Tom keene is in new york. We get to talk more theory. Centralbank action. The yen. And oil. Tom it is one of those fridays in august when you look at the big nature and try to stagger into september and 2007. I noticed people really beginning to frame what the hell is going to go on in 2017. No one has a clue. I love the chart john wraith sent in this morning. Well get to that in a bit. Francine lets get to bloombergs first word news first. Here is taylor riggs. Taylor the u. S. State department is admitting that a cash payment to iran was held as leverage to make sure that they would release american prisoners as promised. This is fueling criticism that this was effectively a ransom. Merkelchancellor angela says that conditions to raise sanctions against russia have not been met and sees no reason to lift them. That russias actions in the ukraine thate g20, china says leaders should ignore territorial rising protectionist sentiment in the u. S. And europe. The gathering will take place in an eastern chinese city. And you say bold is running away from the field and into the history books. Olympic 200 meters. He fell short of his record by is the first athlete to win the 100 and 200 meter gold medals in three straight games. In the metals counts. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. I am taylor riggs. Tom thank you. Commodities, lets get to it. Futures actually moved. With oil pretty much lifting. If you were looking at brent crude at the bottom, 50, . 58 50. 58. Sterling gets my attention as well. A stronger sterling confounding the crew. Similar have very i have a very similar board to u. K. Looking at oil. Trading above 48. This is a picture of the yen. I want to show you something different. The south korean won sliding to a month low. 1117. 51. South korea is arguably the most americanlike society in asia. Lets go over to the bloomberg. Tiebreak three rules roles. It is break rules friday. I think it is the ugliest, busiest chart i have ever done. The white line is headline cpi. In the right corner, the headline cpi goes down, because oil. The red and yellow lines are medical inflation, spiking up in red. And owners equivalent rents, which is like rent in london, except it is in the united states, grinding up as well. We have never seen that separation between the red and the yellow. Higher inflation. And the white line, headline inflation, going back in 20 years once. Coming off the 2000 recession. It is a rare moment. That is one of our themes. How unusual some of the distortions are. Francine talking about distortions i have a correlation, which will have changed for you. This is the tr treasury yield. They are moving in tandem with the fed debts. The blue line is the tenyear yield. The white line is the odds of a rate hike. It seems the markets are now ,ooking at that for impetus instead of fed futures. It is interesting when you look at correlations. Lets bring in the guest host for the hour, Christian Schulz. And john wraith. Thank you for joining us. Lets go back to this chart. What are the markets telling us in terms of what they are looking at, to figure out whether janet yellen will move or not . Christian good question. They are split at the moment across the board. Washington is dovish. Regional governors are generally hawkish. And there is the battle line between the two, which we see between the Regional Governors themselves. Some are turning more dovish or centrist. They were hawkish before. We still think december is more likely than a september, but individual comments make september alive as well. That is differen difficult for e markets to gauge. Francine do you think it is december . John we do think it is going to be december. I think there is a one in four probability for that specific meeting. That seems about right. Way, there hashe been plenty of decent data. The fed have seemed to focus on the worries and risks around their relatively optimistic view and have backed off when it has come to that. Tom i want to congratulate you for the detail of your notes. What i see is a mystery of how our many great distortions and. Do they end with stability or with a cacophony of movement . John that is a good question. I think what we have seen constantly or repeatedly since this time last year, when the fed was first expected to potentially raise rates is, as i say, they tend to back away. What theyre hoping for is that data becomes consistently strong, not just in the u. S. But elsewhere. And some of the worries in europe, it asia, the u. K. Start to reseed. They just had not gone to that point yet. At the moment, there is that volatility and constantly changing expectations. They would like to get into a more regular hiking cycle, where they can be confident each time. Tom heres john wraith with a great chart showing the distortion between where dividend yields are and where treasuries are. In the case, it is guilt u. K. The yellow line is the 10 year. Going down. We will never see a negative rate yeah right. The white line is at 4 . John wraith, the distortion there is gorgeous. And this is, in part, what qe does, in the u. K. It pushes yields lower but also and keeps dividend yields healthy. I think that is a sign of what is going on. Inthe u. K. , there is a hope the policy accommodation that it buys enough time for the economy to restabilize. So far, we have not seen that. The bank of england is desperately hoping to see the data consistently improve, so they can begin to normalize policy. Francine i know this is brexit and a little different, but this is what Central Banks have been doing the last nine years. Giving governments room to sort it out. We are still where we were from years ago, except the Balance Sheets have almost tripled. Christian there has been progress, in terms of deleveraging, for existence. It is not evenly spread across the sectors. The u. S. Has had significant deleveraging in the private sector but none at all in the Public Sector. In europe, it is like the other way around. The Public Sector has made progress in reed allinson. So there has been some work that the central bank has done. Francine thank you john wraith of ubs and Kristin Scholz of citigroup. Stay with us. In the next hour, we talk about oil. That is at 6 30 a. M. In new york. 11 30 in london. This is bloomberg. Francine i am Francine Lacqua in london. Tom keene is in new york. Lets get to the Bloomberg Business flash. Taylor monta passkey says it has acted appropriately following the ceo being under investigation for allegedly falsifying accounts. The lender used derivative transactions to mask losses and was forced to restate accounts. Viacoms ceo is stepping down. The Company Board approved a deal between the ceo and a controlling