Johnson . Where did this summer go . Guy we had to the summer. This was the first summer in ages nothing happened. Last august it was china blowing up and greece. This is the summer to relax. Tom we just saw good english data, didnt we . Guy absolutely. The bounceback is there in the Manufacturing Sector. The british pound has gone down. No effect on manufacturing. We have a big drop and suddenly a number coming through. I dont know what to be more excited about, the comments on Monetary Policy not working or the data out of the u. K. Tom right now, lets get to the Bloomberg September 1 first word news with taylor riggs. Donald trump has returned to form an immigration. In phoenix the republican candidate made it clear he was to build a wall on the southern border with the u. S. And make mexico stay for it pay for it. There will be no amnesty. Status,ot obtain legal or become a citizen of the United States by illegally entering our country. Day,r earlier in the donald trump flew to mexico city to meet with the president there. He did not discuss the border wall, but peno contradicted him pena contradicted him. Suggest that she is willing to leave the eu Single Market to accomplish that. Since the start of the week, 12,000 migrants have been rescued in the mediterranean, an unusually high number. Controls were tightened along the routes connecting turkey a to austria, so italy is the main point from africa and the middle east. Singapore has its first case of a pregnant woman testing positive for the zika virus. There have been 100 cases reported. The first locally transmitted infection was identified this week. Singapore has set up efforts to fight the zika virus and the mosquitoes that carry it. The brazilian president says the worst is over. His first job is to build the economy back on track. He told his cap that includes spending caps and pension cuts. 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. Tom lets get to equities, bonds, currencies, commodities. The futures are up. Euro, weaker dollar, oil stronger with a little bit of a adapter ugly day yesterday. In the nexts on vol hour. Theres brent crude under a 47. Gold coming in. In mexico, trumps visit to mexico, a fourday move of the weaker peso that we have seen moving back towards 19. Guy lets talk about what is happening with the pound. What is happening with the ftse did the low low the back of that number. Chart, 130om of the 2. 49 on the back of the stronger manufacturing number. I will give more numbers when we come back. My bloomberg, god has a short review, this is a straight weighted them. Is there a lot of history in this chart. The turn down is the weakening of sterling off of the euro crisis. Unlike most major nations, it did not come back. The brexit dropped on a weak sterling, the blue circle. The red circle in the lower right, if you extrapolate or interpolate out a 120 sterling and bring it over to trade weighted coming you get to the red circle, which is beneath lack wednesday of 1992 on the left. Thisohnson, the profound of a 120 call from Deutsche Bank and others is extraordinary. Guy the extraordinary thing would be to see that having a bigger effect on the Manufacturing Sector. That is what we are seeing at the moment. Finally an effective a weaker sterling. We have waited so long. You can see that on my chart. I have the cable rates, the blue line. The white line is the Manufacturing Sector. Both have been going down in an, but finally we have a drop. This is the Manufacturing Sector bouncing back. Went to bloomberg intelligence, they said wait for the services number. If you get to a Strong Services number, like it have an effect on Monetary Policy as well. Tom does that mean it is 142 one United Kingdom. Cumberlandunder of Global Advisors joins us on set. Weaker pound a finally having an effect. How does the bank of england reacts . When youou think about think of brexit is not only ss trade deals and immigration, but the impact of slightly better tools to compete in low growth. Clearly, a weaker pound will we know that europe, which is a trade partner is going through a difficult patch. We had the german numbers, inflation is still very difficult. If we have Central Banks that are running out of guy she the bank of england to say look at what we are seeing, maybe we should cut rates again and get sterling down over to the levels that tom is talking about . I think that waiting would probably be advisable if you see these kind of numbers. If you do things too quickly from you create uncertainty. If the pound is dropping too quickly you create uncertain tea, which could affect the Manufacturing Sector. To gainant competitiveness through weaker currency, doing it in a managed way is better, my personal view. Tom youre more qualified than anyone to talk about the linkage of banking and financial london and the United Kingdom. Do you look at Financial Services in the city as a discrete andn as separate from the study of the United Kingdom economy . Nearly, the Financial Services in the u. K. Is a very important part of the u. K. Economy, and has Dynamics Beyond the u. K. It is global dynamics, central ks, mobile Monetary Policy that is different than specific Manufacturing Sectors for example. You have to analyze it in a different way. If we link that to the comments that theresa may made yesterday, understanding how the brexit will impact the city must be done in line with what the brexit could do if you have a weaker current the. Most likely weaker currency. Most likely the city has to lose on the margin from brexit. Tom what will they lose to . Help me, here. I get the idea of dublin, but if we are going to lose in london, where are they going . Virginie there is that part, where do you move. Paris, germany, clearly things are different. To think about the immigration side, given the number of europeans who work in the city. If it is difficult for them to stay here, they will be an impact on manpower and companies. Ill adapt and try to relocate from that uncertainty, it will have an impact. Will it last for sixhan solo 12months . We will see. We have will it last for sixmonths or 12months, we will see. We have the negotiation of brexit, you have the posturing around that, and immigration which has an impact on the city. You also have meeting surround the Central Banks, oh back, the g20. , the g20. That is creating volatility. Guy the eu needs the city of london in. Long time toeed a build the Capital Market if there is a brexit, i. E. The city of london. Europe needs the city, i Capital Market geared we cannot rely on the banks, the banks are broken. Europe needs the city, do not throw that out of the window. Virginie i agree with that. The question is, if you have a big part of the work force that cannot stay because of visa issues, that creates the. Hopefully that is easy to resolve. It is uncertainty in the time to clarity. In the next 12once you will have 12 months, all of the city is very clear. Theres nothing that can take away that function. Either the other centers will adapt or the lack of clarity erased and we