Transcripts For BLOOMBERG Bloomberg Surveillance 20170217

Job. Will the u. S. Be a reliable ally, despite trumps America First strategy . This is bloomberg surveillance. I am mark barton in london. Equities are on track for a third weekly game. On wednesday, the stoxx 600 reached its highest level since december. Down for a second day since then as investors question this reflation trade. The bloomberg dollar spot index is rising today. On a weekly basis, it is falling for the seventh week in eight. A sixweek run ended last week, the worst losing run since 2010. The u. S. 10 year yield a second or two ago was rising for the sixth day in seven. It is unchanged now. Fudgedld has barely since the Federal Reserve interestrate hike in december. Testifying before congress, something we will talk about today. Nymex crude is lower, 53. 28, significantly headed for the first weekly decline, u. S. Stockpiles capturing output cuts from opec. Thats get the bloomberg first word news with Sebastian Salek. Former Prime Minister tony blair will urge opponents of brexit to fight to change peoples minds and reverse britains decision to leave the European Union. He will say people voted without knowledge of the true terms of brexit. When these terms become clear, it is their right to change their mind. It is our mission to persuade them to do so. That speech takes place within the next half hour. We will bring it to you live. We then speak exclusively to tony blair at 10 30 u. K. Time on surveillance. Rejectedump has portrayals of chaos in his administration and claimed incredible progress in his first four weeks in office. Speaking at a hastily arranged conference, the u. S. President lashed out at media organizations who said he will tell you the truth. President trump this administration is running like a finetuned machine. Despite the fact that i cannot get my cabinet approved, and they are outstanding people. Said he willso sign a new executive order on immigration tailored to address the objections of a federal Appeals Court that stopped a temporary ban on travel from seven predominantly muslim nations. The president said it will fulfill the goal of blocking potential terrorists from entering the u. S. The defective head of samsung group, jay y. Lee, has been arrested on allegations of bribery, perjury, and embezzlement. With appeals, it may take 18 months for a trial verdict. The court says a decision was made because of the risk he might destroy evidence or flee. Samsung has denied it made an unlawful offer paid a bribe to the south korean president. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Mark the longest rally in u. S. Equities in three years finally came to an end yesterday, pulling back after a weeklong rekindling of reflation trade, fueled by optimism the American Economy can withstand high Interest Rates. The chances of a hike in march have receded from 44 at one point yesterday to just around 36 . Speaking to Bloomberg Atlanta fed president said the next fomc planned andng is no the economy is in good shape. The retail sales report we just saw tells me that the economy is on the path i expected, or a little stronger. Mark lets bring in tim hayward, an investment director. I want to quickly bring up i was inspired by that Dennis Lockhart soundbite to bring this up. I know you will appreciate it. City Economic Society surprise index for the u. S. It tells a state it is beating economists estimates and we are at the highest level since 2014. Why is the Interest Rate probability coming back from above 40 two below 40 . It is small margins, given that many thought yellen was more hawkish than the fed members we have spoken to this week, and back that up . Beenclearly, it has powerful. Economic growth is 1 higher than expected three or four months ago. That has really powered the equity market higher, and bond yields. It is not just the u. S. Recent data on shipping has listings, movement on boxcar movements, poor traffic. Port traffic. This is good Economic Growth. Mark 2, 3, does it matter . Tim try to rank what is the most important piece of news in the next two months . I think the march meeting is not the most important. I think it is trumps tax announcement. President an active that it is not so important to markets whether they do or do not move in march. Mark trumps tax announcement, phenomenal will have what kind of impact . The movement in the bond market has been pretty static, hasnt it . Since that february hike. Since that hike in december. Generallyink yields drift higher because inflation across the world seems to be on the uptick. But china, switzerland, the u. K. , and in the u. S. , we are seeing inflation and Inflation Expectations move forward. There is often a moment where markets change trend very slightly. It happens in february and in july. We have seen that the last few days. I do not think it is enough to fully change the longterm trend for hire equities and lower mark why has it not affected the bond market . A headed on her desk before the show and i said, i am going to steal the chart. All the credit goes to nejra. The spread has been inching lower. The 30 year portion has been most popular part of the u. S. The blue linend is either annual inflation, bond is on the rise, investments are not buying into this inflation fear. Tim i do not think the fed are buying into the concept that reflation is sticky and is going to stay high. Being behindrisk the curve. That is what this graph is showing. We are really asking for the longerterm effects. If the new fed, the new members of the fed, really believe that inflation is a temporary phenomenon at the moment, the long and could become somewhat unhinged. And it is not immediately in future years, we could see the curve steepening. There, tim. More and a second. Tim hayward will be staying with us for the first half hour today. Plenty to come today on surveillance. U. S. Vice president pence embarks on a threeday trip to europe. A focus on the state of relations between america and its allies. Plus, we analyze the latest ifount from the ecb, and europes central bank is planning to fudge the rules in its bond buying program. Former u. K. Prime minister uses his speech right here on bloomberg to call for a fight against brexit. We will speak exclusively to the x chief executive of sainsburyss, justin king, in our brexit special show. Mark lets get the Bloomberg Business flash with Sebastian Salek. Seb former u. K. Prime minister tony blair will urge opponents of brexit to fight to reverse britains decision to leave the e. U. He will say people voted without knowledge of the true terms of brexit. As details become clear, it is their right to change their mind. Our mission is to persuade them to do so. That speech at Bloomberg London headquarters in the last next half hour. We will bring that to you live and then will speak exclusively to tony blair on surveillance. Allianz has announced a first ever share buyback. Rough it beat estimates. Meanwhile, pimco, which it owns, has had a positive start to the year. It was very strong, with further inflows. I think it is a very good time ,or active managed credit enhanced volatility, and the steeper cost the Interest Rate curve play very much into pimcos strengths. Seb toshiba shares are falling sharply in tokyo trading again today as s p Global Rating said the planned sale of the conglomerates chip business may worsen its risk profile. The Financial Times reported that mitsubishi ruled out rescuing toshibas Nuclear Reactor business. That is the Bloomberg Business flash. Will be a keye theme of a trip by mike pence, his first foray on the world stage. He will use an address at the Munich Security Conference to vouch for trumps commitment to the transcript Transatlantic Partnership and the need to confront a resurgent russia. Matt miller, what are you expecting from this visit . Matt we are expecting mike pence to continue the message that Donald Trumps cabinet has been broadcasting since it started a string of meetings earlier this week in brussels, and that is that their european counterparts in nato need to step up their contributions and start carrying a little bit more of their own weight. Her many only pays about 1. 