shareholder. Willhief operating officer be the interim ceo. Workeror Deutsche Bank has rejected a reward from the sec. Said ement, he instead of managers responsible. That is your Bloomberg Business flash. Francine thank you pay the u. K. Posted a surplus in july and task force was changed. Figures include data on the economy back into suggest the Immediate Impact of the brexit vote has not have been as severe as some anticipated. Lets review. Long conversation with a he zero ceo. They said they were surprised because they had a strong months, because more people bought tickets to travel here. What is the lasting effect of that . What we have not seen yet is the Brexit Impact on activity of people. I think it is not that it will not comment through, it just has a lack 0 not come through, it just has a lag. The most interesting part was the cpi data and the fact he started to see small segments of the cpi index subcategories, some of the weak pound coming through in those. That is what you would expect to see first. Then activity and the labor market is likely to follow down the line, should the economy starts to slow. One thing we were trying to explore with the heater ceo was the fact was of the fact because of they he throw the heathrow ceo was a fact that was is because of things like terrorism . John that is quite eight difficult a difficult thing to segregate between the numbers. The thing with the pounds was that it would bring people over here, because coming to britain on holiday was cheaper. But the concern is domestic man 0 domestic demand. That is where you see the slowdown. That will tromp export affects, net trade affects. That is how the economy will slow and the process you will weeks. R the coming francine what is your take . Will brexit be as bad . Christian it is mixed data. Every week, you take stock of what has happened. This week, there have been a lot of positive surprises. There is a little bit of a mixed review. Certainly, unemployment data, allh showed for unemployment in july. This week, positive news. But we have to go back a few weeks, and that is a resolve the andnd crop of the pmis, there was a down reaction. The pmis themselves. 2 recession. To recession. To join the dots, the epicenter of the impact will be investment. Domestic and foreign. The data about that we will get in months. Retail sales will never be the epicenter. Tom i level you said above the domestic economy. One of the great mysteries is if we see sterling go down, as suggests, as some form of protest by the people. Maybeeve it was argued korea what sell gold bracelets in the street, how would the british people protest what seems to be a coming wealth destruction . We saw a earlier in the week there was some process outside the bank of england about the qe experiment. The bank of england doing extra qe. In 2009, 2010, 2 thousand 11. There was a squeeze on household income. A curb in household income. That affect will be, surmounted consumption side, will be the headwind. Slide in you have a the wage growth as well. But it is the 10 fall in sterling we saw that will really curb spending. Today, you assume day and granted it has only been weeks since brexit, do you assume london will become more polarized from the rest of the United Kingdom . Possibly. A lot depends on how the negotiations go at the european union. The city has a big steak and that negotiation with services, financial services, and how passports play out. And theon in itself, southeast, has always been a different picture from the rest of the u. K. I do not see that divergence ever stopping. Tom i agree. Dan hansen, thank you. Looking at the United Kingdom economy. Amazing where we are in the third week of august versus the third week of june. We will shift in the next hour to a terrific piece of research. On the overvaluation of the market. Brian levitt has an optimistic message. He is with oppenheimer funds, and he has Truly Original research on the s p 500. This is bloomberg. Francine this is bloomberg surveillance. The strongest politician in the eu is losing in the polls at the moment. Angela merkel has been saying our rallies the last couple of days that flight that fighting crime and islamic terrorists will be a problem for years. It seems the chancellor has been adopting a law and order stance. Lets get back to Christian Schulz, european economist at citigroup. The eu seats needs a strong head. She is trying to get the eurozone together. Concerned that her Approval Rating waning means that she will be softer . Christian her Approval Rating has waned, but her partys has not. Because in terms of approving politicians, all of them can go at the same time. But in the party polls, it if you do not like that party, you have to like another party. And the options there are not appetizing for voters. Merkel has to make an important choice ahead of the Party Conference page you will have to decide whether to run again or not. For that, she needs a bit of momentum. There are a couple of state elections in september. Though should not be bad for her. Then she has a bit of momentum into the second half and end of the year to announce her running again, which we expect. Fallenrmany has sort of off the map, at least this week. Let me bring up a chart that you do not want to talk about. Inappropriate for me to fromto mr. Schulz citibank to talk about Deutsche Bank. I am sorry, but the problem has not gone away. What does chancellor merkel do about her Financial System . Christian she is certainly not saying anything. I think the message from germany, not just from the government but from the bundesbank of is that there are problems, mainly with italy, the ins, thenion, the bail relatively tough regulations. They are generally working. The problem is that german policy makers are saying that the ecb is keeping Interest Rates low, undermining the banks ability. As a result, we get this standstill. Tom i am sorry. Where mr. Screams good luck critics are under 10 years a euro. Francine and talking about Deutsche Bank, it will be interesting to see whether germany softens on bail ins. Tom we will move forward to the 5 00 hour onto the 6 00. How about next, go west, young economist. Michael mckee will migrate to jackson hole. Really interesting to see what chair yellen says. [ clock ticking ] time. You only have so much. Thats why we want to make sure you wont have to wait on hold. And you wont have to guess when well turn up. Because after all we should fit into your life. Not the other way around. Everything is cool when youre watching a screen everything is awesome, when youre sharing a meme a voice remote, show me angry kings you know whats awesome . Everything apps that please, more selfies, endless