will know what happened. The next 12 months will be quite volatile. Tom good United Kingdom data. Tomorrow, september 2. Join us afterwill the jobs report on television and radio. On theapital, bill gross fed and jobs. This is bloomberg. Guy 14 minutes past the hour. I am guy johnson with tom keene in new york. Taylor bouncing back from the postbrexit slump. Manufacturing reached a 10 month high in august. That are then economist forecasted. According to the research from market, numbers rose. The main factor for an increase in exports. English banks being attacked for entrenched elitism. A Government Advisory Panel says people from low income backgrounds are blocked in getting jobs at the banks. Theyre educated at private schools and workingclass kids lose out. For the first time in two years, gambling revenue ha risen in macau. New resorts attracted recreational gamblers and taurus. Chinas crackdown on corruption scared off gamblers from the mainland. It has also hurt macau. That is your Bloomberg Business flash. Guy thank you. Lets stay in china. The official meeting for factory activity in august hit the highest levels since 2014, unexpected momentum into the peak manufacturing season. Joining us is the chief major economist from bloomberg television. Is this number a blip . Tom i do not think so. There are other positive numbers at the same time. Everything from satellite images of chinas manufacturing parks to the flash ratings for career exploits with tend to move closely aligned with china pointing to momentum or chinese manufacturing in the second half. Guy is it just Big Companies benefiting . They would receive most of the stimulus. You wonder if we are getting a bifurcated Manufacturing Sector. Tom i think that is a genuine trend. The way stimulus works in china. Money to big enterprises, they are the first to come out of the slump. That is the trend we are seeing into the second half of 2016. Reflected in the official pmi, smaller, private firms not doing so well. Tom i want to look at september as you wander into september 2. What is the level of financial instability within the greater chinese debt system . I do not trust the pmi, i do not trust tom orlik, i do not even trust the woman in the food court in the beijing office. What is the financial instability of china . One measure that you can look at if you do not believe me or the pmi or the woman in the food court, money market rates. The concern on instability in china, chinas money market rates have stayed low and stable, sevenday repo rate not moving far from a low and stable level anytime over the last year. Risks are you that growing, but the government has liquidity management tools to control them for now. Tom if i look at shanghai , telling me the government is manipulating the shortterm market, is that an appropriate statement . Tom i think manipulating is a little strong. I would put it that despite capital outflows and chinese banks being overextended, vice corporate being stressed, the people of china maintain a sophisticated tools to manage liquidity. As long as it has those tools the chance of any of these risks blowing up, a financial crisis in china, remain low. Tom we will see you in the food court in beijing. Perspectiveving his from the chinese capital. Perspectivels tomorrow. One of the giants, j. P. Morgan Chase International chairman, his perspective from a troubled financial era. Worldwide, this is bloomberg. Uy i am guy johnson in london tom keene is in new york. In frankfurt, the current chair of ubs axel weiber has been weighing in. He says the world cannot accept the Monetary Policy is not working. He is not wild on negative rates either. Where we are now, the rates path is blocked, rates are zero. They can sink negative, but i was always skeptical of negative rates. I think they do more harm than good. Tom that is ask weber at the conference. Deutsche bank. Lets go to the house view you. My conversation with vice chairman fisher. Here he is on negative rates. Central banks implementing them, they basically think they are quite successful and are staying with that approach. Possibly with the exception of japan. They have said they will come back to try to make a negative rates work better. Tom i would suggest that professor fisher and dr. Weber have a Great Respect for each other. They are miles apart on this topic, arent they . Guy in some ways they are, in. Ome ways they are not i understand fisher talking about negative rates working where applied. Many would say that negative rates are working differently in different places. In switzerland, the nordic countries, they are working. The question mark, in a big economy like the eurozone, are they working in the eurozone . That is the crux of this. In what economy are you applying it . The what i find amazing is cultural economics. Nation to nation to dr. Webers point. Nation to nation negative rates are different outcome . Tom absolutely. Also the length of time that you apply them for. I think that it also depends on the Growth Potential and demand potential. If you use the extraordinary monetary policies in a country where you have demanded that can be ignited by those monetary policies, it works. It is smart. If you keep it for too long, and the demand is not taken care of, they are inefficient. We go back to saying, what do we need to have to grow . We need structural reforms, and perhaps some form of marshall plan. Sorry tom it could be a johnson plan as well. When we look at negative rates, do you bring them into the dialogue on the future of commerzbank . , brennery neil re interpretation, etc. , etc. , etc. The fold them in . Tom that is the bottom line. If it is a temporary measure, and demand picks up beyond that, that is fine. It is there to be semipermanent. Bigger bank every time. That is the problem. He says it only works on the capital and currency markets. He is not a fan. Monetary policy is not working, the do you agree or disagree . Virginie i agree. The next step is to think where our things changing . Clearly the u. S. Is in a position to very slowly normalize rates. It depends not only on domestic conditions, but global conditions. Thehat point will the normalization in the u. S. Put further emphasis on the lack of action and create more problems in japan and europe . Guy thank you. We will be talking about the brazilian political shakeup. We will be joined by kevin daly. This is bloomberg. Guy one hours since we had the standout venue fracturing number. The pound, look at it. It is september, the sun is out, we dont know what to do. Tom it is always raining. Guy the correlation there, maybe, i dont know. York. Ene in new guy johnson in lovely london. Lets talk about what is happening with the story further afield. Virginie donald trump is trying to reassure some orders he is not lawfully on the decision of illegal immigration. Their republican president ial candidate outlined a plan that rolled out amnesty for immigrants who came to the u. S. Illegally. He made it clear there will be a wall between the u. S. And mexico. Donald trump weevil build a great wall a long southern border, and mexico will pay for the wall. Taylor earlier, donald trump went to mexico to meet with president the answer. Refused to court has revive North Carolinas voter id requirements for the november intact a lowerng Court Conclusion that lawmakers intentionally discriminated against racial minorities. In germany, chancellor merkels party facing defeat by an antiimmigration party sunday. The Democratic Union is running neck and neck with the alternative. It is capitalizing on voters unhappiness with merkels hallmark policies were refugees to sanctions on russia. Chinas hardline on hong kong democracy put to the test on monday. Voters will choose members of the legislative cancel two years after students a blocked the streets. Must sixovernment governments from running saying that they do not support hong kongs basic laws. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. , this isor rigg bloomberg. Guy thank you. Has taken over as brazils president after Dilma Rousseff was impeached nine month after proceedings began against her. What is the Investment Outlook . Lets get to Aberdeen Asset manager kevin daly. Still with us, virginie maisonneuve. It has been a run for brazil ever since the political story started to change. The market is pricing in better news. The reality of the situation and brazil, does the market reassess . Kevin i dont think today. The vote overnight was widely expect it. What the markets will do is to see whether or not the fiscal reform measures the government will implement will be watered down. He did have one surprise in the vote, while they voted overwhelmingly to impeach her, they allowed her to keep political rights. There was a deal. There is a sense that maybe there is potential backsliding. We do not expect this, but that is something to look for in terms of shortterm risk. Have to doill michel to keep the market on board . Onin to pass the cap capital spending. Spending has been exponentially off the charts in recent years. You have a fiscal timebomb. Next year, we will have to see significant Social Security reform, these are the 2 very near term issues to be addressed. Guy hugely popular things to do. How long is the honeymoon . Kevin good question. Governments are very restrained by populism. This government will be no different. There is a shortterm window. We have 2years before the next election, and temer will not be running for president in 2018. They have time to implement the measures, though they will be unpopular. Tom with great humility, i can tell you one of the things that i messed up in my career was getting lula wrong. Everyone thought the world would end and i was wrong. It was a huge run for brazil. Are we setting ourselves up for a redux of the rally . Kevin you are not alone. Were worried about brazil blowing up and history has proven them to be wrong. This is a shortterm government. A government heavy with technocrats. The market is on board with that. They have 2 years to put brazil on the right track. They will not get everything right. You will not see the debtgdp stabilize. It is important from a signaling standpoint that this government says this is what we planned to do, this is what we are doing. Rose is returning to her next year expectations are growth could be 1. 5 or higher. There is optimism happening already. Only time will tell if they are doing the right thing, but the markets are behind the new administration. Tom it is september 1, repositioning. Where is the greatest em . Rtunity in is it turkey, flat on its back, or somewhere else . In a turkey is still precarious situation because we do not know what will happen, which way the government is going. So far, so good. I had a colleague that from turkey last week and the signs are good. There is a lot of support for the new, or i should say existing, government. The key is that they do not blow the situation. That they do not lead to an increase in spending and populism. We do like turkey. Tom where is your greatest opportunity right now . Kevin a good example would be mexico. The mexican peso has done pretty terrible. If we see hillary win the election in november, we believe this will be very popular. Tom we will rip up this graft, this is too important. What were your thoughts on mr. Trumps visit to mexico city. Kevin i thought it was a political coup for donald trump. He said we need to Work Together with mexico, we need a nafta agreement, keep jobs, keep manufacturing in north america. What he did was a positive step for his image. Everything up until now has been pretty negative. Guy give me a sense of what the world would look like from a mexican point of view, is it the currency or the market that i buy . Where do i get the biggest bang for my buck investing south of the border if hillary wins . Kevin in the mexican peso. This currency has been the biggest underperformer. ,ast year we had a huge crisis since then the pace i was down 10 . Pricing in a lot of bad news in mexico, and also ins thehat trump w presidency. Guy if secretary clinton wins the election, are you prepositioned for that . How do you play around that . Virginie the first thing is within the u. S. I think it is more clarity and continuation. Financials, be it for construction, housing, etc. , is it is a continuation. If the u. S. Does well, mexico could benefit from that. I terms of the session in, think that asia is wellpositioned. Asia is doing ok. Numbers inot great indonesia, the philippines, and even china. Are seeing stability there and it removes a potential instability event, instability in the world. In general, that is encouraging markets and i would want to be in areas were icy growth and positive supplies. That may happen in brazil, but we still have to remember the petrobras potential negative surprises. Tom do you need to hedge the currency risks . Across any of the nations, like the philippines . Do you need to hedge . Virginie in some areas you do. Normalization in the u. S. Means a rate increase this year and another next year depending on the global economy. Clearly, everything relative to the dollar may need to be had touched on the local economy trends in the country youre looking at. If youre talking about exporters, the source of earnings for the companies you are buying. You must Pay Attention to currencies. It can take away a lot from your investment. It is not systematic. It must be matched to your positions. Guy i want to talk about turkey. At the political environment, how it is developing. We have a nato country that is effectively going through internal turbulence. We have problems related to the economy. The list stacks up and of. We have german elections next year and factors being priced in. Will improve from eight geopolitical point of view working forward from here. Lot, but where do we go from here . Syria will not resolve itself. Kevin i agree. Turkey is in a dangerous part of the world looking at what is happening in syria and within turkey in terms of settling down after the coup, the attempted to. There is a lot of uncertainty. The