Transcripts For BLOOMBERG Bloomberg Surveillance 20160915

We have a little bit of data in the eurozone. And happy Lehman Brothers anniversary. Withit is a look forward mark carneys bank of england, 7 00 a. M. Wall street time. It will be an interesting six days. Francine you are right. The 20the morning of first of september. The fed in the evening of the 21st of september, in england. It will be difficult for the boj to preempt that. We are getting cpi for august, 0. 1 . We will get the euro chart up, but it is as expected. What we saw was better than expected retail sales in the u. K. Sebastian the government signed proposal to build Nuclear Reactors were 24 billion dollars in southwest england. In july, Prime Minister may decided to review the project. Keeping its ultraloose negative Interest Rate on hold, this was National Bank left a record low. 75 . The brexit vote clouded its view of the global economy. China issued its highest door morning as a typhoon a landfall. Heavy rain battered a city. The storm was expected to weaken inland. The typhoon left one dead and 38 injured in taiwan. Than one million households lost electricity. Hillary clinton will be campaigning after a break to recover from pneumonia. Eight note from her doctor says she is in good health and fitness serve as president. Donald trump appeared on the dr. Oz show and share the results of a physical conducted last week. Day,e news, 24 hours a powered by journalists and analysts in 120 countries. Tom thank you. Front and center. Futures up three, euro dollar. Crude under 44. We had an outlier called weaker oil prices. Mexico is front and center. Dollar peso 19. 33, a huge overnight move from 19. 10. That really gets my attention. Francine i like the way you are looking at the twoyear yields. This is stocks swinging, the dollar gaining they were down, up, flat overall. Swiss frankow you because they left Interest Rates unchanged, better than expected from retail sales, confounding economists. 1. 3 217. Tom i will be leaving after radio to get to security for a speech by donald trump. Heres the backdrop for the speech, the same backdrop for secretary clinton. Heres what is not happening within the spirit of america. Industrial production in the depression. A 15yearlein is moving average of u. S. Industrial production. It is unprecedented back to the 1930s the slow down and flatness in industrial production. Chart m in on this if we can do it in the bloomberg you can see the flatness. It has not recovered. Francine . Francine a great chart. This is one i am looking at. The vix index. The blue line, the bank of s p index. Rations the white line is the s p 500. This means that investors are obsessing about volatility and Exchange Trading notes. They are being taken to extreme links in the u. S. Stock market. For the first time on record the 500 vix shortterm futures reported more volume than any company on the s p 500 index. It shows concerns on the market. Concern is something the ble needs to look at. It is six weeks since the bank delivered a stronger response to the brexit. Many economists have forecasted that policy need to assess if there will be a change in strategy. That they will be looking at is better than expected data since they moved the last time around. Data has improved. We caught up with the u. K. Theomist and he said postbrexit commentary on the data is unhinged. We are not even at the end. It is not even the beginning of the end. What does he mean . The unemployment levels at the lowest levels. Here, toond girls hard too fast . That is what parliament would say. Francine how will they view the pound . We had the initial all in the immediate aftermath, then it recouped some losses, manus. The point is this institution has gone down to. 25 . There is another 15 left. Theres more pressure to come here they go to zero bonds . Probably not until november. Francine thank you. Manus cranny outside the bank of england. Lets go to more about centralbank policy in general. Andrew sentance is with us. Lets kick it off with you. , wouldwere on the mpc you wait for more data . When does the data come through the you can analyze what the brexit means for the country . Would be thinking they made a mistake last month. They acted too quickly. I do not think it is necessarily to bring Interest Rates to a quarter percent. I do not think it helps to compound it by trying to reverse it this month. And we get to november or the early part of next year, there could be a case for reversing the Interest Rate cuts and trying to raise some extra qe. Tom andrew, Francena Mccorory did a junket yesterday in strasburg, france. She went over to the eu meetings and listen to two leaders. When you saw her coverage of the junket in france, did you see in her junket to strasburg, france the idea that eu leaders are coalescing around a season on brexit. Did you hear that in your junket to strasburg, france . Francine it was a sixhour train ride. Problem, until article 50 is triggered the leaders and commissioners are shy about talking about it. Tom i was fascinated by this. I dont get anyone with an in europe. Francine they are not in a position. They do not want to say anything wrong to make the situation worse. Say we are pretending it is not happening until they said this letter or email. There is a big worry immediately after the referendum that there would be a negative confidence shock. There was in july, but that seemed to be associated with the political situation. We are now in a position where bouncedce has back. It has probably slowed down from earlier in the year, and that is what most forecasts suggest. This year we are probably going to be the Top Performing g7 economies. Next year we might be one of the worst. We are operating within the new normal of lower growth rate s. Tom currency adjusts for that. On fabulous historical essay the solution of currency devaluation and appreciation. Bring up the chart. This is the hsbc outlier call to a 110 sterling here the yellow box is 120. Andrew, within your review of the bank of england, do you assume that we will see currency depreciation of pound sterling . Andrew against the dollar and the euro we expect to remained around where we are now, which is a pretty weak value of the pound. If you take the trade weighted basket measure, it was the fourth weakest month since 1980. Over 35years. Sterling weaker over the trade weighted basket after092010 immediately the financial crisis. Sterling is already week against the dollar here the lowest level since 1985. The other thing i would say about sterling, it will not save the u. K. Economy. We have had ups and downs in sterling. You care economy weathers the currency and we are not depend on having a super competitive currency to maintain growth. Francine thank you. ,ndrew sentance and bob michele we will ask about the impact on the brexit strategy. We will bring you coverage from across all Bloomberg Media at 7 00 a. M. In new york, 12 00 p. M. In london. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Lets get to the Bloomberg Business flash. Sebastian and former is expanding its presence in the u. S. They will tone information services. Billion. Was 1. 6 they are midocean partners. Apple is not disclosing how many apple iphone 7 it sold, but they are saying it sold out. There will not be any available for walk in customers. It could not be happier with the initial response. Faces a global antitrust review of its takeover of monsanto. It would create the Worlds Largest seed and crop maker. Bayer and monsanto do not expect to close the deal until the end of next year. Francine thank you, seb. Equities, a fiveday slide. Investors trying to decide if the 2 trillion stockpiles have gone too far. Lets discuss markets and volatility. With us is Andrew Sentance and bob michele. Bob, lets get to you. We have seen the markets in a tailspin . It is unclear why. We knew that Monetary Policy bob i think the central bankers were concerned about the complacency in the market. They got what they wanted. Iancine what i was asking, didnt finish my question, we knew that policymakers were waiting to see if they did more qe. The market realizes after mario draghi speaks. Why the lag time . Havealtogether, they become anxious about the complacency and that they may leave policy unchanged indefinitely. It goes back to the ecb when they decided not to extend qe. You have the bank of japan talking about steepening the yield curve. I would argue the risk in the market is not what the bank of england is going to do today, but what you will see out of the boj and said next week. That is the lingering anxiety in the capital markets. Francine september 21, in london we have boj in the morning. 9 hours after that we have the red. What could be the worst outcome . Bob the worst outcome is that you do not see the expected cut in rates from the bank of japan. There is more discussion about ways to reflate with fiscal spending. That they talk actively about what they will do to stephen the curve. Stephen the curve steepen the curve. Moreif the fed becomes hawkish, that would put markets in a tailspin. They would be complete surprises to what the market is expected. Aback by theen Economic Analysis of the last two months that is ignorant, ignores, or is clueless about your banking and financial world. What is your view of economists thinking about negative rates, about the zero bound, but doing it in a vacuum without considering the Financial System . A very good point. Much of what you are seeing out of the Central Banks is classic textbook theory. The thought that inflation is a monetary phenomenon. So, create all types of money, whether you print your own to buy bonds, or cut rates into negative territory. Atre is some secondguessing the Central Banks that is clearly coming out of the fed as they talk about things. On thehad an effect markets. It has distorted the markets. Many speakers have come through of the last couple of weeks to talk about all you relations not being supported by fundamentals. Do economists have to consider the ramifications of negative rate policy on finance and banking, or can they stay longterm . You are right. Negative rates are not good for the Financial Sector, it almost penalizes the Financial Sector are holding cash with Central Banks. I do not think we know much about the longterm impacts of negative rates, we have never had them before. It is not the same as reducing Interest Rates down to 1 or half a percent. When you go into negative rate territory, banks have a difficult choice. If they pass them on to the ,ustomers, they penalize savers or they will penalize themselves, harming their balance sheets. I do not think central bankers have thought through the full consequences of the policy. The entiredicator of yield curve, we had the one off 2008 and 2009. Do you assume new agitation . Bob no. I do not assume new agitation. I assume that, yes, the Central Banks would like to see more volatility, but chair yellen has talked about financial conditions. A key part of financial conditions are not only things like the dollar, but volatility in the markets, effectively tightening for them. They would rather do it on their own with the gradual path to normalization. Those are the things i expect next week. Rob michelle and andrew sentence. We will touch on that in the next hour. In the next hour, donald trump speaking to the Economic Club of new york. A cautious view and Economic Growth. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Tom keene in new york. This cover is almost eight years ago, the collapse of Lehman Brothers. The wall street journal, september 16, 2008. A good reminder of what we have learned and what Central Banks have been doing. Tom it was an extraordinary day. Richard of lehman seven days before this and he was exhausted. I remember people mentally exhausted after the crisis and knowing that lehman was coming. Francine one of my favorite , and often we speak the policy makers, the weekend leading up to Lehman Brothers. A lot of them said they did not go home for a week. Where were you . Bob at jpmorgan watching the events. Francine did you go home . Bob i was in london at the time. It was extraordinary. You knew thereis was going to be a policy response. You did not know what it would look like. You knew it would become an enormous political football. The uncertainty was not going away anytime soon. Tom have we learned anything . I guess we are less leveraged than we were at the time, but do you believe there is a greater stability now, it given exogenous shocks . Bob absolutely. We have learned the importance of Monetary Policy. Year, in june of that three months earlier, that the ecb raised rates. In retrospect looks like an enormous policy. I think it made Central Banks more sensitive to market conditions. More sensitive to what their role is, not only in trying to navigate growth and inflation at the fed and elsewhere, but also to create stability within the capital markets. It has become debatable. Andrew thinks it is the it is debatable. We speak with the former bank of england deputy governor. This is european stocks. Dollars gaining, crude holding below 44 a barrel. This is bloomberg. Tom it is a new york that will be focused at 12 00 noon at the hotel. Astoria donald trump was speak the Economic Club today, and it will be interesting is he lays out a trump economic policy. I am tom keene in new york city. Francine lacqua in london. Thrilled youre with us on economics and finance investment, international relations, and the bank of england. We will do that in a minute. Francine of course. Tom first, bloomberg first word news. Sebastian a new push to investigate and jail wall street bankers for their role in the wall street crisis. A massachusetts democrat wants to reopen the investigation into 200 individuals and departments that was opened in 2011. Er, we will call the later today, well speak with senator warren on Bloomberg Television republicans backed off their demand on impeaching the head of the Internal Revenue service. He has been criticized for handling the investigation into the treatment of conservative groups. The House Committee will hold a hearing, but a vote is not likely until after the election. American companies welcoming obamas decision to lift sanctions on myanmar. The country is transitioning from military rule. The head of the u. S. Asian trade group said lifting sanctions with that American Companies compete in myanmar on a level playing field. Chancellor merkel trying to permit more election prevent losses. Ction polls show that Angela Merkels party may be pumped out of the City Government in berlin. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you. Will carney stick to the script . And ajoined by john gieve former member of the mpc. Thank you for coming on bloomberg. We have pretty good retail data for august. A lot of figures from the previous month were revised upwards. There is the shock that we were met to have postbrexit . The fear was that it would go deeper and it hasnt. It has bounced back. Im sure the bank of england would claim some credit, along with im sure theresa may would claim credit for sorting out the government quickly. Both things probably prevented that from escalating. Predictionere is no for any more action today. Francine is there a risk that they will have to reverse what they did on august 4 . , im note withholding sure what were looking at for the u. K. Economy. Whether it is a long drag downwards, or when article 50 is triggered we will get a shock. The fact the indicators have bounced back have little to do with the decision in august. John and i are on the Monetary Policy committee and now that it takes six months to nine months or Interest Rate changes to seep through and 12 months to infect inflation. I do not take the bank should claim credit. Made a mark carney strong statement after the brexit vote, and that put the mpc under pressure to deliver monthly relaxation. Practice,is, it in it is not a big deal. They have done more qe, but it has lost its impact it had in 2009. I think they are not going to change the dials of the economy with monthly policy. Monthly policy has been loose for a long time. , next year,ould be how to normalize on a terry policy effectively. Tom sir john, we have the. Trocity of talking baseball i will bring it over to your beloved arsenal. They had trouble putting the ball in the goals last year. They are doing a little better. If arsenal has to put the ball whate goal, i get that, does Prime Minister may have to do . They have to put the ball in the goal. How does she jumpstart the United Kingdom . Dont john i dont think she can jumpstart the United Kingdom. What she can do is clarify as soon as possible where she thinks the government is taking us and what the brexit will mean in pratt this. That will be a long story that will take several years to work out. Thisshe can do autumn christmas is due set out clearly her goals. And business investment, which is the most likely to be affected by the prospect of brexit, reassurance that we aim to keep a close trading relationship with europe without tariffs and if possible with passporting where it is important. That would be positive for the economy. If she will say that, i dont know. Your public service, i do not know if you are dealing directly with airports, but what do you need to do to send a signal to the Global Financial community that london is the place to stay and invest . The action to signal to finance that london is the place to be . John she starts from a strong position, london is the place to be in europe. It is the financial and intellectual capital of europe. People are doubting that. We willmay do because be leaving europe. Francine i am doubting it. I am italian. I do not know if i will be able to work here. John we had a strong record until brexit. The most important thing that she can do is to clarify our relationship with europe. A little escape from doing infrastructure. We are expecting a little of that in the budget statement in november. I do not think there is a huge amount of room. We are running a massive deficit and we cannot reverse engines. I think the key thing is clarity of direction. Francine clarity of direction, which at the moment we dont have. A formerg mustread, Prime Minister of violating in the financial time writes events have change the perception of nordic countries. About ireland and the place of ireland in the eu. He talks about the decision to leave the eu has created uncertainty about whether there will be a stable structure to keep markets open in northern europe. He makes the point that the apple question is secondary. That brexit puts into question the anglosaxon model that london is the face of. The Single Markets in the European Union was u. K. Inspired and u. K. Driven initiative. I agree. We have to keep the closest possible relationship with the European Union in terms of economic relationships. What that means in practice is being negotiated and discussed, but some of the are talking about not being part of the Single Market is misplaced. It is not where the majority of Business Opinion is. The majority of Business Opinion in the u. K. Wants a close relationship with the Single Market, a successful venture. Maybe we have not tilt on it and extended it as far as we could and services, but where it was in the 1990s, it was a relatively successful project. Tom if we see currency here, or pound sterling depreciation, do you have an export goods producing United Kingdom, or is there something profoundly versusnt about 2016 other bouts of history where the currency went down and goods and exports take doubt. Is that relationship still there . And exports pick up is that relationship still there . Andrew one going up, the Gold Standard in 1931 and 1949 when to 80 and that helped the economy. Other evaluations like 1967 and the early 1990s the devaluation was reversed. ve gone from 2 from 2 to 1. 50 for an export boom. Manufacturers who dominate International Trade are not pricesensitive. Particularly the manufacturing of the u. K. , hightech and driven by skills, innovation, and technology. I do not think we should expect a currencydriven export boom. Tom is there risk of wealth destruction in the move of poundsterling with respect for a littler britain . Andrew you have to squeeze on Consumer Spending. We saw that after the financial crisis. One thing that we have perhaps forgotten in the u. K. Inflation hit a peak of over 5 in the autumn of 2008, a difficulty for the mpc. We cut Interest Rates but were worried about bad in relation driven by the fall in the pound. A further fall in the pound will push up inflation and squeeze Consumer Spending here that will dampen the u. K. Economy next year. Francine former boe policymakers Andrew Sentance and john gieve. We will bring you coverage across bloomberg. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london with tom keene in new york. The brexit fallout will cloud the outlook. This is the big picture for the swiss. They are saying it is significantly overvalued. This is the morning movers. 109. 