hours of the best tvs brand new apps, shows to go, awesome internet thats super whoa. Everything is awesome xfinity. The future of awesome. Francine u. K. Posting a surplus as the Bank Surcharge increases taxes. This is the picture in london. Or is officially over not. With this weather, who knows what will, next come next . Tom its gloomy. Taylor riggs is never gloomy. Francine lets get to her. Taylor the Clinton Foundation says it will stop accepting donations from corporations if Hillary Clinton is elected president. Ethical have expressed concerns about the foundations when raising practices. Experts searching for Malaysian Air flight 370 is surging for a new search area. To examine where the first piece of debris was found. The plane disappeared in 2014. A firm run by Donald Trumps did agn chairman directly covert lobbying program help the ukraine. Email show that Paul Manafort tried to sway Public Opinion in favor of the russian pro the prorussian government. And the to a mayor cain olympic rio 24 hours after being pulled off a plane by law enforcement. Their departure came hours after police say ryan lochte, but already left brazil, and three teammates had not been held at gunpoint after a night of partying, as lochte claimed. The claim has generated outrage an apology from the u. S. Olympic committee. And coming to london underground, the weekend Night Service. It starts today, almost a year later than planned after wrangles with unions delay the project. The Mayors Office says six trains in our will run on the central and Victoria Lines overnight. The expanded service is expected to help around 2000 jobs. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries, i am taylor riggs. Francine thank you. I love the fact that london is starting a night subway tube service. Almost one month after brexit, so i do not know whether people got less or whether the revelers will still take it. New w theres also a this is breaking news for tom keene, there is also a Night Service in new york. Tom really . [laughter] tom we do not shut down at 10 00 p. M. Like london . Francine not yet, no. It has been going on for years. I specifically check with your producers. Withyou will have to check mike mckee, who has tested every bar in new york. Michael mckee has taken a minute to look at the minutes. Never before has everyone been such a jumble. The fed has a credibility problem on wall street. There is a lack of consensus about what they should do but what they are going to do in september. Consider the number of said speakers bill dudley kicked it off. He is important, because his views carry a lot of weight. He says september is on the table. Rob kaplan spoke from dallas saying i do not know. John williams said sooner rather than later. Jim bullard of san luis say that year. Dennis lockhart says september. What are you supposed to do . You mentioned the fed minutes. Look at the wide range of views in the fed minutes. Remarkable for their lack of clarity. John williams said last night that it sums it up. That that is how they feel on the committee. But williams added, and this is what people are watching from him the lesson of history is if you leave the punch all out too long, usually the police break up the party. Tom i will go with that. But bring up the dots on the chart. It is like ryan swimmer guy. You have the dots down your left arm. It has never been wider. We go to jackson hole with the greatest disparity we have ever seen. Mike this is why they have a credibility problem. So their line is here, the market line is down here. Where are they going no one knows. Here is another chart. This is the probability of a fed rate hike in december. They came into this year, saying we would have four rate hikes this year. Look what we have. Have yes, no, yes, no yes nah. How is the market supposed to figure how to price the cost of credit . Francine so what do we know about what janet yellen once wants . Issue the only one we should be listening to . Mike you got it. Bill dudley usually reflects what she says. So the question is is this the venue where she wants to make a statement . Ben bernanke did a couple of times, but jackson hole is not a place you traditionally layout Monetary Policy. So will yellen do that, will he she will she be forced to in the markets . She said this was not the right occasion, and they have the jobs report coming out a week after she speaks, so maybe she wants to hold her fire, which will only frustrate wall street more. Sure janet yellen is watching and saying that the markets have no clue, she has to make a statement. The problem i have is that the data is not clear. There are some good numbers and not so good numbers. Francine what are the not so good numbers . I mean more widely, particularly, the World Economy is in a questionable place. That is what is making heard decision difficult. The other thing is they are starting the rate so close to the floor that there is a risk. It is all well to say that you take a punch bowl away, but if you get your timing wrong, you have to cut the rates, but they cannot do that. On the sideerring of waiting until they are sure. Tom a former fed governor wrote a brilliant short book. Is how alanat greenspan actually operated. Do we know how chair yellen operates . Mike she is completely different. She follows the bernanke model of consensusbuilding. Tom but she has to make a decision at some point . Mike she does and will tell them in the committee room, but committee thishe is where we are going in the way greenspan did. She will give emphasis in what the fed is thinking about and this is a conference about the efficacy of Monetary Policy going forward. She could go this is what we learned, so we have to do x or y. But she may not want to do that, because they may not have enough direction. She may not be ready to later cards on the table. Francine are we overthinking it . Moved 25 basis points. What does that mean for the markets . Itistian for the markets, means quite a certain speed of increases to the future. I think the real question is where does the fed want to end up . That determine such ejector a. That is what we will learn something about in jackson hole. Is there structural headwinds or stagnation . These are the concepts we have heard of that will feature highly on the wrist list. Francine but the problem is they have been telling us for their rate hikes, now two, now four, now hold off because we are dovish. Isn weather will try to do get rates to neutral, wherever out to be. The longer they have to wait, the more carefully they have to tread, the more the market thinks the neutral level is lower. They are hardly on a hiking path. Tom we have this chart from short sale mike mckee. This is the