currency has rebounded from the post coup lows. Rates have come back a little. There is still opportunity if you believe the akp, believe that erdogan will not abuse his powers. It is believed that he will not. He has huge popularity, why does he need to do a power grab . He has the ability to govern now. They have been a responsible government in terms of fiscal finances, compared to brazil which has had the opposite problem. This government is still prudent and sensible. There central the central bank will continue cutting rates. If youre investing in turkish bonds, that could be positive. There is a potential negative with the currency if we see our problems with syria, russia, and iran. Tom thank you so much, with aberdeen. Gross,ember 2, William Janus capital, worldwide, television and radio, right after the jobs report. This is bloomberg. Guy welcome back. Im guy johnson in london. Tom keene in new york. This morningseen is the u. K. Pmis rebounding in terms of significant currency depreciation. This country usually runs a currency deficit. Should we treat the u. K. As an emerging market . There are many parallels. With us,. And virginie maisonneuve. Lets start with you. Is the u. K. An emerging market . The big current account deficit, similar to south africa, turkey, and other places. I currency drop, a pop back, are we looking the wrong way . Virginie if you define by the rule of law, clearly the u. K. Is one of the best legal systems. By education, that are received, it clearly is not an emerging market. From an economic standpoint, there is a lot of uncertain the through the detachment from the mothership of europe. Through that, those uncertain to use can lead to new opportunities and Growth Opportunities that might have emerging market characteristics, including benefiting from a weaker currency. You need to find out the markets, the demand side, on a global basis will it support the u. K. . To say it is an emerging market is stretching it. Tom beautifully explained. I know that you do not aware of Banana Republic, it is beneath you, but if i go to the net a republic and we get a 120 sterling, that is a Banana Republic. A 23 decline in trade weighted sterling, roughly or not. How does a developed country react to the current the republicion and banana wealth destruction . Virginie that is a good question. It is about the speed of the adjustments. The adjustment is managed in a way that manufacturers and business decisionmakers can , in on the slow depreciation think that is fine. If it happens in a panic, generally it has the opposite effect. In my view, we will have a managed depreciation. I think it will be managed. Tom kevin daly we have one of our heroes on the program tomorrow. One of the giants of war and exchange research. If we get a 20 plus decline in a market economy, that has emerging market kevin elements . It does have some emerging market elements. We have seen the bank of england cutting Interest Rates. Markets in the past come you tend to see, like south africa, they have been hawkish in the face of the weakening currency, rightly so. That currency could continue to be hit. In contrast, we have seen turkey cutting Interest Rates, despite the fact that the lira has been firming more. They do not seem to be terribly worried. It is the big moves that would get central bankers around the world concerned, but clearly the bank of england does not view it that way. Guy is the independent Central Bank Part and parcel of a developed country . Turkey has one and appears not to. These are the critical things to look at, whether or not the institutions and the rule of law, do they function . The relationship between central bank and government is critical around the world, turkey, south africa, brazil. The u. K. Has a central bank that is independent. Kevin i would agree that the bank of england is more independent than Central Banks in emerging markets. The three that you bring up are different and interesting cases. In turkey, we know that there has been pressure on the cbt, top down pressure. Brazil has a new government, which has indicated that they would push forward for central bank independence, the market. Ould take that as a positive you have the Central Bank Governor in brazil with market credibility. He has come and and ben hawkins despite markets were expecting to cut. Independence in brazil is something we could see in several years. Turkey, i do not think so, surprisesurprise. And pushing back on the sarin south africa. I do not think we are pushing back on that either. Tom the data check right now, what we have moving on. This is Deutsche Bank with a rebound yesterday. Am tomnson in london, i keene in new york, worldwide, this is bloomberg. Tom good thursday morning. Jobs day is tomorrow. Guy johnson will be not be able to sleep tonight, he is so excited about u. S. Jobs day. Taylor a surprise from chinas Manufacturing Sector. Rose toe unexpectedly the highest level in two years. Suggested slow down and china might have been caused by only temporary. British lawmakers want pressure on volkswagen over recalling tainted diesel cars and compensating owners. The government must set timelines. More than one million tokswagens were found contain software raising omissions. San francisco rejected ubers offer to settle a dispute with customers with a 1 safe ride fee that arent half 1 billion. The proposed 29 million settlement was not fair for customers. Consumers say background checks on drivers were not as rigorous as advertised. Tom thank you. Virginie maisonneuve is with us from maisonneuve Global Advisors. Decades of experience in a doubledigit world. Remember when we would go, 7 . Terrible. 9 , great. We would go, i just want to make 12 . Things have changed. E are in a single digit world where are we in Single Digits . 4 . Virginie if you look at it given the volatility opportunities of the domestic 5 iss, i think 4 to actually what we should reasonably expect. However, if you add assets such as current see which will show volatility, and volatility can be sources of returns. If you look at the world of Asset Managements, may be slightly differently than the bucket class through fixed incomes, equities, and multiassets, you have possibly 7 to 10 returns. Guy u. S. Corporate Credit Investment grade about to hit a trillion. That money is being used for vivax and everything else. The numbers out of the equity market are not real . Is very soft. Th you need to be careful. It is about stockpicking, smaller stock, thinking about innovation and getting out of your comfort zone. Thinking about uber before it was created, mixing unlisted and listed. It is about changing the world of Asset Management as we know it traditionally in the environment of weakening fees. We need to think differently. That is the way to do it. Tom thank you, so much. Virginie maisonneuve with us on a 4 to 5 world. I am never retiring. In the next hour, he refuses to retire. David kotok of cumberland advisors. He will get you ready for your september and Fourth Quarter. This is across Central Africa. Of