2 of germany only pays about 1. 2 of its gdp for its defense budget, and needs to get that to 2 . Even the German Defense secretary has said, we need to pay more of our own share to nato. Here. St arrived we started to see a string of diplomats get here. This is a message that mike pence is going to be pushing. You have got to pay more into the nato budget. Much is Vice President pences credibility damaged on the eve of this trip by the whole Michael Flynn saga . Yeah, that is going to be a real concern. How important is mike pence in the Trump Administration, if the National Security adviser did not tell him the truth about his discussions with russian allies . As mike pence starts a string of bilateral meetings here, meeting with german chancellor Angela Merkel, you president donald tusk, the nato secretary general they are going to be sizing deciding his place in the Trump Administration. Mark we will want to hear his view on russia. There has been at least one occasion in the past were his pronouncements on russia have been underlined by trump in the past. It is going to be fascinating to hear what he says about russia. Really anotheris credibility issue. Maybe not mike pences credibility, but donald trump. We continue to make they continue to make conflicting statements. The focus is going to be on how the u. S. Deals with russia, especially amidst these scandals or these investigations that are emerging and press reports that the fbi has carried out on Trump Administration officials in the past, and possibly even the Trump Administration connections with russia now. Other World Leaders that are meeting here today are going to wonder what the u. S. Connection to russia is, and what the u. S. Stance concerning russia is, going forward. Mark good job. We will say you later. See you later. Here with tim. Tim, separate the prospects of tax cuts and Infrastructure Spending, the prospects of deregulation, from all the other stuff the protectionism, the antie. U. Rhetoric, the nato rhetoric. How do we separate them . Tim i think the Infrastructure Spending will be somewhat delayed. It is more of a 2018 story, in terms of action. Other things may appear quicker. What seems to be the trend for the moment is to focus on the tariffs. If tariffs are introduced at some later point this year, i expect the further pulse of hoarding, buying now before tariffs go up. That will power growth in america for 2017, 2018 infrastructure. Mark got to wait another year for infrastructure. And deregulation . Is somewhat think, in the price. We have seen u. S. Financials perform well. , i think itancials is an exciting time to be in america. Mark it certainly is. China remains a big risk for you, and Donald Trumps pronouncements on china are eagerly awaited. Back the one china policy in a recent phone call with the chinese president. What is your biggest concern when it comes to china . Tim i think it is the amount of debt outstanding at the corporate level. Recentlyve seen data which shows china actually having quite a good period of in specific. Ports that is ok for the moment. Hey have had a fiscal push to the extent, how will the economy go forward . Fixednot a big risk for income markets. Chinese bonds are not widely owned by holders. We have chinese equity experts. Just the debt outstanding at the corporate level. They borrowed a lot of u. S. Dollar debt. Quite a lot of it needs refinancing. And what will the environment be . Mark back to you in a second. The ecb appears to be willing to fudge the rules on bond buying. Does that risk incurring the wrath of germany . We discussed that next. Remember, a big day. Big speechgiving his right here at Bloomberg London headquarters within the next half hour or so. We are going to bring it to you live. We speak exclusively to the former Prime Minister, right here on bloomberg. Right here on surveillance. To fudgethe ecb ready the rules . The account of its last policy meeting shows officials see a of qe to from a link the size of the 19 euro area economies. Investors have taken it as a sign the ecb will buy bonds from heavily indebted nations, and fewer are from countries such as germany. That risks stoking anger that the ecb is assisting one government at the expense of another. Is the ecb moving toward buying bonds of those nations that are the most heavily indebted, benefiting the likes of portugal, italy, and spain . Tim a little bit. They have a set of rules which are quite complicated. They have to work out which one they want to let go. On a limited and temporary basis, t is the one they decided to give. That caused peripheral bonds to rally somewhat. Also, you have to think the qe program is going to come to an end. It is that which i think will drive future bond prices. If that is toward the end of qes year, the cessation of tends to have an immediate effect on bond prices. Mark to what extent does it have an impact on your market yield movements . Tim the Central Banks stop buying, yields rise. When they increase the amount of buying or start back for the first time, there often is a lag, but the cessation is very instant. Mark are you talking about the immediate cessation or when the official tapering process begins . Tim when the official tapering process begins. Althoughch it has not, tim the yields have risen. Bonds used to yield around zero, and the no longer do. Mark they were rising globally. Tim they were. 2017, european bonds have risen u. S. , buteld than the that was the other way around last year. I think the point is this is a temporary problem. A box the ecb finds itself in. Mark we are moving toward tapering. That is the big story. How do we hedge the possibilities of a le pen victory in france . That has been among the interesting threads france, germany, widening to the most in years. Expert nurse situation when first round polls show that le pen wins comfortably and second wimpole second round polls show that she loses comfortably. I am not sure we have such faith in pollsters anymore. But it is quite strange to see such a reversal. I know it happened with her father. But it is still quite strange to imagine there could be such a reversal. Five year french ons only just moved into positive territory. There is not much of an Insurance Premium built into french bonds yet. They still need qe mark are investors being too complacent, are you suggesting . Tim it is difficult when a central bank is buying substantially the supply of bonds. There is such a big fire out there. Constrained in his box, it is true. For as long as that continues, one has to keep a major eye on that. Mark is that your biggest risk europe politics 2017 . Is it