distortion janet yellen faces. The yellow line is the United Kingdom 10 year. The white line is the yield on the ftse, the dividend yield. The distortion chair yellen faces at jackson hole has never been greater. Literally nine years and took this crisis, it has never been greater. Mike the fed wanted to keep to push people off of the yield curve. It has worked too well. Some people are worrying about bubbles. Right now, you would rather be in bonds than stocks. What does that tell you about the way things are going in the world these days, even with stocks rising so high. Francine and what does that tell us . Christian i am always amazed by you, because of course, have dividend yields, which used to be lower than bond yields, but now it is the other way around. From an arbitrage point of view, what does that tell us about peoples expectations for stocks . Greaterthere is a much risk now, because otherwise, stocks should be higher. And people seem to bank more on the dividend and then on future price increases, which used to drive total return on stocks averages thanrun bond returns. It seems people see risk, and that is why stocks are not higher. And they focus more on returns than future price increases. Francine thank you Michael Mckee aim new york, Christian Schulz and john wraith here. Coming up, chinese lenders being left in the dark. Will a compromise reforms . This is bloomberg. The city ofis is hong kong. It is almost as gloomy as london. So glad we are not the only ones with smog. I am Francine Lacqua in london. Tom keene is in new york. Lets get straight to china, where lenders are being kept in the dark by Zombie Companies, which contain the names of state owned companies teamed to week to survive. They are being withheld from banks on the fears that they will be cutting from them. Are joined by philip. Great to have you on the program. Is this a concern, or can we live with Zombie Companies not being out of the open in the open . It is definitely a concern for the banks. The banks are have their own troubles. They are writing bad loans that they are trying to contend with. Ife are likely to turn bad the economy slows. It is clear the banks want to go want to know what is going on. Who are these companies that are Zombie Companies. And another reason it is important is because a lot of the big state owned banks have been dealing with soe companies. They want to find out for their own planning as to who the government will keep alive. Francine what does this tell us about transparency in china, and how should investors read into this . Transparency and china is always a little on the investors mind. It has to and will continue to be. It is a local government is keeping something, even from the local banking regulator, that says something in the process has broken down. The agencies are not talking to each other. When they keep secrets, that is investors, never what want to hear. In this case, the local authority seem to have a different agenda. The banks want to monitor their own Balance Sheet and keep them healthy, where local authorities are worried more about the jobless rate. Tom you want to jiangxi. Ono not know where that is the map. So youre in the interior. This is the jiangxi river y angtze river. So what does this mean for shanghai and hong kong and particularly for beijing and other major cities. Do they have the same zombie problem . Philip first, i should disclose that i did not personally go to jiangxi. But the problem is yes, it is widespread in china. There are several provinces that will not share this kind of information. We do not know exactly who they are. But it is not limited to jiangxi. You may see it in shanghai, beijing. There is one province where they do share this, and they are setting an example. But this is fairly widespread throughout china. Tom so the critical question is Major Chinese banks, and we believe their Balance Sheets . Philip there is definitely some doubt. In investor circles. If you talk to people like fitch about the validity of chinas official bad loan statistics. People put the official rate higher. A famous banking analyst put the closer to 20 . So there is a little concerned there. Francine phil blogging concert lagerkranser, thank you. How much do we understand of china . Should we be more worried . It is hard to know. I think the markets are always slightly unethical about some of the data appeared slightly nervous about whether to take it at face value or not. But they do not have much alternative of knowing whether it affects reality or not. These sorts of issues, when they greato surface, is of concern, because underlines the possibility that some of the data is overstating how healthy the chinese economy is, how healthy some companies are. And in the context of wider global concerns, that is another layer of concern. Tom john wraith the vbs, thank you. Let me do a data check now. There is a little weight to equities. 11. 96, futures down this morning. Brent crude nearing 51 a barrel. This is bloomberg. Tom good morning. Bloomberg surveillance. Francine and london. I am tom keene in new york. We are thrilled you are with us on a friday. Our business flash news here is taylor riggs. Taylor Hong Kong Exchanges is going to address extreme price wings on the stock market on monday, rolling out a volatility controlled mechanism for the largest securities. It will restructure stock from moving more than 10 in a once anute period session. The sec is looking at it a San Francisco startup is violating mayoaw by making its look more successful than a was by buying it from the shelves. And Paul Tudor Jones is ending does urging managers to take more risk. That is according to a letter obtained by bloomberg, who says he is staying money to more than half of his assets. The business this week cut 50 of it its staff. That is your Bloomberg Business flash. Francine thank you. Lets dig deeper. There was a technical hiccup, but the bank of england struggle to find enough bonds to buy as part of its stimulus package before getting back on track tuesday. Track . Ark carney back on first they had the hiccup monday, then it was fine tuesday. But we also have some pretty good data overall from the u. K. Economy. It has held up so far. I think it is still too early to draw any conclusions. And perhaps, in part the reason it is holding up is because the pound has fallen as much as it has. And that is a consequence of what the bank of england has done. We will never know what would have happened if they had not done it. But so far, it is justified. The markets have taken in stride. I think it was a technical hitch that struck the first and buy that. First end buy that. The basic idea is connie to the rescue. I put