madagascarart are. That is magnificent. This is bloomberg. Tom september is upon us. Forward to a november election. Washington is riveted moving. Nto 2017 be careful out there. August was more. After mexico, arizona, mr. Trump reaffirms the building of walls. This is bloomberg surveillance from new york, thursday, september 1. Guy johnson in new york in london. Guy the apocalypse has been averted. We have an eclipse and not an apocalypse. What were seeing in the u. K. Data is that the pound is having an effect on the u. K. Economy, and to the manufacturing pmi is a strong bounceback. Tom the apocalypse from africa madagascar, the annual solar eclipse. Here is taylor riggs. Taylor donald has returned to form on immigration. In a speech in the next the republican candidate made it clear he wants to build a wall of the southern border of the u. S. And have mexico pay for it. He ruled out legal status for undocumented immigrants. Will be nop there amnesty. You cannot obtain legal status or become a citizen of the United States by illegally entering our country. Taylor earlier in the day, donald trump flew to mexico city ieto. Et with president n british Prime Minister theresa may set out the first of red lines for brexit negotiations. She wants to end of the Free Movement of people coming to the u. K. From the European Union and suggests she is willing to leave the u. K. Single market. ,ince the start of the week 12,000 migrants have been rescued in the mediterranean. Controls were tightened along the route from turkey to austria, so it only is the main entry point for migrants from africa and the middle east. Singapore has its first case of a pregnant woman testing positive or zika. Thee have been 100 cases of virus so far. The first locally transmitted location was identified this week. Singapore stepped up efforts to fight to seek a and the mosquitoes that carry it. The new brazilian president said the worst is over. Michel temer was sworn in after Dilma Rousseff was impeached. His first job is to put the economy back on track, that in its spending caps and pension cuts. 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. Tom thank you. A data check, 2 smart bloomberg terminal shots. Futures up, oil weaker, 44. 57. The vix, 14. 4. Is weaker or not related to mr. Trump, it is more of an em pullback. 18. 80, the peso. Guy the ftse 100 retreating a little down, 1 10 of 1 . We have 68 earlier. One possible reason is the 132 that we have on the cable rates. Outmanufacturing data early, 9 30 london time, passing expectations. The pound is having a positive effect at week levels. Tom a long look at guy johnsons sterling. 1992 in the left corner, down we go, prices lows in 2008. The united think them has not rebounded. If you interpolate out to a 1. 20 , youing, and bring it over are beneath where we were on black wednesday in 1992. Gap to that level, we cannot blame george soros, and you cannot blame Prime Minister may. It would be a remarkable outcome to see a weaker sterling looking at trade weighted. Is what we want. The u. K. Being a Banana Republic , the point was made it is about the speed of the move. Stirling is moving fast, but down for a while. My bloomberg, let me show you, the manufacturing data, pmi numbers are white line, cable rate is blue. Both have been going down for a long time. You have a weaker pound having little or act on the Manufacturing Sector. Ow, we have a pop we suddenly get manufacturing responding. Tom this is nice to go into of cumberlandok advisors. He is eclectic. He is managing real money for real people. Public service of looking into some of the diseases as well, bird flu. He joins us this morning. You wrote a book years ago, ro. Est in eu can you be long the United Kingdom this morning . David no. First, you need the clips, then you have the collapse. Of have the eclipse madagascar are. The u. K. Is headed for trouble. We see firm after firm looking elsewhere. Is a marginal analysis, can currency adjustment, Deutsche Bank at 110, if you get currency adjustment, cannot benefit rollsroyce and others . David if you have currency adjustment without secondary effects, yes. But how . You put up a wonderful chart that showed history in 1992. What happened in the next two years . The peso crisis, a worldwide currency crisis, you cannot do it. Tom earlier, and stan fisher a few days ago, and when you look at what bankers are doing on september 1, are you focused on future financial instability . I think so. I think volatilities are rising , thehe gap between risks libor spread going on now, is restating the price of risk. There are 2 categories of things. 100 levelskless, one assets. Ou get paid no matter what then you have the rest. You have a divide. Guy i will speak up for the u. K. People may not want to live in frankfurt or warsaw. The poles are trying to persuade the bankers to live in poland. People are not going to move along. There is an of the structure story that will take a long time to unwind. Who is to say that a decent deal cannot be done . Why does it have to be doom and the clone . Rises, and iainty would agree with what you said. Bout the Current Situation if you had the u. K. In one position, what is the you position going to look like . Norway, switzerland, iceland . Whatever it looks like, it will be different than before the vote. We have seen deferrals of Capital Investment in the city and finance, and many open questions from brexit. The defense is fine. I think it is a different question. We do not have a clue how this will play out. Guy we do not have a clue how europe will play out. We are waiting to see what will happen. Bundesbankk talking this morning, looking at the policy environment in front of him, week pmi out of italy and france. Weber says negative rates are not working. Where we are now, the rates path is blocked, rates are at zero. They can sink negative, but i was always skeptical about negative rates. They do more harm than good. Axel has had that doubt since he left the bundesbank. I spoke with him about it here the concern about negative rates grows and grows. That is where we are in this crazy world of negative rates. Tom do you believe, into the Fourth Quarter and next year, that bankers of different nations will transmit negative stay in thel they institutional vehicle . David you see marginal transition. Tom where will the margin, the second derivative, the marginal trend go . Will they expand that to the german people . David the german people will resist and there will be political uproar if they tried. We saw political uproar in the impact every time there is a. Inishock in the system whatever it happens to be. People do not want to deal with negative rates. Guy i will talk about the brexit more. The u. K. Has the opportunity to do what no one else is prepared to do, big fiscal expansion. He is throwing the old plan out of the window and we have low rates with the opportunity to expunge Infrastructure Spending and a way that others dont. Axel weber talking about that this morning. Can you overcome with a domestic policy with a low Interest