greece, italy, holland . There are many potential ones. Tim indeed. I suspect they will not end up being major threats. Or not actually turn into threats like brexit did or trump. Is ineece for the moment played out between major institutions, not in bonds. Haywood,ywood thank you very much. Mark welcome to our weekly brexit show live from london. Im mark barton. Tony blair will be giving his speech about brexit. We will bring that to you live on bloomberg television. Lets get a roundup of all the brexit news. Heres Sebastian Salek. Sebastian Steven Mnuchin expressed his desire to strengthen the deep economic bond with britain. Opportunitiesssed to support the socalled special relationship as britain prepares to leave the e. U. Microsoft raise prices on including laptops and tablets by as much as 15 as a response to the collapse in the pound. Microsofts top of the range book will go up by 400 pounds. It is the latest price increase to hit headlines after an audio firm revealed it was raising prices in the u. K. Up to 25 . Italy formed a task force to lure Financial Firms from london after brexit as the country steps of attempts to attract companies to milan offering tax incentives. Finance minister and the mayor of milan met Financial Executive to make another pitch. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Im Sebastian Salek and this is bloomberg. Mark thank you very much indy. Getting some retail sales data out of the u. K. And retail sales unexpectedly fell for a third month in january. That suggests consumers are starting to feel the squeeze from accelerating inflation. The volume of goods sold in stores and online declined 0. 3 following a 2. 1 plunge in december. That has been revised downwards from 1. 9 . In the three months through january, sales dropped 0. 4 , the worst quarterly performance since 2013. These figures add to evidence that the cooling in Household Spending is materializing as ritonsse find their b find their purchasing power falling. According to a statistician come of the data shows the first signs of a fall in the underlying trend since december 2013. She says the evidence suggests increased prices in fuel and food are significant factors in this slowdown. My guest is one of the biggest figures in u. K. Retailing, best known for his tenure at the helm of sainsburys unaware he faced the challenge of the german discounters and spearheaded a push into smaller stores. In a 30year career, he headed up the food is this of Marks Spencer and held roles at haagendazs and pepsico. He joined a private equity player, where he currently serves as vice chairman. During the Brexit Campaign, he campaigned for britain to remain in the e. U. , claiming withdrawal would be catastrophic. A very big welcome to just thinking. Weak,the data, which is does it suggest that higher prices are really starting to bite . I think it does. Im not at all surprised. The consumer tends to react weekly when they start to notice the difference in their weekly budget. If you go back to the financial crisis, we saw this very clearly in the spring of 2010. You saw the lines cross between cost increasing and wages not increasing, as was the case then, and in one quarter, we saw a significant slowdown which persisted for several years. The inflation that has come through thus far, i know we are only seeing a headline figure of 1. 8 , but people do notice that in their weekly budgets. Christmas is a time when those budgets are particularly stretched. Any change at that time is noticed. Mark the high street has been dominated by food price deflation, hasnt it . That has been the headline in recent years. Is it going to turn on its head . Do we have to get used to food Price Inflation . Justin not necessarily. In answering that question, it always has to be answered. Weve seen with iceberg lettuce and a few other things in recent weeks, in agricultural commodities, the weather and forming conditions can make a much bigger difference to supply and cause much bigger swings in pricing. We will for sure given that about half of the food and groceries sold in the u. K. Are purchased in either euros or dollars, and we know that the pound is 12, maybe 15 off its highs, for sure, that cost has got to get through the pipe. The simple maths are, and i said this about six months ago, about 3 to 5 inflation by autumn of this year. Of course, as in all trends, once you let that in a years time, theres no particular reason why there will be another increase in prices, because the effect of the devaluation of the pound will have come through. Mark how much reluctance is thereby the big players, sainsburys, tesco, to pass that on . Justin huge reluctance. When you get that waterbed effect of genuine cost increase, driven in this case by currency competitione price battle is far on the basis of who puts their price oblast. You will see lots of brave oftements, but the margins food retailing at 2 , 3 , means in the end it has to get passed on to consumers. It would be a shortterm battleground, im sure. Mark who is better placed out of the names weve talked about and the discounters . Who is best placed to whether it, to maybe be the last person standing . Justin generally speaking, the more premium the quality of the product you are selling, the better able you are to absorb cost price increases, because the increases are smaller proportionate to total cost. It will tend to event artist on the narrowest margins, selling the lowest quality product. So you are talking about the discounters. They always feel that pressure earlier. From a brand point of view, they are always the ones that want to pass it on last. You have that dynamic all the time. Mark lets talk about, before we get to brexit, a bit of m a in the industry. One piece of m a did catch many by surprise, tesco and booker. Where you cant buy that one . Justin i was caught by surprise. No one saw it coming. What most intrigues me about that is that tesco are pretty confident in all of their announcements that they didnt foresee a competition issue. I would be quite surprised if that was the case. Although booker and tesco argue that the retail outlets they supply are not technically not directly in their control, theres no doubt at all that they have a tight relationship and there are many Convenience Stores that rely on the booker system for this apply. Given how concerned the competition commissioner was and the Competition Markets Authority know is about further consolidation in grocery retailing, we saw it in various acquisitions, morrisons and safeway, it seems to me that it is quite likely theyre going to take a hard look at that. Mark were just going to cross over to tony blair, the u. K. Prime minister, who is about to speak on brexit. Lets listen in. good morning, everyone. Many thanks to bloomberg for giving us this wonderful venue, and many thanks to britain for hosting this event, doing such an excellent job in the country, and thank you very much, antoinette, for that kind introduction. Give me hope for our country and our democracy. Thank you. Going to go straight into it. I want to be explicit. To, the british people voted leave europe, and i agree the will of the people should prevail. I accept right now there is no widespread appetite to rethink. But the people voted without knowledge of the terms of brexit. As these terms become clear, it is their right to change their mind. Persuadeon is to them to do so. What was