this chart up during the break that agony. This is inflationadjusted disposable income in the United Kingdom. A lot of other countries look like the same chart. The other issue is the immense societal effort to get back to the yellow line. Get that to what we remember get back to what we remember. What can Governor Carney do to assist Prime Minister made to get the United Kingdom on a better track . John he will probably argue, and would not be alone in terms of Central Banks, he is doing everything he can. Policyssentially maximum accommodations. The rates are down as low as they can go. , corporateoduced qe bond purchases. They can do more of the same, but they cannot really put their foot much further down to the metal. It is up to the government, with fiscal reform and other economic measures, to try and increase productivity. That is what can push those disposable incomes back up. I think the Central Banks have done as much as they can. Tom i will go with that. But the theme of the week and into september is the timeline of brexit and what the London Alternative is. I do not see a London Alternative, except maybe dublin. Liverpool to from dublin i do not think the other thing is can you get to a brexit fasttrack . From the u. K. Perspective on this, they want to tread carefully. There is a reason article 50 has not been triggered. The process of brexit has not yet begun. That is another reason the data is holding up the did has not changed yet. It is not about speed. It is about the efficiency and the agreements that can be struck. Of the greatone ideas on the last 48 hours is the idea of bilateral or more narrow agreements like with switzerland, versus the all nevis omnibus. Francine people are full of great ideas, but we have to go down to negotiate what they will say yes to. Tom i would hundred percent agree it is more about europe then the u. K. John wraith, thank you. You need to Pay Attention to revenue. We are with him next. This is bloomberg. Tom in this hour, the stop market bubble among many great distortions. In this hour, brian levitt of oppenheimer funds. The meetings of jackson hole are upon us. Chair yellen is in wyoming. Mr. Trump begins a new. Good morning, everyone. This is bloomberg surveillance in new york. It is friday, friday i say. Law is with me. What a strange week. What an odd week did week. Francine maybe we can start a donald trump. We can move into Central Banks. The focus is clearly on oil and janet yellen. Of we are almost a labor day and i am beginning to get whispers of analysis of 2017. Here is taylor riggs. Taylor donald trump is making his first speech as reorganizing his campaign. He is trying to show a softer side to voters. Was tellingnee supporters he has regrets for some the rhetoric he is used. Sometimes in the heat of debate and speaking on a multitude of issues, you dont choose to know the right words or you say the wrong thing. I have done that and believe it or not, i regret it. Purchasede Trump Television ads set to begin today in some key states. Chinese Officials Say next months meeting of g20 leaders should avoid political issues. China will propose propose and Global Growth protectionist sentiment in the u. S. And europe. This will take place in china. Says conditions for lifting sanctions against russia have not been met and she sees no reasons to remove them. She calls the annexation of crimea a breach of fundamental principles of the peace order in europe. Yesterday in rio, bolt run the 200 meters. He fell short of his own world record or in he is the first athlete to win the 100 and 200 meter gold medals in three straight games. The u. S. Leads with 100 medals. 35 are gold. Great britain has 56 total metals. I am taylor riggs. This is bloomberg. If tom thanks so much. Week, on the weeks of lethargy that we have had it. The euro is over 113. Is 50. Would, brent crude the yen just wont move. I think thats a big deal, francine, on any news. Francine i do like that news. We are watching oil, as you say. I put in the korean. Losing ground for the first time this week the dollar index is rising from a threemonth low. I would watch out for some of the european stocks. Tom what the fed is doing is looking at 18 inflation series. This is one of the most of busy charts i have ever done. I am breaking three rules of chartdom. The white line is cpi. Its rolling over in the right corner. The red lines medical inflation. The yellow line is rent. This is versus goods inflation which has shown the disparity we see right now. Inflationd environment. Francine its an odd correlation. This is the twoyear treasury yield. This is an blue. The 2016 rate hike. They are moving in tandem. I brought it back to the beginning of 2016. Tom we talk about this distinction into 2017 as well. Excuse me. Brian left that is with oppenheimer funds. We are going to dive into that later in the art. Right now, part of the bubble nobody talks about. Everybody is talking about equities and bonds. How do you determine if something is in a bubble . Brian you need to have a lot of fraught sentiment, people who are overly exuberant. I am hardpressed to call that a bubble. I think you about 120 billion come out of equity mutual funds. Bonds are overvalued and they have then bid up beyond what the nominal growth is. When bond yields are significantly below the likely nominal growth trajectory of this country, they appear overvalued. Tom youve got Portfolio Managers that must be invested for bobby guys. Thats an ugly thought. Brian there is a huge opportunity to being there. A bubble in the sense that its going to implode, you can sit in this paper and sit there until maturity and earn the coupon. Its not going to explode like the bubble did in the 1990s. An overvalued condition compared to the nominal growth rate of the country. Doesnt mean Interest Rates are going to go higher anytime soon. Thats the problem. If they are overvalued already in Interest Rates dont go higher, what are we creating . Brian a prolonged environment where investors will be generating minimal income in government securities. It persists for a very long time. We are creating more investors be grudgingly having to move into perceived riskier assets like credit or global equities. When i say be grudgingly, i mean be grudgingly. Investors and not believing in this. Investors are still uncertain about eating in equity markets when yields are negative in europe and japan and quite low here in the united states. Concerned thatou its going to push investors . If you are trying to trade in this environment, its good to push a lot of houses to take riskier bets. Could that be the basis of the next crisis . It could be, but we are not near that. If we get to a place where spreads on a