntury, know jfk. James garfield has a statue, 1881. This is what tom friedman is talking about. What i want to know from you, marty, is the reaction today from responsible individuals. What will speaker ryan do after his big win in wisconsin last night . Marty last night he did say he was aware of those remarks and that he hopes donald trump would clarify them. But in the course of the evening, donald trump basically , give me an and said break, that is not what i meant. Although anybody listening to his comments and people in the audience behind him also felt that he was making that threat. Tom in the video of mr. Trump making the comments, a gentleman with a white beard reacted to the comments in real time, which i think, again, for all global audience, shows the sensitivities of americans to assassination. Francine to be fair, i think they are sensitivities worldwide. I watched itry, two times because i could not quite believe it. I know we have a new politics pull out, but i just wonder whether this latest controversial comment makes it harder for him to get elected. We see pulling at heartstrings somewhere in america, which makes it more likely for him to be elected. Marty what i think it does come it solidifies his base. These kinds used to of comments. They are expected from him. But if he is to win this election, he is going to have to go beyond his base. And for independence and for people who are on the fence and for independents and for people on the fence, these kinds of things do not help him, in my view. How does the party put up with this . Marty the party needs to get elected. People like paul ryan have to balance whether they support the nominee or not. If they abandon him, and if he should win, that would be the end of their careers. Tom marty schencker, thank you so much. Thank you so much for your team. We cannot imagine where we will be to four hours from now. Mark halperin and John Heilemann will be all over this tonight. They will be all over this story. This is bloomberg. Tom it is an extraordinary day. ,rancine lacqua, i am tom keene in a productivityfree america. Gina martin adams is with us as well. Donald straszheim is in new york, evercore isi. Today we have about seven minutes on china. Give us an update. What i noticed, china yields are coming down like everything else. What does it signify that china yields are coming in . Don growth is weak. Their inflation rate has come down dramatically. The Producer Price index was up 21 year ago. Now it is up 2 . Their distinctive feature is that inflationadjusted rates have been high. Are they going to go for nominal contraction . Don i suspect so. The economy is better than it was. It does not look very good. They have a lot of structural problems that are going to continue to weigh on their growth rate, and they are in whatever it takes mode. Anything for growth. Were worried about outflows in china. It was really the story of the first quarter. They have now managed to stop those outflows. At least we are more stable than we were six months ago. Don absolutely. At the beginning of the year there was this panic about china in terms of the equity markets, in terms of capital outflows, currency collapse, nonperforming , enterprises that were not functional. All of those worries are now gone, so the Global Prospects come the Global Outlook from a china perspective is dramatically better than it was at the beginning of the year. Francine you are still quite bearish on china and concerns that we will see Something Big and ugly from china. But i am looking at all of the indicators. Is it really all fictitious . Is alldo not think it fictitious, but just be clear the economic numbers, recent, and i think over the last half of this year, are going to be reasonably good. The problems are structural in nature. I just simply do not see china taking steps that are going to be appropriate to fix the structural problems. Tom i had to come up with a fancy chart to impress Don Straszheim, also Gina Martin Adams. There is a trend. Up, up we go. The Piggy Bank Goes flat. That gap is the gap in what they used to do the money used to come pouring in, etc. Their system compensates for that giant enormous for that s gap. Ou they do that through currency movement, lousy debt in the country. What has you most focused on within that did within that disparity . Don i do not like the red arrow you have on that line. Tom bring it up again. I want to upset don. It is early in the morning. From 2006 to 2014 they went from one trillion u. S. Be to 4 trillion. That was the disequilibrium. Now they have gone from 4 trillion to 3. 2 trillion. That was much less worrying. Tom lets go for the hat trick. Ring up the chart one more time. Don straszheim is saying that slope in the middle that i extrapolated out that was their fiction. Don exactly. That was the real problem. A forex reserves. Risis they continue to run a giant trade surplus. That brings money in. The currency is down. Everybody is on the downside of trade. The china yuan is going to go down. One way best do not work always they do not work. Tom you heard from Don Straszheim, evercore isi. We are going to have a fabulous discussion on productivity, total failure, productivity. Don straszheim, Gina Martin Adams, and Kim Schoenholtz will join us from nyu. E francine live pictures from london. Im sure you can see the Prudential Building from here. They actually beat estimates. This is bloomberg surveillance. Lets get straight to the bloomberg first word news with taylor. Taylor francine a new poll taylor a new poll shows that Hillary Clinton has retained