55. See euro swissie you wonder when you look at the everything 40years in terms the yield is in negative territory, and you wonder what Thomas Reed Dan can do next. That spring in Michael Mckee in new york. Still with us, Andrew Sentance and john gieve. Michael, the swiss franc is undervalued. This is something were hearing from japan. This is the way it goes. Michael they are fighting currency appreciation, and have been for years, because being nextdoor to the eurozone has disadvantages for the swiss. They say they will maintain vigilance in the currency. Right now, they did not feel they had to move. They said it is brexit, the wait and see. They said the vote from the u. K. To leave the European Union has caused uncertain tea and makes an assessment of the Global Economic outlook more difficult. They will wait and see for a little while. Theyre holding a news conference. They are suggesting the currency stands overvalued. It has fallen since it hit 85 after the shock move in 2015 to decouple from the floor. Enoughow, it is weak that they feel they can stay on hold. Francine what is your take . The swiss National Bank has a tough job. They abandoned the floor, have negative rates work at all . John yes. They have stabilized the currency of it. , minorlyrates negative, are an attack on banks. Think in the end they have a counterproductive effect. It is really the currency that is driving this. Tom the jumble of economics is remarkable. Negative Interest Rates and the zero bound leads us to what is happening in the oil in the engine. It is short term paper. The swiss or the british, everyone follows, what does it show now . Rates are already rising. We were talking across the curve in the u. S. The twoyear note yield has not gone down even though people have written off the idea of rate increase. In the 2. 6 trillion Money Market Fund space, the deal is in shortterm paper. There are new regulations october 14, that require institutional prime funds. They seek higher yields because they buy commercial paper. They will have to float their asset value, no longer tied to the dollar. Worried about instability, taking money out of the yellow line. The government only fudnnds. Is putting is it upward pressure on years. 54 is now at its highest in the u. S. At its highest since 2009. Tom there is a great disagreement on some say it is not a big deal, others say it is a big deal actively men in 20082009. Where do you cut on this michael . It is not a crisis funding sign of strain. It is pricing of credit. The boroughs of commercial paper. Up. Pushes rates there is a chance longerterm rates fall when this goes into effect, because people who want to take risk will say i will pay the higher prices and get additional yield. Francine what is the central it struggling the most . Looking at the boe, boj, the fed , where is the bank that can do a big policy mistake at this time . John the one that is struggling the most is the bank of japan. It has thrown in the kitchen sink, it has gone beyond the kitchen to the bath and nothing is moving. The lyrical backing is slipping away political racking is slipping away. The bank of england should play its hand now. I do not think they will move again until next year. At that point the economy may be more resilient than they think and they will be thinking of moving up instead of down. I do not see another big mistake coming there. The one that is most difficult is the fed. They want to normalize rates. I sympathize with that. On the other hand, there are signs the cycle is turning down in the states. They are struggling with that. Tom thank you. Ichael mckee and john gieve we will drive for the conversation with donald trump speaking in new york. A data check, oil is front and center. Brent crude. The mexican peso is weaker this morning. This is bloomberg. Tom good morning, everyone. On the bank of england out here in a bit. London. Lacqua in stay with full coverage of the bank of england across all the Bloomberg Media. I dont know what time it is in england. Francine 12 00 p. M. Tom lunchtime. Lets get to our Bloomberg Business flash. Sebastian u. S. Prosecutors investigating wells fargo for opening 2 million Service Accounts according to a person familiar with the probe. Wells fargo will pay 185 million relating to its sales practices. Wells fargo is not commenting on the investigation. The admissions cheating scandal weighing on volkswagen. They lost market share in europe. They say it could account for more than one fourth of the continents auto sales. They rose 9 . Vw rose little more than 6 . That is the Bloomberg Business flash. Francine thank you, sebastian. The former nigerian finance used to have a watch with eight dials so she would never get confused about her time zone. We need to get one for christmas for tom keene. Lets get back to what todays anniversary is. It is eight years since the lehman crisis and collapse. We are with Andrew Sentance and former boe policymaker, and the former boe deputy governor. When you look at the lehman crisis, 8years on, we have incredible talents sheets on Central Banks around the world. We have not seen any growth. Inflation is nowhere to be seen. Are we more stable . Do you remember when lehman went down . Andrew yes. It was just before my 60th birthday. It put a cloud over the celebration. I was on the mpc at the time. From what i remember, there was a reassessment of where Interest Rates would go. He kept them at 5 over the summer of 2008. I thought they had to go down to 2 or 3 . I think at that time we thought it was a shortterm measure. That we would have low Interest Rates, then they would come back up. The worrying thing is that we have not damaged to wean the economies of the west off the life support mechanism of low Interest Rate. It is now having a drag on government on deals and affecting pension financing. We are seeing negative longterm consequences. Central banks need to come together to work out how to gradually move us out of this position. Quickly, this is about lehman and the fear of the next lehman, and i do not mean to pick on deutsche bank, but do you have an optimism the european Banking System will clear . Andrew i think we will model through in terms of the european taking system. The same with laymen and the banking problems in the Global Financial crisis. Clearame out to not a blue sky, but they did not expect it. We have been dealing with these banking problems for seven years or eight years. It takes longer in europe, but gradually they will be resolved. Tom Andrew Sentance, thank you for being with us. Sir john as well. A most important speech may be on policy. Everyone is starving for candidate policy. Donald trump will speak at the Economic Club of new york lunch. I will be there. There will be an interesting q a discussion. We will have that today at 11 30 new york time. That will be at the waldorfastoria in a beautiful new york. Morning, from the bank of england to the bank of japan the are there tos the aren the collective centralbank toolbox . Tepid demand may be the autumn surprise. Trump will go before the to possibly talk american economics