Rate turned Monetary Policy expand fiscal in isolation . At the same time, one of the larger set ors is going to face larger sectors is going to face headwinds for years because of pressure that wants to move things. Want to switch gears. You were at the university of pennsylvania. In Economic Data today . When you read pennsylvania, inventing how we look at data, do you believe the Economic Data you have to work with every day . David as much as i can. Most of the data in the u. S. Is fairly well compile. I Wish Congress would stop taking money away from datagathering. We have great data in the u. S. We have pretty good data. We make estimates. No data is 100 on release. Jobscoming up tomorrow, day, bill gross will join us after the jobs report on the American Labor economy. Bill gross went out on a fiery note yesterday on negative rates. He is with janus capital. Guy johnson in london, and i am in september, back to school, we need new clothing. This is bloomberg. Guy i am guy johnson in london. Tom keene in new york. Lets get a bloomberg is this flash. Taylor the buyout from Global Infrastructure partners to buy a 20 stake in gas natural, according to people familiar with the matter. It could be valued at four point 5 billion. It is the spanish oil and gas company that has been selling assets. British factories bouncing back from postbrexit slumps. It reached a 10 month high in august, better than forecasted. According to research for market, the pound drop is the main factor for an increase in exports. The european discount airliner collapsed after the brexit vote. The ceo says the concern is that ticket prices will keep falling. They said that fares are down 9 , more than you. That is your Bloomberg Business flash. Tom have you ever flown on , like goingstood up to frankfurt, standing up like they talked about years ago . Guy no. And i have not been charged to go to the bathroom. He was always full of great ideas to get the cost down. He looks at what is happening in the states and pushes the envelope further. U. S. Politicians will be paying attention as well. He says the irish can tell the eu to go to hell on apple. Tom im so glad you bring this up. Wrote a veryard fair and balanced article and then torture shreds with they are doing. That is his opinion. Guy it is not the core competency of the eu the brexit angle will be interesting. Tom no one in america cares. The head ofs economic and government, the Senior Executive editor for executive editing in washington. You have been off for several days of you gazed at the news flow on mexico to arizona. With your decades of experience, how did you perceive that . We have never seen it before. Decades of experience does not amount to much when youre dealing with donalds candidacy. We thought he may a moderating on immigration, then he doubles down. Tom what a dichotomy between the 2 speeches. Can the new Campaign Advisers stay with him and support him after clearly the arizona speech reading so different than the recent script . Marty i have to believe this shows once again who really is running a campaign, donald trump. After his moderate comments in exit go, and his president ial stance, which was pretty effective, he goes to arizona and doubles down. Tom they quickly, september 1, lisa timber first william does theseptember 1, campaign really begin today or the tuesday after labor day . The opinion that the campaign does begin after labor day. Everything will come down to the first debate on september 26. What kind of donald trump shows up, and what kind of Hillary Clinton shows up. That, to me, is the crucial day in the campaign. Guy let me ask you about the point you raised about the fact that trump has taken policy. Is he looking at numbers, is there a numerical basis to the fact that he is doubling down. Does he know instinctively this is working, or is he backing it up with anything . Marty there have been many reporters that he does not do a lot of research or care about polls unless they are in his favor. I think he feels he has to go with his gut. He has to do better among educated women. Doubling down on immigration does not help with that. Guy is he looking around the world and seeing what is happening . Im trying to think about the bases he is working on. Is he looking at brexit, european politics, thinking about how they changed dramatically . Marty i dont think he is. Various reports have said he gets most of his information by watching a lot of tv. If you watch u. S. Tv, on the news channels they are not talking about brexit very much. They are fixated on the campaign and donald trump. Tom greatly appreciated. Coming to us from washington today. The end of september, Mark Halperin and John Heilemann next on arizona and the nations president ial campaign at 5 00 p. M. This evening. Kotok up, more with david , from florida, on washington. This is bloomberg. Tom september 1. Guy johnson in london. Isave no idea where francine. She is on some island on holidays. That is what they do in europe. The morning mustread, justin fox is always smart. What about taking things further and actively legislating against right and left coast five city economic concentration. Norm in used to be the the United States. It seems terribly retro like now, like a locally owned bookstore on a small town ohio main street. A smart, highly quoted essay on bloomberg view. David fortunate to have kotok from florida, originally from pennsylvania. Florida is not right coast or left coast. There is a whole donald trump and Hillary Clinton florida. With good and jerry in sarasota, florida . There has been a right coast and left coast in florida . Isty the whole state divided down the middle. Theres no way to know how florida will turnout in the president ial election. Up. Ions are ratcheting Something Else is happening, disillusionment with a both candidates are strengthening third parties. Those numbers are rising. Tom jump in here. Guy what are they talking about . We come back from the trump and the immigration conversation . An issue. Re is someone says i do not like donald trump, his behavior. I do not dressed Hillary Clinton, i do not trust her behavior. I do not want to not to vote. I will vote for johnson. I will do something. Tom bob and jerry in florida, do they really not trust new york and San Francisco . Are wonderful people and experience the world. They look at the system and say that governance is broken. The way we have to fix it is to change it. Tom 10 seconds, is reagan on steroids . David that is a great metaphor, could be. Hat,that little white could you see me doing that . With the bowtie . What do you call that . David flyfishing. Jp morgan, Chase International, and and eclipse over Central Africa and madagascar. There it is. That is the moon in front of the sun. This is bloomberg. I am guy johnson in london, tom keene in new york. Commentator still talking about apple. The european sales and a european matter, but out, the United States. Lew this month, interesting to see what that conversation will be like. Says this is about tax transparency, someone