bond are through 300 basis points or the multiple multiple is higher than we are today, perhaps we have a problem. Look at valuations on equities. We never stay at the average. We move one way or the other. We trend higher. Valuations on equities dont seem extreme. Tom i want to talk about michigan. He died of cancer years ago. In one of his major issues, it was the idea that hysteria wouldnt get you anywhere. Notes and in research the media zeitgeist now is massive like i have never seen omg the world is going to and go to cash. Michigan,heritage to how do you respond to that . Brian theres always that omg lets go to cash. Im not sure that its worse. If you talk about what weve dealt with since 2009, we had the debt crisis. We had the situation in syria. We had the china devaluation. We had the first rate hike. We always have this tendency to believe that we live in the most uncertain or scariest times and only in hindsight do it realize we are progressing at a slow pace globally. We see modest improvements in Global Growth. Tom to our audience who are reading this stuff, how do you to theionally respond immediacy of notes that are on my smart phone . Brian we need to use historical respect to is a guidepost. We speak with intermediaries and their clients and talk about distant principles and courage and balance. Tom courage . Based on history i totally agree. This is a huge deal. Nobody remembers the past. Francine no one often remembers grexit. What are we actually dealt with . The eurozone is not stronger than it was even 12 months ago. What have we gotten right . Brian weve gotten a lot of things right. We are trying to support this reflation and recovery environment globally. I think there are other things that are not necessarily right there in in europe, we couldve had a better recovery at this point. The austerity forced on it countries and the uncertainty is slowing confidence. None of that is good. What we got right is Monetary Policy makers quickly recognize the depth of the problem and they understand deflationary concerns. They have done everything they can. We have not done everything right. Tom we are going to come back. We are looking at revenue. This is very very cool. We will come back and do that in the next half hour. On monday, francine will join me on radio. Why did you agree to this . Francine look at our guests. Look at the people we will be speaking. I enjoy doing radio with you. We have mom and all arian. Tom that would be a very good list of people. That will be on television and radio on monday. Francine lets get straight to the Bloomberg Business flash. Taylor a troubled italian lender say they have acted appropriately. The ceo is under investigation. Prosecutors have investigated how the banks former manager misrepresented his finances. The lender used derivative transactions to map losses. Whetheris looking into a tech startup broke the law by not disclosing they were buying their own of vegan mayonnaise. It made it feel more successful than it was. The agency is trying to determine if Hampton Creek improperly influenced revenue. Bank employee has rejected a reward from the fcc. He said its disappointing the top executives retire with multimillion dollar bonuses. Your Bloomberg Business flash. Tom thank you so much. I didnt mean to yell at you, megan. I meant to yell at francine. I didnt mean to yell at you. Are you kidding me . What did mr. Trump say last night . Megan what is going on now . We had a surprise apology last night for some of the rhetoric he has been using on the trail. Moving forward he has a vision of the ms. Him and positivity and new future for his campaign. This comes days after we had this shakeup in his campaign with the appointment of hugh bennett at the top of the table. Its a very interesting sign of whats to come. Tom what do they need to get . Do they need to read get the obvious trop supporter . Are they trying to get disaffected republicans . Megan when you look at the strength of the campaign, its white men and women. We thought the direction of that campaign would need to solidify support with that group, especially with lower class aspects of that writ of they would try to solidify that traditional republican establishment. Maybe some people who were on the fence. What we saw last night that was interesting and i want to emphasize is the outreach to africanamerican voters. He said whats the harm in trying some new. This is a population where his polling numbers are of dismal. Abysmal. Hillary clinton has numbers in the 90s. If she if he is going to make that push, he has to make a new push. Francine he is especially in compassion and repentance. Have we ever seen this donald trump . Not sure if we will ever see it again. There is no question they feel the need to do something different. The gap has widened quite large now. It is 10 points in most polls. People were appointed, they talked about this being a more bombastic and combative campaign. Are we going to see an attempt to humanize mr. Trump more . Is he self aware of the impact his comments have had . That would be a real shift. Francine Hillary Clinton is trying to extract yourself from some of the bad tress rests. This is an Important Development with the clinton campaign. The clinton said they will scale back their Family Foundation which has been the source of scandals or problems over the years. They will not accept foreign money. They will have an independent entity. Chelsea clinton has been heavily involved as well. They will put a firewall around this that good negatively impact the campaign. Thank you so much. Yell at youwont ever ever ever again. Francine he will yell at me. Thats what im here for. This is a really good friday night for the idea of where are we now. Look for that tonight. We are not yelling. This is bloomberg. Francine i picked out something for you. This is time for the morning mustread. Started monday. Forwilliams deserves credit increasing the conversation about targets. When we bring best the conversation to what we heard on monday, we need to rethink the way they operate. I think it push the boundaries to see what we can come up with. What we have done so mark far isnt working. Tom i like the conversation. John williams replaced chair yellen. Differentegion has a character and quality. Knows the cleveland fed and the chicago fed are different as well. Who has to weigh in on this debate . Has this got into a point where she has to come out and say this is what we are going to do . Brian she does. Its going to take time before we get there. What the ft is saying is this is going to be a wrong long process. The first thing i think the central bank to be doing is first do no harm. We are talking about what they