unfortunately only dim in our sites before the referendum is now in plain sight. The road were going down is not simply hard brexit. It is now brexit at any cost. Our challenge is to expose relentlessly what that cost is, to show how the decision is based on imperfect knowledge, which will now become informed in easye, to calculate to understand ways how proceeding will cause real damage to our country, and to build support for finding a way out from the present rush over the cliffs edge. I dont know if we can succeed, but i do know we will suffer a reckless verdict from future generations if we dont try. Debate issly in this the mantle of patriotism of used abused. We do not argue for britain in europe because we are citizens of nowhere. We argue for it because we are proud citizens of this country, britain, who believe that in the 21st century we should maintain our partnership with the biggest Political Union, the largest commercial market on our satisfaction of it. Theider for a moment surreal situation in which our nation finds itself. Criticism ofsonal the Prime Minister or the government. I know the Prime Minister is someone cares about our country, who is trying to do the right thing as she sees it, and i know how demanding the job of leadership is. But just consider, nine months ago, both she and the chancellor were telling us that leaving would be bad for the country, its economy, it security, its place in the world. Today it is apparently a once in a Generation Opportunity for greatness. Seven months ago, after the referendum, after the referendum result, the chancellor was telling us that leaving the Single Market would be, and i quote, catastrophic. Now it appears we will leave the Single Market and the customs union, and he is very optimistic. Two years ago the foreign secretary was emphatically in favor of the Single Market. Now, ditching it is brilliant. The Prime Minister says she wants britain to be a great open trading nation. Our first step in this endeavor, to leave the largest free trading block in the world. Bridgets britain to be a between the European Union and the United States of america. How to begin this undertaking . To get out of europe. We are told it is high time that our capitalism became fairer, and how do we start laying the foundation for such a noble cause . By threatening europe with a move to a low tax, light regulation economy, the antithesis of that cause. This jumble of contradictions shows that the Prime Minister in government are not masters of the situation. They are not driving this bus. , soe pass each milestone the landscape in which we are operating changes, not because we will the change, but because this is the direction in which the bus is traveling. 50 not trigger article because we now know our destination, but because the politics of not doing so would alienate those driving the bus. And the surreal nature of this exercise is enhanced by the curious absence of a big argument as to why this continues to be a good idea. Many of the main themes of the Brexit Campaign barely survived the first weekend after the vote. Poundsr the 350 million a week extra for the nhs . Virtually the only practical argument still advanced under the general rubric of taking back control our immigration and the European Court of justice. On the European Court, i would defy anyone to be able to recall any decisions which they might have heard of as opposed to decisions of the European Court on human rights. I can honestly say that during all my time as Prime Minister, there was no major domestic law that i want to pass which you told me i couldnt. It is true, European Court rulings are important on technical issues. Argue one would seriously that the ecj alone provides a reason for leaving europe. Immigration is the issue. Net immigration into the u. K. Was roughly 335,000 in the year to june 2016. But just over half was from outside the European Union. I know in some parts of the country there is a real concern about numbers from europe and the pressures placed on services and wages. However, on these European Union immigrants, the Prime Minister has recently admitted, we would want to keep the majority, including those with a confirmed job offer, and students. This leaves around 80,000 who come looking for work but without a job. Of these 80,000, one third comes to london, mostly ending up working in the Food Processing and hospitality sectors. It is highly unlikely, frankly, that they are taking the jobs of britishborn people in other parts of the country. So the Practical Impact of brexit on immigration is on analysis less than 12 of the immigration total. For many people, the Court Immigration question, and one which i fully sub sect fully accept as a substantial issue, is one from noneuropean countries, especially ones from different cultures in which assimilation and potential security threats can be an issue. Yet this immigration impacted the brexit decision. It was donald trump that without the refugees from syria, you probably wouldnt have a brexit. It is no coincidence that the infamous immigration poster of leave was a picture of mr. For roche in front of a line of syrian refugees. Thus, we have moved in a few months from a debate about what sort of brexit involving a balanced consideration of the possibilities, to the primacy of one consideration, controlling immigration, without any real discussion as to why, and when brexit doesnt affect the immigration people most care about. However, were told we just have to stop debating brexit and just do it. I would actually question whether the referendum really provides a mandate for brexit at any cost. But suppose it does. The argument is that the british people have spoken, we must deliver their will, and we should just get on with it. That getting on with it is a very powerful sentiment and at present the predominant sentiment. But were we to be true to the concept of government through british parliamentary democracy rather than government by [indiscernible] we would also feel obliged to point out that it isnt a question of just getting on with it. Decision that once made is a mere matter of mechanics. That begetssion other decisions. Negotiation, this from money to access to postbrexit arrangements is an immense decision with consequences. World,ere in a rational we would all the time, as we approach these decisions, be asking, why are we doing this, and as we know more of the cost, is the pain worth the gain . Pain. s examine the we will withdraw from the Single Market, which is around half of our trade, in goods and services. We will also now leave the customs union, covering trade with countries like turkey. Then we need to replace over 50 preferential trade agreements. Instance, switzerland. Trade iselated actually two thirds of the total. This impacts everything from Airline Travel to Financial Services to manufacturing industry, sector by sector. Then we will pay for previous e. U. Obligations but not benefit from future opportunities, with figures as high as 60 billion pounds as the cost. We will lose influence in the worlds most significant Political Union and have to negotiate on issues like the environment, where we presently benefit from europes collective strength on our own. There is alarm across sectors as diverse as Scientific Research as european funding is withdrawn. And all this then to do an intricate renegotiation of the trading arrangements we have just