most of the Balance Sheet received from the dnc. When Third Party Candidates are included, her lead shrinks to close to the margin of error. Trump postulates of the is roiling the president ial campaign against her the comments came in North Carolina where he was talking about gun rights and the supreme court. Trump hillary wants to essentially abolish the Second Amendment. By the way, if she gets to pick if she gets to pick her judges, nothing you can do, folks. The Second Amendment people, maybe there is. I dont know. Taylor the Clinton Campaign responded quickly, saying that what he said was dangerous. Democratic senator Elizabeth Warren tweeted that trump makes Death Threats because he is a pathetic coward. The Trump Campaign said that he was referring to the political gun rights supporters. Delta airlines is expected to cancel more flights today two. Ays after a computer problem the ceo apologized, saying the airline has spent hundreds of millions of dollars on upgrades to avoid such a failure. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. This is bloomberg. Good halfhe next hour, we are going to do this. This is what we love to do at bloomberg surveillance. Yesterdays bombshell of productivity. With Gina Martin Adams of wells fargo, Donald Straszheim of evercore isi. We are thrilled to bring in Kim Schoenholtz, with new york university. Here is my bible on productivity. This is chad jones of stanford. This is the brilliant, simple, mathy bible. What is the number one thing we get wrong in our analysis of productivity . Be underestimating, but unfortunately the news is pretty bad. We have seen a slowdown in productivity growth for seven years. In fact, less than 1 growth since the expansion began her that is pretty disappointing. Tom are we at the end of the 19th century where technology came in and destroyed a part of the are we at a point where technology is the enemy to efficiency, which growth, better use of capital . Kim i dont think so. There are two sets of problems. The benefits we are getting from technology are diminishing. The other problem is that we just do not find enough investment. Tom we talked to Gina Martin Adams earlier about how companies adapt to know productivity. One of them is that they have to deal with foreign competition. Are the foreigners giving us weak productivity . Don i dont think so. I think they provide an Important Competitive element. We have not invested in our public infrastructure. Education system is among the worst in the world, and we are at the productivity frontier. The countries in the world are by definition going to have the lowest productivity growth rates. Tom Gina Martin Adams, what do you see at wells fargo on Capital Investment . Ted wieseman was adamant the capital failure in the country. Do you agree . Gina i absolutely agree. Part of the reason we have seen a sevenyear slowdown in productivity is that we have seen so many companys go overseas in the last cycle. We have seen this continuous investment overseas to try to fuel the emergingmarket miracle. And we are coming off of that hide the cycle and we have seen no investment here. So there is kind of a double whammy. Even investingot in overseas expansion anymore. Nil investment over the entire cycle. Francine if we mirror what is happening with the u. S. With what is happening in the u. K. , i would say it is even worse in the u. K. In productivity growth in the second world war. Is this the flipside of strong employment growth . Kim not exactly. We have had periods in the past where there has been strong employment growth and strong productivity growth. Unfortunately we are getting the strong employment Growth Without the productivity growth. That has longterm implications. Francine it could mean that the way our economys work, that will not go back to like it used to be in the past. That we aregue looking at the wrong factors to measure productivity. Kim there is some evidence that we might be under measuring the productivity pickup, but it is not sufficient to explain how much the slowdown has been. The news is just disappointing. We have to think about what changes we could make to the economy to boost productivity in the future. Francine what is that, fiscal spending . Kim there are a lot of items on the list. Public Infrastructure Spending is one. We also have to look at obstacles to Economic Growth, some of which may be a bit obscure. For example, occupational licensing requirements in the United States that make it more difficult for people to move into jobs where they might be more productive. Building in urban areas, where wages are higher. That prevents people from moving to places where they are more productive. That hurts us. Gina there were so many questions so many comments yesterday. Many people suggested that the slowdown in productivity will ultimately force a shipper ultimately force a triggered toward capital spending. Is there something we can count on . Labor becomes so much more limited in productivity tom is this an oldschool idea . Kim as you run out of labor resources, firms are going to invest more in order to expand. Explains not enough to the disappointments we have had over the last seven years. Tom i want to bring in a question on a most important paper in the early crisis, ned phelps. A newelps is looking for dynamism. Are we just in search of a new Technological Progress . Is that what this is all about, don . Don i have no idea what he would mean by that. Tom it is too fuzzy. Don we are always looking for the next big thing. We will continue to. I think we are just bailing in terms of fundamental