and residential policy. Good morning, this is bloomberg surveillance live from new york, thursday, september 15. Im tom keene in london. Mr. Trumps speech will be interesting. It is a very formal set up and you wonder how a nonformal guy will do within the rigidity of how the Economic Club does things. Francine i am not familiar with this event. Willie definitely talk about policy, or will he veer to also talk about his and his opponents health . Tom i have seen a teleprompter there, before, but you wonder the structure of the speech, and then you eat lunch and then you have questions. You wonder where we will be at 1 00 this afternoon. Right now, where we know we are is with first word news. British government has approved a controversial Nuclear Power project. They signed off on a proposal to build two new Nuclear Reactors. In july, theresa may had i expect it we decided to review the project. Social and central bank is keeping its negative Interest Rate on hold. They left deposit rates at a record low. They pledged to intervene in currency markets if needed. The bank says the brexit vote has clouded its view of the global economy. China issued a store morning as a monsoon made landfall. The storm is expected to weaken as it moves in. Earlier, the typhoon left one injured one dead and many injured in taiwan. Hillary clinton resumes campaigning today after a three day break to recover from pneumonia. She received a two page letter from her doctor that said she is in good health. Donald trump appeared on his discussed his own health on dr. Oz, last week. This is bloomberg. Tom lets get through the data check. Bank of england coming up in one hour. Futures advance up six. The yield, the real churn with a higher yield structure all the way out to the 10 year, oil is weaker, under 44 on american, brent 4620 46. 23. The day weaker through and sustained weakness, this morning. Francine we look at different things. Change, stocks, little i want to show you two currencies. As they talknc about brexit and the fallout. I want to show you the pound because we have unexpected retail sales confounding economists. Tom a love the focus on euro swiss. I love the focus on euro swiss. Economics in all the data, retail sales, industrial production, back to the depression in the lower left corner, this is a unusual chart. Happened, our guests this hour tell us we have flat industrial production. The extrapolation of what was just just has not happened. Francine i wanted to talk about volatility and the fact that investors seem to be obsessing over volatility. The blue line you can see on the screen is s p 500 shares. Fixedite line is the shortterm futures. It shows you the first time on they recorded more volume on tuesday that any company in the s p 500 index with a rancor a record 100 million shares changing hands. That means investors like volatility. Interesting, you get the desperation to perform into year and as well. He is one of our more popular guests. He agrees with most of our viewers that things out there arent so hot. A lot of people come on the show, they live within zip three zip codes of america and they say things are great but pretty good. You have been a clear voice on saying things are pretty good, but only for a select few americans. Lets reaffirm the idea of tepid Economic Growth. Not recession, but not good enough. That is exactly where we are headed. And i dontagnation think it is going to change because the whole world has withe a one horse trek regard to dealing with Monetary Policy. You are not going to get growth picked up. Structuraled are reforms, labor reforms, education. Tom i want to go right to the heart of the matter. Pink and thegdp in overlay inflation in green. The basic idea pushing against you is inflation to the rescue. Price increase will get the animal spirit of nominal gdp going and real growth will pick up with that spirit. Do you buy that story . I do not. If you hop back to 1933 through 1939, you did not have inflation perking up immediately. You needed a second world war, a structure change to cause demand to pick up. We are in a situation where any cash created ends up getting saved, whether by the bank or the individual. If you dont spend your cash and if the bank does not lend the cash, there is no inflation. That is what we are in for, for quite a long time which is why i dont believe that the yield search we have had in the last 10 days is going to persist. Francine how do you deal with this if you are a central bank . My message is the same as what i said in 2008. Ought to sayanks we are at the end of what we can do, this is not a Monetary Policy effort. Quantitative easing will not do it. You basically tell the fiscal side of the government, either you take over or do it, all we will not do anything. What we had is the Central Banks essentially saying nobody else is willing to act, therefore we will act ourselves even though the policy is ineffective. It is like saying i have tried all kinds of medications that did not work, im going to shoot myself in the head. Francine how can we be sure that the policy is ineffective . It would mean that you assume we would be in the same situation have a not done anything. We were talking to someone who said whatever you put in play, it takes up to 18 months for that to come through. Yes, but lets go back and check on the history of Monetary Policy. Instarted at 0 interest december 2008. We started with quantitative was going to be a temporary policy in january 2009. Both persisted for a long time. They did not work in terms of making Economic Growth accelerate. The question now is, having failed for eight years with these kinds of policies, why do they think negative rates are going to work and chairman bernanke had a block a blog in the last couple of days indicating that negative rates may be preferable in sometimes. I dont see the basis for making these forecasts when you have had eight years of failed Monetary Policy. Tom bring up your savings to personable personal disposable income. We have not done this chart for a wild. The green line is how we used to save. Then we saved less, and now we are locked into an ok 5. 8 . It is a paradox. What is wrong with our paradox of savings . What is that about savings . It is the same thing we learned in the great depression. Saving, ify goes on you save, it is good for you and good for the economy. If all of us tried to do it at the same time, the economy will not stand up. Tom i dont save, i go out and consumed. Where is the investment to match consumer spirit . The investment to in order for investment to pick up, you need the regulations to change, you need the tax code to change, you need the assets to come back. Tom to i need a higher Interest Rate . You need a better tax structure and a system whereby countries can bring back 2. 