are going to do in the future. I think raising Interest Rates, when youre the only country raising Interest Rates, the dollar is the allies are. Its difficult to do that and we saw the ramifications. Tom this is critical for your Portfolio Managers. Do you assume a managed stronger dollar . Does this harm the portfolio . Brian it will depend on policy. Youre not going to see a rate hike this year. Global perspective on all of this, raising Interest Rates when everyone else is easing, we saw the headwind for u. S. Corporate profitability and activity. Mind the fed is in. We can beg for fiscal stimulus. The first thing we need to do is no harm. Mostthis is one of the fascinating jackson Hall Meetings in five years. Francine i agree. If you wait too long, you may need to raise Interest Rates aggressively afterward. Thank you. Up next, oil enters a bull market. This is bloomberg. Markets are taking their cue from the fed and janet yellen, awaiting jackson hole. Tom good morning, everyone. Im getting everyone reading for their reading on economics. Brexit asg it with well. Its the gift that keeps on giving, isnt it . Francine we may have two or three years and then a decade after that. Tom its like the financial crisis. We begin the 10th year of financial crisis. This is taylor riggs. Taylor the Clinton Foundation will stop accepting contributions from corporations and foreign countries. Bill clinton outlined that in other changes from staffers yesterday. According to the associated they, email messages show tried to sway american Public Opinion in favor of the prorussian government. They never disclose their work as foreign agents as required under federal law. Experts searching for the missing Malaysian Airliner are hoping to define any search area. The team wants to study where in the ocean the first place piece of wreckage was recovered. The plane disappeared in 2014 with 239 people on board. Long awaited weekend Night Service starts almost a year later than initially planned. The Mayors Office and six trains an hour will run on the central and Victoria Lines overnight. Its expected to boost the london economy and support 2000 permanent jobs. An attorney for an olympic sweater says he will pay 10,000 today and leave brazil following the robbery scandal involving the u. S. Swim team. He is shown here on the right. He will make a donation. Two other swimmers left rio today, 24 hours after being pulled off a plane to be questioned about the incident. Global news 24 hours a day powered by 2400 analysts in more than 24 countries. This is bloomberg. Tom it is the simplest of a simple charts. Our single best chart is the most famous in modern equity theory. Everybody had this on their wall in the 70s and 80s. 500 standard and poors during the depression. This is what we know and what we have lived. There is all sorts of history in there. There is the depression and world war ii and the 70s and then up up we go. Is this overvalued right now . Brian it is overvalued compared to its historical average. It is reasonably valued compared to the current Interest Rate environment. The problem with market cap wantes is more people passive strategies. Tom you go to a revenue analysis. Everybody goes down. They go to net income. Ago go a guy from years right up to revenue analysis. Why do you look at revenue based s p 500 . The interesting thing about revenue is its not going to be manipulated. Its one of the. Numbers you can have. Its difficult to manipulate. What i like about revenue is if you were to look at the 500 companies, they are profitable. They are not inferior companies. We would argue the market cap is an inferior methodology because it leads to froth or sentiment. Tom let me give you a jack welch moment. Parts, is made up of two price and units. If you take the differentials, you get odd things happening it. Toyour analysis, if i want invest revenue taste. Brian it will be a combination of oath. If you think about what were doing. If you revenue weight of them based on 12 month earnings, you find you are consistently moving out of momentum. You are moving out of those Companies Whose market cap is climbing faster than the broad market. You are moving into companies who have revenue that is larger than the Broader Market area you wind up with a more highend portfolio. Everyone is trying to play with start data with single factors. There is a lot of appetite for low volatility. Those become overvalued. What a rebalance on revenue does, it moves you out of more recent winners. You participate in it. You consistently move toward fundamentalth true strength rather than those Companies Winning because of sentiment. Tom im not sold. It going. Francine lets talk about profit owings margins. This is being eroded. A lot of the Earnings Growth has been on cost cuts. When will we see Profit Margins go up . Climb Profit Margins will as the economy continues to improve. Revenues are improving. These arealancing we are not looking for a significant pick up and Profit Margins. We are looking to rebalance into quality. Tom lets take home depot and lowes. Home depot killed it. Lowes didnt do that. Dynamic, home depot does better than lowes. Own home depot or do you want to own lowes . Brian you want brought exposure. Tom i get that. Brian of course you want to own home depot. If you are consistently moving into those Companies Whose revenue is bigger than the market, you will end up with a much better valuation port folio. You want to own those companies that are generating good growth. We are consistently moving out of those that are climbing simply because of sentiment, moving to those that are more quality and value oriented that have that generation of bigger. Francine if fundamentals arent itsese retailers sides, almost a fictitious name in share price. Brian if you dont have sustained growth, you wont have sustainable markets for a long time regardless. If you think about it from a price to sales perspective, a market cap indexes on the numerator. A revenue is on the denominator. In both instances, if you dont have sustained growth, there is going to be a breakage. Tom this has been a fascinating discussion. Do you want to look at revenue or do you want to look at the first derivative or organic Revenue Growth . Brian we are looking at the blunt instrument of revenue. What you are producing is a more valueoriented portfolio. If you want to look at growth of revenue, you have different characteristics. Tom this is very controversy all i would point out. Francine its really on point and on message. On monday, we will speak to Howard Davies on tv. We have five hours of tom and i. This is bloomberg. Francine i am in london. We promised we would go back to oil. Crude is back. Oil