blocking and tackling. The government gets in the way. We have not invested in human capital. These are the problems that are at the core of the productivity slowdown. In we had to bring this up honor of Kim Schoenholtz of new york university. This is great. This is can you zoom out . , the klthe labor hunk put, and then you have total factor productivity, which has output, and then you have total factor productivity. We have always been in search of it, and we will continue to be in search of it. There will be improvements going forward. But unless we also make policy changes that will help us, we will be neglecting the bad news that we have had. Francine i spend so much time trying to figure out the equation, i am sure i am less productive than i was yesterday. Do we even care about productivity like this . If it is uber, airbnb, they are new technologies. We should all measure things differently because we are all addicted to our phones and the sharing economy. Kim you are absolutely right that we have to improve our. Easuring i do not think it explains the slowdown that we have had. It matters for longrun income and wage gains for the standards of living that we all enjoy. It matters for the governments ability to fund expansion, etc. Tom bring up the chart and we would go to Don Straszheim, and then i will ring in gina on what it means for equities. This may be my chart of the year. Of moving average productivity, and down we go. Don straszheim, are we supposed to blame china . Don i do not see why you would blame china for a failure like this. One thing that we are talking may be that productivity numbers are estimate are underestimated. I think they may be overestimated. We sit in the car working all the time on our phone, so we are spending a lot more hours than are really being measured at work. Everybody notices that. It could very well be that we are overstating rather than understating. Goes to ted wiesemans wonderful note from Morgan Stanley yesterday. Within the minutia of productivity like that formula, can you believe the math . What would you say . 1wood deal jorgenson say . Att would Robert Gordon say northwestern . Kim the changes are not small. We have seen a big slowdown. Tom this has been fabulous. Thank you so much for coming in. Kim schoenholtz at nyu. We will continue. Lots to talk about, particularly with Gina Martin Adams on the equity markets. Maybe it is a bubble. The need to a data check. It is an august data check with futures of fractional. I am watching oil. I am really watching poundsterling at a 1. 30 level this morning. From london, new york, the yankees playing the red sox. The red sox took it last night with a bit of a brawl. This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to the Bloomberg Business flash with taylor. Taylor the Hedge Fund Industry is extending its rebound. Technologies, Institutional Equities Fund was up 3 in july, now up 17 for the year. Spiking Global Investors also rose per the Hedge Fund Industry was down 2. 6 after the first does go months of the year. A new report says brexit will hurt the british Financial Services industry no matter how negotiations turn out for it according to the institute for fiscal studies, banks may be hit hardest if britain loses Single Market access. There would be regulations. The u. K. Would no longer be able to influence those regulations. Shares of bridgestone fell after the japanese tire maker cut its annual profit forecast by 14 . Bridgestone reported lower sales and earnings. That is your Bloomberg Business flash. Tom . Tom thanks so much. Gina martin adams is with us from wells fargo. Don streisand do straszheim with us as well. We the themes of the hour, bound back to a stock market that is going to the moon. We have forgotten what a correction is, we have forgotten what a bear market is. We do explain why that is . What is the why of a bull market and all this angst we are talking about . Gina co. You mentioned gina you mentioned a bubble in the teaser before the commercial. Its speaks to me that the equity market is not in a bubble, but we are in a bubble are ae equities natural home. When you look at valuations in the bond market, corporate credit, and your other asset options, equities appear relatively cheap in comparison. The result is that stocks are driving the benefit. At the same time, equities just equities default direction is higher. The default direction is higher, and now we have had no major shock to take equities lower. Earnings came in a little better than expected in the Second Quarter and are supposed to improve in the next four quarters, so investors are playing it safe. Is august. Bring up the chart, if you would. We showed this a couple of days ago. , they emerging markets cannot get out of the way. They did ok out of 2009, and the red circle is the great break in 2013. People likecentric you saying i am sorry, now is the time to go to emerging market and International Blue chips. Are you tilting that way . Gina i am not. I like emerging markets incrementally better than other markets because i am concerned andt europe and japan negative Interest Rates and the consequences of those policies. But we still prefer u. S. Assets over the globe. For several reasons. Yes, they are more expensive, but they are also very defensive. You talk about all of these fundamental problems plaguing the global economy, the natural result is going to be u. S. Stocks generally outperform other stock markets. Francine do you worry about Profit Margins . If you look at earnings, first of all, they are struggling overall. The asset class is