5 billion of money, with a lower tax rate. That is what you need, to boost investment. Francine thank you. Stay with bloomberg for the latest on the boe rate decision. This is bloomberg. Left,ew york to the infrastructure building at the look at laguardia to the right. You cant see it in the distance, a beach house of one half you miller. It is extraordinary, five bedrooms, six bath, he even has two woodburning stoves. In the distance, the matt miller beach house. A beautiful shot of queens, long island and new york city. Lacqua back from trust burgh ce shroff francine i thought all the and the president commissioner himself seemed very authentic because they were not painting a picture of a rosy future for the European Union. It is an existential question and time. They also reminded me of some of the wastage that the eu does. Parliament usually has to travel, up to 50 of them, lots of money at the expense of taxpayers to do this in the middle of france. Tom something out of the 17th century. Lets get caught up with the business flash. Eight british based business information, the trait the price is 1. 6 million. Apple is not disclosing how many i iphone sevens it has sold, they said the plus model sold out in the presale period. 66 million takeover of man sent of monsanto. The Companies Say they will seek approval and 30 jurisdictions, including the u. S. And the European Union. Does nothonest expect to close the deal until the end of next year. In we are thrilled to bring a chief executive officer, also handling compliance as well. Here. Ful to have you what is your enthusiasm for equities . It is relatively low. We think the bond market is right and the stock market is whistling by the graveyard. We see a slowing global economy, eventually slowing the u. S. As well. Cash,he idea is to go to which has been a hazardous exercise, going back 60 or 70 years. The chart we have got really shows it. Depression,m the with a little bit of a pullback on the right side of the screen, but nothing like that red arrow depression. Go to cash seems to be a siren call right now. Like whenain points we see the divergence between bond yield and stock performance, it cries out to when we liquidate a successful investment, we dont necessarily reinvest right away. So evennly 30 cash, longterm. Tom he has the luxury of 30 cash, but a lot of ritual perspectives dont have cant do that. Francine are you expecting a correction before the end of the year . We are not calling for any specific time, but what i would say is dont use a shotgun approach to the equity markets, use a rifle approach. Cash has not been a bad asset for the last 15 months. If you can find a terrific investment in february, that is a great time to make it and right now, perhaps not. Dont let it burn a hole in your pocket. Tom i look at this, and i guess we look at pullback, but the part of the matter is multinationals are trading, monsanto went from 90 to 106, 2 128. When you look at given stock or even given industry segments, is it a nifty a 5050 feeling . It is. It is the safety nifty 50. Stocks like utilities that dont have any growth are selling at 18 or 22 times earnings because people feel they need to be invested, yet they want to protect themselves. Tom are we doing Financial Engineering in our corporations because of the secular stagnation . There is no doubt, that is absolutely true whether it is Companies Moving to a lower tax distribution. Financialyer monsanto engineering . That youveink is got fewer and fewer ways to get topline growth because the economy is not that healthy. You are doing things to make circumstances, is there anything investors can do . Very few areas to invest. We think there is a oneoff like apple that is introducing new product and next year will introduce the iphone eight which will be a substantial renovation. There is cbs, allergan, these are specific stories which we think are worth the risk. Tom are very for bank of england in about 40 minutes. Later, it is a time for a victory lap, bringing you the chairman of the president s council of economic advisers. That terrific report from the Census Bureau on rising median income. Tom good morning. Bank of england in 35 minutes. Francine lacqua in london. I am tom keene in london in new york. From berkeley, a superb short essay, the early returns on brexit, he takes a grim view contrary to what some have been claiming. He goes on to say the external environment is unfavorable and it will take time to reallocate resources towards the production of traded goods. Deals willf trade not be concluded overnight. This is a real lesson in the history of british currency depreciation. The one thing which is getting traction, although completely unconfirmed is if these trading negotiations take a long time, can you do transitional agreements between two k and they dont every single commissioner in strasburg, i asked and nobody knows yet. It is going to take a lot more than we think. In the meantime, what happens to the u. K. . It is a catch 22. The ceos of big banks need to make decisions, so the need to figure out if they think they have passporting rights and it is a timetable that does not match. You are spot on. That is the problem. We are talking about whether the bank of england is going to cut rates or whether they are going to do so before the end of the year. Neither is going to matter because as you said, they have to start the article 15, they have to invoke it and Prime Minister theresa may does not seem to be in any hurry to do so. You dont have british executives ready to negotiate, so i think the u. K. Is in for a long haul of uncertainty. The fallout of brexit has barely begun. Tom did you see any evidence that reflation could be successful . Or economica macro government policy that allows for reflation . Are you talking about u. K. , specifically . Tom or the u. S. You could have some inflation picking up in the case of the u. K. With the pound having belowiated and if it goes 1. 20, then you can have some pickup in inflation, some reflation takes place. But that a shortterm, you dont get a longterm benefit. Tom we will come back through the hour. Coming up, talking about real moves we have seen brutal moves we have seen in the pound sterling. Economics of the bank of england. This is bloomberg. Francine this is bloomberg surveillance. As washington wakes up, beautiful pictures across capitol hill. They may want to read an annual study by Harvard Business school that says the u. S. Political system in america is the single biggest failure to competitiveness. They talk about political paralysis. Im in london, tom keene in new york. We have to look at the economic and microfinancing. Lets get to the first word news with sebastian. Senator Elizabeth Warren is making a new push to investigate and possibly jail wall street bankers for the role in the 2008 financial crisis. That happened in 2011, warren called the leica prosecutions baffling. American companies are welcoming president obamas decision to lift sanctions on myanmar. The country is transitioning from military role. The head of the u. S. Asian trade group says lifting sanctions will let American Companies compete in my mri level playing field. Germanys chancellor is trying to prevent more local election losses for her own Christian Democratic Union