say is tax is not an eu competency. This, we areabout baffled by it. Secretary lew with his important comments yesterday. Guy let me throw something out there controversial, some over here have argued that this is titfortat, you remember bp, vw. Tom the soap opera thickens. Ews in new n york. Donald trump saying he is not waffling on illegal immigration, the candidate out like a hardline plan that ruled out amnesty for immigrants who came to the u. S. Illegally and made it clear that there will be a wall between the u. S. And mexico. Donald trump we will build a great wall along the southern border. And mexico will pay for the wall. Earlier, he went to mexico to meet with the president. Donald trump says he did not discuss who would pay for the wall but the mexican President Trump mexicodonald will not pay. Leaves intacturt a lower Court Conclusions in North Carolina that lawmakers intentionally discriminated against racial minorities, North Carolina republicans have backed the voter id law. In germany, the chancellors parties unionristian democratic is running neck and neck with a party alternative for germany, in her home state, they are capitalizing on voters unhappiness with her hallmark policies, ranging from refugees to sanctions on russia. Singapore has its first case of a pregnant woman testing positive for the zika virus, more than 100 cases of the virus recorded there so far since the first locally transmitted infection was identified early this week. Singapore has stepped up efforts to fight the zika virus and the mosquitoes that carry it. Global news territory four hours a day by more than 600 journalists and analysts in more than 120 countries. Tom thank you. David kotok provided National Leadership on the bird flu a number of years ago, asking tough questions of our science. He is looking into the zika virus. He lives in florida. This is the real deal. David this is the real deal. And florida, the real deal come in disneyland you get mosquito repellent, in miami, people canceling trips. Tom will it expand . David yes, a mosquitoborne virus, democrats and republicans joined together and rejected the American People and did not help them. They are a pox on both of their houses, neither candidates talk about it except to finger point. will we see a catalyst the idea that we will see a mathematical catalyst of expansion that will force secretary clinton and mr. Drop to speak on this trump to is big on this . David i hope so, why do we have to have human suffering, one child with microsoft coop of the is a burden without all sorts of evidence to say to the senate, why didnt you pass the cloture vote . Tom we will talk more about this. On wall street this summer, single best chart is the fix, i introduce a president ial moving average of the blue in the background is simply the vix, always volatile, down we go. Hrough the 20 level appear what does the quiet mean to derivative people like you . Color the nature of the quiet. We have entered this time of following the feds taper 10 from rhetoric where we have more frequent drawdowns, we go back to this low level baseball, it has been 40 days with without a oneperson move in the s p and ofwe will need some sort economic catalyst, political catalyst to drive it higher. We did this very interesting study and look back to the trumandewey election of 1948 and in this kind of 10 weeks, eight weeks ahead, in. Tom guy johnson, jump surface, below the plenty going on in the markets, plenty of sector rotation, that is where the story is. A sector is in rotation taking us out of utilities and telecom and into the the rotation in the financials which will energy on an index level, such strong rotation. The Asset Classes and how theyre pricing and the probability of a fed hike, they we haveing the charge, seen very strong rotation and globally we have seen financials better did over the last few weeks and colluding euro stocks financials outperforming the euro stoxx 50 in the last few days. Ixy we see this calm in the v because part of the market thinks we will go in one direction and the other part in the other direction. A canceling out process, retail versus sectorsdispersion among but when youre talking about retail versus the pros, the positioning report, last friday, the report, as of tuesday, ahead of jackson hole, hedge funds, leverage funds, the most short they have ever been. Tom ever . As far as the data we have. It goes back to 2011. That is a better headline. Hedge funds wicked short. That is what we say in boston. Lets go to the chart for kotok. The acclaimed chart. Everybody had this on their wall 30 years ago. Young kotok knew it then. And the 1975alaise or 1980 two rally, the red line on the left is a depression. 2008 was nothing like the depression. That is the longterm trend, do i go to cash . David we think so. We have a cash reserve, 20 . Tom i am paying you a fee. David you are paying me fee on 80 to do something. Tom i am paying a fee to take me to lunch. David lets do it. We have headwinds and these spreads libor spreads has forecast power over stock markets. Tom this is important, what is your take on the libor . Does not agree, he thinks it is rule changes and manipulations leading to a higher libor. Guy if i knew that i would be sitting on a beach. Tom that is what francine is doing. Guy she is at the aquarium looking at sharks, probably a useful exercise. This cash position, in the beginning of the year, we came off holidays and into the beginning of the year, david, we panicked and the market rolled over aggressively, coming back off summer holidays, a big cast position, how is that cash position going to be put to work if at all . Issues, do you use a valuation metrics which are traditional, they do not seem to work now. Or do you use there is no alternative. When youery seductive are up against a zero Interest Rate, very seductive. Also dangerous. Tom we will continue this discussion. You are a pro, saying you will go to cash. A lot of people cannot do that by prospectus, then you protect yourself with derivative instruments . , thes, where you saw this last two drawdowns come august 2015 versus jen were, february of 2016, and fly ball levels it spiked in august because people were under head, not expecting if you look at january and february they did hedge. Tom fabulous. Guy . Guy interesting things around the money market funds, a derivative of the story, coming the Financial Supervisory Authority president will join us out of germany, they want consolidation in the Banking Sector, what does he make about all of this. Guy i am another, tom keene in new york i am in london, tom keene in new york. The heads of banks laid out their vision for the germany Banking Sector over the next 10 years, a much more consolidated picture. What does the german banking regulator think . Lets go to frankfurt, the bafin president joins us in his first interview since the comments were made at the conference. Good morning. The banking leadership that we attending,ou are consolidation, how much consolidation do you think is possible in the german