abandoned. Negotiation is without precedent in complexity. It is even possible that it fails and that we end up trading on wto rules. This is in itself another minefield. We would need to renegotiate the removal not just of tariff barriers, but the prevention of nontariff barriers which today are often the biggest impediment to trade and bio costs on business. This could take years. Our currency is down around 12 against the euro, 20 against the dollar, which is the International Financial Market Assessment of our future prosperity, i. E. Were going to be poor. The price of imported goods in the supermarket is up, and thus the cost of living. Now of course britain can and would survive after the European Union. This is a great country. With resilient and creative people. And yes, no one is going to write us off, nor should they. But making the best of a bad job doesnt alter the fact that it isnt smart to put yourself in that position unless you have to. All, theaordinary of two great achievements of british diplomacy over the last decades in europe, supported by governments both labour and conservative, namely the Single Market and european enlargement, are now apparently the two things we most regret and want to rid ourselves of. The Single Market, so we are clear, has been of enormous benefit to the u. K. , bringing billions of pounds of wealth, hundreds of thousands of jobs, and major investment opportunities. Our trade with an enlarged European Union has meant for example that trade with poland has gone from 3 billion pounds in 2004 to 30. 5 billion in 2016. Nations that came out of the soviet bloc have seen themselves safely within the e. U. And nato, so enhancing our own security. This,ition to all of there is the possibility of the narrowlyf the u. K. Avoided by the result of the scottish referendum, but now back on the table. Mark tony blair speaking in london at bloombergs u. K. Headquarters. We will be interviewing mr. Blair in roughly 30 minutes. Justin king, former sainsburys chief executive, vicechairman of terra firma, is here. Tic that once we go down the road and the costs become aware, that we can change our minds, which he seems to be suggesting . Justin i think right at the top of his speech we heard him say that a decision had been made about which we had little knowledge. Whoink in fact it was clegg said we voted to set out on a journey when we dont know what the destination is. I think you have to focus on the idea and it is one that i support. Once people come to understand the real cost, and lets speak candid during the Campaign Prior to referendum, there was on both sides not a lot of clarity on what might happen. Then absolutely i think it is part of our democracy that people are able to change their mind. It is part of our democracy that we have an opposition the challenges whatever party is in power. Mark how would that happen . How would that process go about . Are you suggesting that mps down the line are going to get a vote, whether it is a binding vote, theresa may has said they will get a vote, then it will be put forward to voting in the e. U. Parliament are you suggesting they could say, we dont want this . Justin i dont think they can unless that becomes clear that the vast majority of the population of the u. K. Now believe it. Mark so another referendum . Justin it can only have a referendum if theres a career a clear groundswell. If people say that is not the deal, im not sure i would want to vote for it. When we know what the deal is, should we not check whether it is still a deal that we want to sign up to . He also said something which i thought was interesting. He talked about the judgment of future generations. If i remember the information correctly, virtually every age group under about my age, 55, voted to stay, and they are after all the inheritors of this decision. And while we are in a democracy where is one adult, one vote, we should also think very hard about the legacy were leaving for our children. We are going to trigger article 50. That is the vote weve seen in parliament. We are voting to leave. But the next two years are going to see much more knowledge about what brexit might really mark what our business is telling you . The economy is still growing. What our business is telling you about the period after article 50 is triggered . Justin i think what were seeing at the moment is still great uncertainty. People are contingency planning. Decisions seeing many predicated on brexit because we still dont know what brexit looks like. That will start to happen over the next two years and businesses will start to have to make decisions against their expectation of the version of brexit were going to have. Tony blair pointed out a lot of contradictions. We have to resolve those contradictions before we know what brexit really is. Mark justin, thanks for joining us, former sainsburys chief executive justin king. You can watch tony blairs speech right here on bloomberg headquarters on live go. And dont forget, in about 30 minutes time, we will be speaking to mr. Blair right here on surveillance. 10 30 u. K. Time. This is bloomberg. Tom this morning, do not do a hard brexit, a former Prime Minister lectures Prime Minister may and the nation. Tony blair says the u. K. Must consider leaving the eu. U. S. Dollar strength. Markets adapt to a global inflation i will take one more question. Holds a press conference for the ages. This is bloomberg surveillance. I am tom keene in new york. Guy johnson is in london. Prime minister blair is speaking. An extraordinary speech. I want to go back to it now. Tell us what you have observed so far from Prime Minister blair. Guy former Prime Minister. Interesting. It is in some ways the polling is against them. Former from to what mr. Blair has to say former Prime Minister blair has to say. Mr. Blair together we need strong links with the rest of europe. If our government were conducting a negotiation, we should generally seek to advance our nations interests. That would include the possibility of britain staying in a reformed europe. It is clear the sentiment which led to brexit is not confined to the u. K. There is a widespread yearning for reform across europe. Part of our work should be to build european wide alliances to give voice and affect to such an fulls and impulse. This movement has many dimensions to it. It has arguments of detail and arguments of granger grandeu r. The case for europe remains rooted not in understanding the past but the future. All over the globe, countries are coming together in regional alliances for simple reasons. India andises, as other Large Population countries follow, and with the usa already so powerful, to maintain defendh and influence to our influence properly, nations on our side must cooperate properly. This is true of the nations of europe, but for europe there is a more profound reason. The Transatlantic Alliance is needed more than ever. How much stronger it is with britain in europe and europe an equal partner with america. Forget the shortterm left for a politics there or here. In the long term, this is essentially an alliance of values, liberty, democracy, the role of law. The world changes and opens up across boundaries and cultures and nations, which values will govern the 21st century . For the first time in my adult life, it is not clear that the resolution of this question will be benign. Britain because of its history, alliances, and