party. That merkels party may be bumped out of these out of the sitting government in berlin. That is set to outline his plans for cut taxes for individuals and businesses. He would cut the top Corporate Tax rate from 35 to 15 . And a biter says the plan would lead to 4 annual growth. Down trump speaks today to the Economic Club of new york and you can watch it here today at 11 30 a. M. In new york. This is bloomberg. Tom we will stay with u. S. Politics and maybe even talk policy instead of pneumonia or tax returns. Joining us without pneumonia is marty shanker. I know you have never seen anything like this. You and i have never seen Something Like donald trump speaking at the Economic Club of new york. Can he stay on teleprompter . He probably will do that, but as you know, there will be some q a at the end that will be interesting to see. Tom there is a Certain Energy in the room. It is fascinating to be there and watch the structure of the many meetings of the Economic Club of new york. I would suggest like we have never seen a candidate, we have never seen a speech like this. What will you listen for on tax reform . Has theey question that deviled Donald Trumps tax plan is how it will affect spending theoordination with all ideas he is proposing like the wall, increasing military spending. If there is a 3 trillion impact, how is the wall going to work . Tom weve got jason furman later this morning on surveillance and bloomberg radio. There is a shift in cbo and there will be a shift on fiscal policy beginning in the Fourth Quarter of this year. Do you detect that . That is probably correct. Both democrats and republicans have expressed a desire to increase fiscal spending. It will be interesting to see just what the details of that are. Francine we had some polls yesterday, and they were pretty significant, they gave an advantage to donald trump. What has been the reaction . What has been the clinton campaigns reaction . Donald Trump Supporters are not worried about them. Momentum is in Donald Trumps favor on these key battleground states. Hillary gets back on the trail, today, and we will see how she tries to counter. It is significant. Like we areat seems seeing the markets asking, what if trump does when does win . I think people have underestimated the donald trump campaign. I think he hasnt even chance of winning this race, and i think laura finally coming to grips with that. Tom thank you so much. We appreciate your briefing before mr. Trump speech this morning. Bank of england and 25 minutes. In 25 minutes. Chris, i have seen Analyst Reports coming out on the linkage of the election. Did you even care what clinton and donald trump do . Sure. The volatility leading up to the election is one thing, especially when this is act two, when brexit was act one. The policies are much closer than you would ever think democrat or republican policies would be. Tom is donald trump a republican . The policies of tax cuts would be synonymous, but the trade policies are not and antiimmigration is not really republican in the oldfashioned sense. Time, i get of the told well even if donald trump does become president , we have checks and balances and he cannot do that much harm. That we had this Harvard Business School Report saying the malfunctioning political system could become the biggest menace to the future of economic competitiveness in the notice states. Thehe stair make stalemate in politics will continue in a trump presidency. I dont think that will change ridley. To the extent that republicans are stopping any fiscal stimulus with the current administration. The democrats would do that in a trump administration. What i have been advising investors is that you will immediately see a Dollar Strengthening and a fall in the treasury yields because of a collapse of global trade bringing money into the notice states because it is going to increase global risk, significantly. Youcine chris, is that how think what is going to shake out . Win, thatave a trump means certainly the republicans can keep the senate and the house so for the first time, you have a unified government in all three areas, and i think there will be a push you may not like the policies we will see, but you would have movement on obamacare, trade, things you have not had movement on in quite a while. How that shakes out in the market is anyones guess. Idea, dostrong dollar you assume within your investing, brutality within the u. S. Dollar, that a strong dollar could derail a lot of i am not that pessimistic. We will have issues, but the dollar will be down the list. We will have a stronger dollar as the foreign economies weaken. Tom the math on this is interesting. Forget about britain, you got almost two dollars dynamics, you have developed economy dollars dynamics. You got em economy dollar dynamics. Thatt think i have seen analysis so polarized. You have both of them, the emerging markets does not want the Dollar Strength because the Dollar Strength coming out of a higher rate increase is going to be very negative for them, and you are right as well, europe would rather like to see that so that interest is clearly added a virgins and what the fed is doing or has done so far is to u. S. More about developments more than global developments. Even if you talk global, which global are you talking . Tom a shout out to michael who was brilliant on this a year and a half ago. Theas way out in front on idea of two different dollar dynamics. Francine if we see a dollar rally, it means that the fed does not have to tighten this year or even the first half of next year because the dollar does the tightening for them. The question is why should a tightening happen . You are right in that the dollar causes aning in turn tightening measure. That is also going to me negative for u. S. Exports. U. S. Going to slow Economic Growth assuming the other countries dont retaliate and most important, what the fed has done with the zero Interest Rate policy is that you have had so much distortion in the market with investment in high risk products, reaching for yield. That is not going to go away. You dont need the fed to hike. The yield curve has flattened off a hundred basis points in the last year with only a 25 push on the short end. Tom it has been restrictive. Lets go with that, bank of england coming up in 20 minutes. We are outside the esteemed palace. How about a day to check . Data check . 17. 