Banking Sector . Felix you never know. Still one of the most fragmented banking markets in the world. It is a very ongoing process. An active process as we speak. For a number of years. Banks to 40ween 30 backs go out of business by means of merger as we speak. It is happening, a fact of life. We have to manage it. Guy you talked about the fact , what cann accelerate you do to accelerate the process, you say it is happening naturally but needs to happen more quickly many would argue. We leave it is not the prime target of a Supervisory Authority to accelerate consolidation. We do not do structured policies, that has to be managed by the industry itself, that what we do should sensefluence in a direct consolidation, we manage risk, we do not require consolidation as a primary goal. Sector inthe banking germany be less risky would it be Banking Sector in germany be less risky if consolidation happened . Had an acceleration of consolidation, would the Banking Sector in germany be more or less risky . Felix it depends on who is doing what. Consolidation is a much broader concept that just major bank a merges with major bank b. Consolidation can happen on a variety of accounts, focused on business activities, actually done in the shape of coordinated if itrcing strategies, happens, on a major scale, it depends on how the merger is done as and the post merger is wellmanaged. We have seen mergers in the past where the results were awful. In various countries. There have been other mergers which were beneficial. Side, nor do one we think any merger is curing all you of your problems. One tool liken on merging will not do it. Guy we will leave it there, thank you to bafin president felix hufeld. The regulator unconvinced whether the story goes one way or the other and the Banking Industry wants it. The unitedy in states baffled, the urgency of what is going on in broader continental europe, yesterday it was said this is type a1 why brexit occurred, whether you agreed or not, some comments stunning when i look at commerce valueosing 97 of its since august of 2007. Remarkable. Tomorrow, from italy, Jacob Frankel of jpmorgan trace, one of our great theorists and tacticians on Foreign Exchange, he will be here on the future of the dollar. From london, new york, this is bloomberg. 1, the amazings september baseball actually starts, i do not talk about the dreaded new york yankees, the mets entertaining as we enter the final month of baseball. New york city, Empire State Building a bit in the distance, metlife at the end of northern part avenue. The Foreign Exchange report. Jacob reichel with us tomorrow Jacob Frankel with us tomorrow. A weaker yen over the last few , guy sterling advances johnson reporting on the manufacturing economy, 132. 42 on sterling, strong sterling. Guy strong sterling forever. About what is coming up shortly on bloomberg. Bloomberg. , the firsto interview with the incoming ceo previous nordic, the ceo pending down the rains earlier than expected. Somebody who has been there since 1991 comes to the health, does he have fresh ideas, the challenge they face. We want to know his viewpoint on the United States. Guy i want to show a chart, it is often referred to as the apple of europe, they go back a long way, the distant past, early 2000s, one example, they are almost identical, they are the blue line. The charts similar. Can eat turn that line around can he turn that line around . You have been all over the United Kingdom on manufacturing, japan, india, china, we are looking forward to the United States number coming out, what a great day to be speaking to the tom david kotok with us. Fed,t to talk about the the real economy, the reason donald trump has traction and governor sanders had traction, gop is not what used to be, do you have believed that we get to 3 or 4 real gdp . David i do not see how it happens, tubers and maybe. 2 maybe. Tom how does your derivatives world change if we go to these lower glide paths, lower terminal rates . To rivet us pricing, not much changing, focused on shortterm rates and options. Environment where equity multiples will be elevated and people have to get now,to that appeared people are paying more for hedges at times when equity multiples are elevated. Tom but there is a price to that. Within a longerterm strategy. The cost of hedging is one of gdp. Utcomes of kotoks 2 get used, you need to to the timing and being tactical, we have these prolonged times of calm i followed by sharp drawdowns. People need to take into account that the new normal is potentially lower productivity, lower gdp growth and become people with equity multiples where they are now. Guy one of the reasons we have these times of calm and sharp drawdowns is because company does Companies Buy back stock and they do not, then buy back stock and do not buy back stock, the world is on its head because we have huge issuance in the debt markets, being used to fund buybacks, that is the world we live in, the merrygoround. The merrygoround when the Interest Rate is zero, the game can go anywhere, the numerical limit is infinity, when the music stops if you are not in the chair, this hurts. U. S. ,sition is, in the the music has stopped, the fed will not go to negative rates, they see the damage and the rest of the world is starting to say wait a minute, we went too far. Tom are you saying no september, no december . David they will go in september, they do not know in September December which of politics which they will not admit to. Tom your house has been good on this, what is the call on what the fed does . We think the fed will hike expectation for payrolls is 215,000, payrolls tomorrow is going to be a litmus test, anything about 150,000 they will go, below, tom i like that idea. That gets us to bill gross. Fed does it matter if the raises rates by 25 basis points to anything else . A great question, we will see the. Spot revised down, in a situation where the fed hikes, the market will take it relatively well given this lower elong expectations. Tom lower prolonged expectations. Tom we will continue this on bloomberg radio, where did august go, we are on september 1, tomorrow, the American Labor economy report, we will have our usual coverage from the beginning of surveillance, William Gross joining us after the a 30 hour, bill gross on the jobs economy, more importantly, bill gross on his scathing note published yesterday on the fed. There he is, the Washington Capital and the library of congress right behind. This is bloomberg. Boosting confidence, the town jumping british Manufacturing Sector fighting of the regular blues, hitting a 10 month high. Deutsche bank shares getting a boost after the ceo calls for more bank mergers, reports of a fresh revamp. Donald trump the government no amnesty for Illegal Immigrants after a meeting with the mexican president. A warm welcome to bloomberg. I am alex steele. Caroline hyde joining me from bit of a riskttle on field, maybe because we have tt it is a wait and see 26 hours from the jobs number. Caroline Stanley Fischer says it is about the day to you