character has the unique role in playing in assuring it is. How can it be wise for us during this epic period of global evolution not focusing on how we build partnerships but how we resolve the one through which we are bound by ties of trade and shared interest . Incontrovertible characteristic of Politics Today revolt. Ropensity to brexiteers were beneficiaries of this. They will say the will of the people cannot alter. It can. They will say leaving is inevitable. It is not. They will say we dont represent the people. We do. Many millions of them, and with determination, many millions more. They will claim we are dividing the country by making the claim and the case. It is they who divide our country. Generation from generation, nor from south, scotland from england. Those born here from those who came to our country. This is not the time to retreat in difference or despair. But the time to rise up in defense of what we believe, calmly, patiently, winning the argument by the force of argument but without fear and with the conviction that we act in the true interests of britain. Thank you. [applause] tom Prime Minister tony blair speaking at our headquarters in london. An extraordinary speech. The Prime Minister of the u. K. From 1997 to 2007. His chancellor gordon brown. Guy johnson, i have seen him speak at least four times. I met with him briefly in dalvos. That is without question the most emotional i have seen him. Guy he is deeply unpopular in the u. K. That remains an obstacle. He is making the speech, but the polling is against them. Theresa may is ahead. There is more polling yesterday that suggest more than half of the british people think theresa may is doing a good job. That makes his life very difficult. He mentioned some things about the opposition labor party. He said the debilitation of the labor party is the enabler of brexit. Is he calling for Jeremy Corbyn to stand down . A lot to think about. A lively debate will follow this, i suggest. Many people will question whether tony blair is the right person to lead this charge. You and all of our good people from the u. K. At bloomberg are experts on this. Speak to our global audience. Who does the Prime Minister represent . Who is his constituency . Ministerprime represents the british people. On the second one, i dont know. There is still pulling done on this. The blair is and remains divisive character in this country because of what happened with the iraq war. That is something that does not play on the international stage, but is well represented here in terms of peoples opinions. Interesting to see what he is saying now. Lets broaden this out. It was an interesting conversation. He is carrying on. Lets bring chief International Economist at ing rob carnell. Mark, let me start with you, is tony blair the right person to make this argument . K parliament had an opportunity to attach conditions to the brexit vote. That has failed. Politicians need to represent the best interests of the country. The house of lords may do some tinkering. I think the ship has sailed. I think tony blair is late to the party. I think he is the wrong person to lead this charge. Guy the pound is the opposition. It. Has some basis to the labor party is part and parcel of the problem, many people would argue. The labor party is not Strong Enough to represent a decent opposition in the u. K. At this time. How much can we put at the door of the labor party . There is a simple way of looking at it. Theresa may has been aiming for a hard brexit. I dont think there is any question of that. 11 ministers talking on this, they are absolutely united in their determination that we sever ties with the eu. Was speaking of reforming europe. David cameron went to brussels and came back empty handed, and was essentially stitched up. We knew there was need for reform. If you lead the charge, we will ou onn this back y this. When he went to brussels to ask for reform, they left him naked and swinging in the breeze. Tom just remarkable. Patrick mcfadden is on stage with the prime mister. He is a labor politician and was sacked in january of last year by the corbyn government. We all know where the telegraph stands. They have been stunningly probrexit. This is just how the speech is playing across one aspect of british media. Elp me here with the now of it why is he speaking now . Witht have to deal the upcoming vote in getting lords to change their mind . Lords angle the is important. I think he is hoping they will show some of the courage that we did not see from the parliament when it had the opportunity. There is also the sense that as the triggering of article 50 had a story and we that it will be earlier in march , once that triggers, you will nnonshe eu turn their ca on the u. K. Hat they want. N we saw that report from the french from it, they cannot have a better situation out of the eu that inside the eu. That will be clear. As article 50 is triggered, you will be in real negotiation battles. I think tony blair is thinking lets try to get in before that and have some conditions to these talks. Constitutional issues running that will get quite interesting. Not blair saying brexit is inevitable. Isnt it . It looks pretty inevitable to me. I have to Say Something in support of what he said, which does not come easy. I have some sympathy with the notion that we voted against something. I did not. The country voted against something. If we know what it was, we might not want it in the end. I think even those who voted remain, let us just get on with it. All of the facts he mentioned about the actual composition of immigration and benefits of trade, they are all facts, and nobody cares. This was an emotive vote. Once you start to understand what the lie of the land is, once it becomes clear that the 27 have no interest in giving wetten anything like what have now, does the u. K. And their population start to take another look at this . I think they should do. This is not our decision. Europe is not going to give us anything good. They have a vested interest in making this deal unpleasant. It is dribbling out. Ireink we will see the full and hatred of people we used to think of as allies in europe. They have to make it look uncomfortable for all those countries wavering on the edge. They have to make an example of us. The facts dont matter. They are not what the debate is about. It was an emotional response to perceived centralization in brussels, too much interference, and immigration is a large part of that. The facts are not changing that picture. Much more about selfdetermination. Lets carry on the discussion. A little later on in the program, we will be joined by former u. K. Prime minister tony blair. That conversation at 5 30 a. M. Eastern time. This is bloomberg. Guy mike pence is expected to meet Angela Merkel at todays security conference. They will discuss what is important right now. Matt miller is in munich at the event. When the conversation starts, what do you think exactly the european leader will be saying to the Vice President . Matt i think they will be asking him again for the u. S. s full commitment to nato as well as clarifying the u. S. Relationship with russia, what is position is going to be on crimea, and what kind of contact the company ministrations has had with russian the Trump Administration has had with russian officials. At matt miller, when i look all that is going on, the extraordinary press