is entering a bull market. Joining us. Its great to have you on the program. We are trying to figure out what is going on. The oil has increased significantly. There may be an agreement in september when opec meets. There is nothing fundamentally different than there was a month ago is there . s keep resurfacing every few months. When prices dip, the venezuelan will talk again. Any miracles. Ting francine they are pumping a record. Amrita i think thats the real risk of the moment. Outside of these stocks, fundamentals have improved markedly for the first time in months. We have seen a lot of lost reduction in nigeria. Thats very supportive. The real risk is saudi arabia keeps production very high. Thats going to delay the rebalancing. Opecis there a chance that or saudi arabia cuts production or freezes production if they dont get similar cuts or freezes by nonopec . Amrita i dont think they are going to do anything on their own. With all of these forced nigeria, you are looking at a deal if there were to be one between saudi arabia, ironic, and iraq. From 130 a barrel. Has that disappeared . I dont think so. I do think you are in that kind of space where things need to stabilize a little bit. There is still a big inventory overhang. Within that is the idea of brent crude bouncing, the basic idea of the bounce. Is this just a healthy bounce, or is this a precursor to a legitimate bull market . Amrita i think the precursor to a bull market is in the cards. I think it is a little bit too soon. Here,ces stabilize around that is fine. If we go to 60 or higher, some of the prices will come back. Ultimately, we expect higher prices, but thats not for a couple of years. Tom we are sitting here on a friday and its an elegant up chart. I dont want to go into all the details. Its actually pretty cool getting up to 55 and maybe we get it up to 70. We have such a varied set of opinions. Say that i have to today is significant. We get the count today. Bec is not what it used to 15 years ago because of this shale and fracking. Tapscan tap turn on the faster than we thought. Misperceptionmon that they are faster than they are . Amrita i think they are quicker than convention. Its still a minimum of six months to a year when rigs are routed in production it comes back. That is a while away. Tom you hear this and you wonder what the buy side does. Has oppenheimer made a sea change on how you look at hydrocarbons and big oil . Brian its a number of different strategies across different products. We were worried about at the beginning of the year, you like to show the charts, it was consistent with the move in the dollar. We can talk about the supply and demand dynamics, this was the root cause of tighter policy in the united states. What i am going to say is when the Federal Reserve is raising Interest Rates when nobody else is, you get a 30 rally in the dollar sucking out of the emerging markets. Oil trades around the world in u. S. Dollars. If you were to track the inverse of the x y to crude oil, they move in lockstep lower. Justthe Committee Said kidding, were not raising interest, you saw oil move back up in kind. You need to look across the energy patch. I would say our view is we were concerned earlier in the year because of a policy mistake. Tom we will continue with oppenheimer funds. Odd friday earnings report. The headline gets my attention. Unit sales are down 10 . They have their own a samestore sales issue. What do you see on john deere . I know about tractors a lot more than people think. We did have an interesting story. Big deeper because of this. They sell secondhand tractors. Tom sales are down 10 . That is a global measurement of where we are. That showed that as well. Lets take a look at this data board. The fix is 11. 98. There is oil rounded up to 51 a barrel. This is bloomberg. Good morning. Tom francine has been waiting for this all morning. We have a weaker yen through the week. It is strong over the last. The mexican peso is at the bottom. There is a stronger peso showing a resiliency to emerging markets. Francine common up soon its bloomberg go. I know you have a packed show. Tom, weust like you and will talk about the fed. Have pimco to sort through all of that. Tom said it and i agree, its one of the most fascinating jackson holes weve had in a long time. We will hear more from blackrock. This is what has happened over at viacom. Tom you lived it. This is unique i would suggest in corporate history to see a family so dominant. It is original. David we prove basic truths that blood is thicker than water. Sherryend, it is redstone who takes over. She is a bloomberg intelligence. She is in charge of the viacom soap opera. Obviously, this is a victory for both the redstones as where is shot rollers. Drama was ara style big distraction for the company. They needed to get into business and hands. Chart versus disney. You know the outperformance of disney. What does this say . What does this say about what mediaa and class b structures. Im sure there are some others at work. It generally doesnt work when its families running media. You dont make money over the long term. Thats absolutely right. I guess the major problem with viacom was philippe was not a strategic leader. He was viewed as a caretaker. In,family needed to step especially to see that this company is navigated properly through all of this evolving media landscape. Francine they reported some really poor thirdquarter results. Exactly. We see them underperform at and also onnetworks the studio side which is the paramount studio. They had a string of film releases that were all mediocre. They did not see a single big hit come out. Profit ticket. There were some week guidance as well. Tom thank you so much. Levitt, very quickly. It never works out. In terms of . Tom if the family owns the shares. Brian my kids are trying very hard with nickelodeon. Part. Doing our tom there you are. Monday, what a lineup. Howard davies will join us. People are raving about the book. That is a great summer read. This is bloomberg. Jonathan fighting the fed, Central Bank Officials go out of their way to stress their rate hike. David herbal intervention, opec talks about the potential of an oil freeze. Alix a bid for sterling, a week of high data since the pound higher. Jonathan a warm welcome to bloomberg , i am Jonathan Ferro alongside alix steel and david westin. The fed still very much in focus but the market is saying, we will fight the fed. David they keep saying, it is live for september and the market does not like an inch. Alix they were talking about the probability of a rate hike sooner rather than later, but he is much more dovish longerterm. Jonathan i would say that is where there is some consensus, a