probably in europe than in the u. S. , but they still struggle. Are you worried about Profit Margins . Gina i am, and also about expectations. Im glad you bring this up because in the Second Quarter we saw all segments of the index expectations for Profit Margins reduced into third quarter, Fourth Quarter of this year. The expectation is by 2017 we reach peak levels on the s p 500. That in the Global Landscape is not likely to have appear that will put continuous pressure on expectations going into 2017 estimates. It is a risk to forward expectations. Francine i think that is critical because it is one of the problems that apple has had. When do expectations go to an attainable level . Gina we are getting close to nearterm a teen ability in expectations. Abilityearterm attain excluding energy, the earnings accelerating growth between 2016 and 2017 that is going to be tough to match considering the broader landscape in the economy. Tom is there an International Bear market going on right now . Would not call it an International Bear market. The expectations gina comments are exactly right. To me, the reason the u. S. Market has done so well is that there is a broad consensus around the world that the u. S. Over the next several years is going to be the strongest economy in the world, despite what is happening in washington, likely the most stable. Fors really a safe haven currencies and everywhere else as well. Tom Gina Martin Adams will continue on radio. We will continue this equity discussion, as well as on radio, we are thrilled to bring you this morning, gerald bernstein, clearly out in support of secretary clinton. Jared bernstein. We will talk with him about a trump and clinton economy. Washington, d. C. I love this. There is the capitol. Down on the right is a statue of president garfield. This is bloomberg. Tom bloomberg surveillance. Francine lacqua is in london. I am tom keene in new york. How about a forex report . Yen is grinding. A stronger yen per euroyen not doing much with euro weakness. Sterling with a bid over the last 24 hours. Jon ferro had to convert to sterling to buy his suits at harrods. Francine we will see plenty more of jon. Ming up, bloomberg jon were looking at the gilt market. What is interesting is that the offers on three to seven on the first day of the operation were out there. Further down the curve, they quite clearly are having some difficulty. We will get another option today. They are going to go into the market to buy seven to 15. It will be interesting to see if they can buy enough this time around. Tom are they going to negative risk . Mark carney says no, no, no. Jon if gilts go negative, that is one thing. Joy a distention between the japan situation, the eurozone situation, i want to draw a distinction between the japan situation, the eurozone situation. The boj and the ecb went negative to address the fx channel. The bank of england needs to do that. Tom jon ferro with us this morning. With us,Don Straszheim with decades of experience looking into international economics. When madamelinkage lagarde talks about the u. S. And the rest of the International Sphere . Are they a part . Are they joined at the hip . Apart,think it is not still somewhat connected, but still somewhat broken. This whole Monetary Policy i call it and experimental, not unconventional , of rates, negative rates this looks like a global Storm Brewing to me. Francine what is the alternative . Don the Central Banks seem to think they can solve any economic problem anywhere in the world, and i think that is just simply an overstatement and often inappropriate. Francine that is a fair point, but lets say you are a central banker and the politics are a mess in your country, like they are in 85 of the countries we look at. They need to step in and keep this ship stable, or it sinks. Is that an option . Can they just hold back . On i think they can hold back if you have the wrong tool in your hand but it is the only tool you have got and it will not work on the problems you are addressing, i would suggest you are i which suggest you do not use that tool. Tom should our next president fear the chinese leadership, whether it is politics or the military in the South China Sea . Where will we be framing a new relationship with china in 2017 . Don it depends on who will be in the white house, but i do not think they should fear china. They should expect china longrun Economic Growth rate to continue to slow. Being that they have been the driver of Economic Growth in the last decade, that is going to be a drag here and around the world. Straszheim, thank you so much. We will continue with mr. Straw as im on radio in just a bit, along with Gina Martin Adams as well. With evercoreheim isi. Francine, what an extraordinary day. Francine i think you are writing questioning whether mark carney had no choice to go into negative territory. I was watching for gilts. An uncovered option may be that they are optioning more. Tom this is bloomberg. . C sv strike, the bank of england struggles to fulfill its qad. David crude falls for a second day after saudi arabia says it pumped a record amount of oil in july. Alix a trump controversy, this one involves guns, the Second Amendment, and stopping Hillary Clinton. Jonathan the focus on the United Kingdom. And uncovered bank of england operation, not enough sellers for the bank of england to get to that one billion target. David they tried to sell that nobody wanted to buy. We have german bunds reaching record low levels. Alix . 9 . Had aday in the u. S. We great demand for threeyear treasuries. It was after those weak