conference yesterday, and for that matter what were hearing from tony blair in london, only one thing comes up. Uncertainty. What is the uncertainty for Angela Merkel at these meetings . Matt i think it is fairly high because she is not exactly clear on what mike pences position in the Trump White House is. Given what happened with the National Security advisor, mike flynn, and the lies that he told to mike pence. What does that mean for his position in the white house . Tom thank you so much from germany today. We will continue that discussion. Coming up on Bloomberg Radio, what a week of wonderful economics. Yesterday with jason furman. This morning, a newly ascendant dollar. Stay with us. This is bloomberg. Europe decided in its infinite wisdom to pretend that did not happen. How do you pretend think of see has not happened that bankruptcy did not happen . You keep kicking the can down the road. At some point the snowball comes back as an avalanche. Guy speaking to bloomberg little earlier today. A crucial Euro Group Meeting on monday. Plunging the nation deeper into uncertainty. The chances of this getting done in the near term looking increasingly gloomy. Rob carnell of ing is still with us. We are not anywhere close to a deal, are we . We are not. This is still very much the tactic that is happening. They have real money. They have to find 83 billion euros of debt repayment. Bil the linens to 8 lion euros by july. They will not have anything done by then. It is the same mess we have seen for several years. Christine lagarde at the imf not be looking over her shoulder at the Trump Administration and not be willing to stick her neck on the line . That is a good question. I was chatting the other day about why honor is the imf involved in a bailout for greece anyway . That is not their job. Of extraordinarily wealthy countries that cannot deal with how to this. I dont know why the imf is needed. The germans seem to have wanted the credibility. The imf cannot agree with the euro group. They make a very good point at the imf that there is no real solution without Debt Forgiveness at some point. I think every reasonable person accepts that. That is something that the your group cannot politically swallow. With vice chairman fisher, and he said talk to rob carnell. Use is european and inflation. This is the money question. Is this lift in inflation, is it oneoff, or do you look at this as a persistent trend of rising inflation . In the eurozone case, i think it is one off. We are seeing base effect coming through right now. This is the falling off of oil not coming through the figures. Now coming through the figures. In the u. S. They are beginning to turn out. In europe, they have not yet. The backdrop for growth is not looking that bad in europe. Mario draghi,d to you would think were almost still in a crisis. The macro background is still good. It is not want to rule out. To rule out. Guy do you agree . Matt yes. If you look at all of the indicators for inflation, they have all turned up. Up from very low. Youre seeing animal spirits coming to the four of it and a better economic background. Guy you will stay with us. We will be joined shortly by the former british Prime Minister tony blair. The press conference is still going on in washington. Yesterday. Airplane i missed the festivities. Absolutely remarkable. Truly history making in washington. We will see how long the next press conference is for the present of the United States. Guy johnson in london. God will bring us Prime Minister guy will bring us Prime Minister blair. Here is taylor riggs. Tomaylor you are right. President trump covered a wide range of topics yesterday. He nominated a new labor secretary, and accused the press of being dishonest. Mr. Trump i see many untruthful things. Tone. The town is such hatred. I am really not a bad person. The tone, i do get good ratings. You have to admit. Taylor he made one pivotal statement, saying it was not aware any of his Campaign Advisers were in contact with the russian government. There is a report that Michael Flynn told the fbi he did not discuss sanctions with the russian ambassador. That contradicts indications intercepted by intelligence agencies. Neither flynn nor the fbi are commenting. Scientists in japan still dont have all the answers they need. They have to find the melted radioactive fuel before they can begin removal. Before they do that, they cannot start the cleanup process that is likely to cost more than 70 billion. Mike pence heads to europe this weekend to assure leaders that the u. S. Is a reliable ally. President trumps hard line on nato contributions may have made his job a little harder. He will speak at the Munich Security Conference tomorrow and meet with eu leaders in brussels. 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. Guy thank you very much. To fudge thelling rules. That was shown thursday when the accounts of the last report as inevitable. The p is the measure intended to to the relative size. Joining me now are rob carnell. If you deviate from the k, you start to get into some difficult waters . Yes you do. What is the alternative . They are planning to keep this emergency policy to stimulate the economy and push inflation up and keep it going through the end of the year. There are not the assets out there to buy. If they intend to stick with it, they have to tinker with the mechanism. It looks more like a Political Tool now. Is in Mario Draghis toolkit right now . I think the question is what is in any central bankers toolkit right now . It is all about maintaining this semblance that there is something in the toolkit. Lets buy some random assets, convince people we are doing something useful and positive, and if they believe it, it is really a trick, if we believe in this stuff that has practically no impact on the real economy is doing something, then people might carry on spending, and it might be ok in the end. It is another version of spend and pretend. Tom when i look at this and what mario draghi is doing falling into washington, is janet yellen the central banker to europe right now . She is always the central banker to everyone. The Federal Reserve is the worlds central bank. Everyone follows that. That is possibly why they have been so cautious despite all the evidence to suggest that they ought to be bringing up rates fairly soon. Guy lets take a brief hiatus with these two. Rob carnell, mark gilbert. Coming up very shortly, we will speak to former british Prime Minister tony blair. We will talk to him momentarily. Welcome back. Im in london. Tom keene over in new york. This morning tony blair gave a highprofile speech on brexit. Live, hess carried urged opponents of brexit to fight to change peoples minds. We are joined now by tony blair for exclusive interview. Good morning. Prior theresa may is about to trigger article 50. We have pulling that suggests that more than half of the british proposition supports her, believe she is doing a good job. Are you not worried that from your point of view the train has now left the station . Mr. Blair yes. Of course. We are very anxious about this. We have not yet seen what the real terms of our departure are. We do not know what brexit means. We have taken the decision of the past few months, which was not clear at the time of the brexit vote, that were going to leave the Single Market. Trade,wo thirds of our the terms will have to be renegotiated. The