44. Oil has been soft. With the bank of england coming up, stay with us. Francine this is bloomberg surveillance. We are 17 minutes away from the boe. Tom keene is in new york. Lets get straight to the business flash. The ceo of german zemin says largest nys their longterm outlook is crammed up by political issues. The omissions cheating scandal keeps weighing on volkswagen. The Company Still accounts for more than one fourth of the consonants auto sales. Vehicle sales rose more than 9 in august. Now prosecutors are investigating wells fargo opening more than 2 million bogus accounts. Wells fargo has agreed to pay 185 million to settle claims. The bank said it had fired 5300 people in the matter. That is the Bloomberg Business flash. Tom we go up to bloomberg go at the 7 00 a. M. Hour. John Jonathan Ferro joins us right now. Jonathan this is a nondecision and the prospect of another rate cut, i wonder how much that has diminished because we have a series of data points that have the last time they met, they told us the majority of the i wonder where they stand. Tom the synthesis of your reading is currency depreciation, has it worked for Prime Minister may . Jonathan the negatives in those inflation rates cost much much once theput costs but search filtering through to the supply chain, you get stronger u. K. Retail sales, the cost of goods will go flying. Tom we are live outside the bank of england, with coverage, coming up. Francine what surprised me is that we spoke to three former mpc members, two of them thought that mark carney had acted to quickly by doing what he did back in august. Jonathan ferro with bloomberg go, in 15 minutes. A new ceo, former cfo, but the bank is now without a chairman. Great to have you on the program as always. I we spending too much time on the bank . It is symptomatic of something that is wrong in italy. It is, but i think this is important, because what is happening in italy does affect European Bank valuations, Investor Confidence. Trying isan they are pulled off, that would be a really big lift to Investor Confidence on italian banks and maybe to European Banks as well. Francine is there any doubt in your mind that they wont pull this off . Amongst the insiders is that italy sticks together, they will always find a way of not going under. That is a polite way of saying what is happening. It is very political and you can see that from the kind of people they are bringing in. The new ceo looks like the old cfo. There are risks involved, this is not a surefire bet. Maybe the new ceo will delay it or announced changes to make it more likely. Tom let me ask an ugly question. Is anybody in italy making money . Are there any banks making money . There are strong banks, there and it isredit, actually going to seek extra capital and a new strategy, next year. I think that what we dont know is the direction or teacher profitability. They have tried to find ways to resist negative rates, try to offer highyield products to their clients, but i think that is a big unknown. There are strong banks, but how does the future look . Tom there is the stock. You do great work on this. These are moving averages and im sorry, that is not a strong bank, is it . Telling you there is a big capital rate on the way and telling you we dont know the numbers, yet. Even if the capital rate gets away, future profitability still looks below average, but we have not got the details. Tom thank you so much. This is the Financial Engineering, it is about risk. That is the only solution to the European Banks is to go out into a cash call. Why cant that be affected . It is not so different from what city and bank of america had to do. Because weimportant are looking at is the weakest links in the chain, and we should all care about that because we care about the chain becoming undone. Buying thearly japanese story as well. The you have the courage to buy them or are they traps . I think they are traps and it is asymmetric risk. If it succeeds, they go up some, but if they fail, the chain breaks and these guys are gone. They would be unattractive to us. Im not saying they are going to go. Francine do you remember this front page . It was eight years ago, the wall street journal the day after lehman said they would go bankrupt. What have we learned about banks in the last eight years . We learned that there is such a thing to such a thing called to big to fail. Too big to fail. Bigger banks will indeed be bailed out. The second thing we learned is that we have learned very little in terms of what led to the 2008 crisis. We have had lots of distortions, inflation, speculation over the last several years. Out thaten we found between before 2008, we should have made changes to the economy to make it structurally sound or, we have done very little in terms of that sounder, we have done very little in terms of that. We have notd adequately prevented a repeat and those are the developments of the last eight years. Francine thank you so much. Stay with bloomberg because the latest reports on the boe rate decision. We will bring you coverage across all of bloombergs media. That is 10 minutes from now. Tom underneath the building is a gold vault that is rather large. Aseone adjusted by sterling, we are seven minutes away from the bank of england. These used to be boring meetings, they are not anymore. It is a gorgeous week in england. The basic idea of the bank of england, we are out front as we are six minutes away from that announcement. Us chriswith with us. We mentioned draghi and yellen. Someone pushed aside the book the bank of england and im always hesitant to do that. What will we listen for from the bank . I listened to see if they continue on what they said last week, that they are serene about the situation. If they postponed in it postpone an Interest Rate decline and they are willing to watch, i think that would be very prudent. He moved tou think quickly in august . And he also said he was serene about the situation and it just did not match. You need for him to be serene and not do anything. Tom he has the clearest headlines that i see across bloomberg. He speaks bluntly and clearly. I make an Important Note of what he says about inflation. Is there inflation out there, within your cautious, secular stagnation . 3. 2 u. S. Inflation . Any inflation you have in components are going to be transient. I cannot see inflation picking up anytime soon. Tom very quickly, chris, can you beat long United Kingdom . Can you buy u. K. Companies . I think we can take the same approach as in the u. S. I would not avoid it altogether. Review, that i hear you say you are long apple . I am. The reason is we invest for three to five years. The seven is eh, but it is a terrific progression. Tom both of you will continue with us on radio bloomberg surveillance. Those announcements are coming up and we will give you our perspective on television and radio. Coming up, bloomberg go. We continue with mark carney, our esteemed guest this morning. Junk of the bank of england is expected to hold rates after wielding the stimulus sledgehammer in august. The feds alleged data point. In focus ahead of next weeks big policy meeting. Alix welcome to bloomberg. I am alix steel with Jonathan Ferro and davd westin. We begin with that breaking news. Jonathan rates unchanged at a long time at a thats at an alltime low. Back in line with expectations with pretty much everyone. The key line here is the majority of the committee over the bank of england expects a rate cut as far as the august outlook is concerned. In the august outlook, they were still pretty pessimistic. What we have seen is the data starting to come back just a little bit, the data in the pmi has continued to hold up