amount of immigration we are going to stop is about 12 of the total. Most of that immigration is not really immigration that is going to impact the people of the country. Of course, what the government wants, the train has left the station. My view is once people see the paingain ratio, in reality, not claim and counterclaim, they may change their minds. An emotional decision in many ways by the british people. Mr. Blair that is a good point. I think you are right that the motions were a strong part of it. Emotions were a strong part of it. Brexit sople think dominates everything, the government is not done with health care, social problems, rising crime. I think people will say hang on, we want to government focused on those things. Tom good morning. I was taken by the emotion of your speech and or bluntness and direct us. Our global party knows the labour party of tony blair, and now it has become a jumble. Who did you speak for today . You did not speak for todays labour party, did you . Mr. Blair parts of it probably. Leadership. Par this is what i call the openminded approach versus the close minded. That the station goes across traditional boundaries of left and right. In a way, what i was articulating was a feeling and sense that some people in the conservative party will agree with and some people in labor. It is not a partisan position. It is a position that has a lot of support, particularly among younger people. Tom what is the middle ground that Prime Minister may must move to . Identify the compromises you would suggest the Prime Minister should make. Mr. Blair i think the key thing is we retain the ability to trade in an easy way with our main trading partner, and we certainly maintain close links around issues like defense, security, and the environment. The problem, and this is the problem to be fair to the Prime Minister that she faces, this is not an easy task, and i am at one level deeply sympathetic, there are no easy ways of maintaining all those links while doing what the people on the right who are really driving this agenda, the far right, want. If for example you dont want people from europe to come here or you want a great fictions on them, it is hard to reconcile that with membership in the Single Market. I can say what i think she should do on the perspective of what would be in the interests of the country, but im not sure it is negotiable given the red line she has set herself. Guy im curious how you think the mechanism will work. Parliamentarians have largely backed the Prime Minister. They make it very clear that whether not they think she is on the right course, they will back her. Are you calling for another referendum . You have argued against governing by referendum in the past. What are you arguing for in the process . Mr. Blair this is an important point. Right now there is no way that the many millions of people who feel that this decision is wrong and to now think we are going down the route of brexit at any cost, there is no way they can articulate their feelings. Im saying all these different groups in different Political Parties who are agitating around this issue, lets actually think what were doing here, we have to combine together, and members of parliament who at the moment feel this is just going to happen, so what is the point of me speaking out, you have to , thethem the strength courage, the protection, if you like, to say, hang on, my constituents are saying to me we need certain guarantees about this. My constituents are now saying we dont like the way this is turning out. Guy are you the right person for this . If you are not, who is . Mr. Blair i dont think you need a person. You need a movement. Guy who is going to start this . Mr. Blair there are lots of people starting this. You need someone to court made it. Coordinate it. One of the advantages is that it does change fast. Right now we need to be making the argument, getting out to people the facts, and tracking very carefully this negotiation. We have not yet begun the process of negotiation. We dont know what terms we are being offered. Once we know, we have a right to say we like it or we dont like it. Tom on this show the other day, Deutsche Bank suggested we would see a substantially weaker pound brexit and the path of the u. K. Economy. How much depreciation in sterling can all of the United Kingdom take . Mr. Blair that is a very good question. It goes directly to what i am saying because i dont think people expected this who voted for brexit. I dont think they quite appreciated this was the Financial Markets picture prediction, as it were. Importedsome of the things that people rely on, inflation is going up. That is a classic example as the pain becomes clear, people are going to say, lets go back and say why we really did this. As you do that, you go back to certain things and certain problems that when you analyze it, brexit is not really going to affect those things. This is a good example of what im saying. Tom i have to ask you dealt licate question. Inhas to do with firestorm washington. It is presumed that the primeent will visit minister may. Should he be allowed to speak and answer Westminster Hall . Mr. Blair whether he enters Westminster Hall is a question for parliament. I will not comment on it. The u. S. Relationship with britain is important. I am not criticizing the Prime Minister for reaching out to President Trump. It is important she builds a strong relationship. Frankly, right now i have enough on my hands without entry into your political debate. Guy we sit here in the city of london. Financial should the Services Sector be protected in this process . The debates in the last few days and their future, how can individual parts of the british economy the protected . Should individual parts be protected . Mr. Blair the Financial Sector is such a huge part of our economy, we have to make sure the arrangement is satisfactory. It is hard to do that. You can move to equivalent arrangements, but that does not deal with the problems the Financial Sector has. My worry is that the Financial Sector, unless it is given some fairly clear guarantees soon, will start to make decisions in advance of what the final outcome of the negotiation is. We have to see. Guy we will leave it there. They give very much. Former british Prime Minister tony blair. Tom very good. Extraordinary. Thank you very much. This is new technology. I am absolutely thrilled with what we have done over a bloomberg. There is handsome guy johnson. There are a lot of features on here, including keeping up with breaking news. You can see the blair headlines. An easy way to message guy johnson with your weekend love notes. On the bloomberg, it is really extraordinary. Thanks to our london team for all that work. Stay with us, worldwide. This is bloomberg. This is bloomberg surveillance. Lets get to your Bloomberg Business flash. Spacex will not be certified this year to send asked not into space. The Companies May not be cleared until 2019 because of potential safety hazards. The Companies May eventually carry astronauts to the International Space station. Boeing says it is working clearly closely with nasa. Spacex has not commented. In a manifesto posted on facebook, Mark Zuckerberg says the company will take responsibility. He will get facebook users involved in recovering from global crises and getting news on different angles. One of the amenities of u. S. Airline travel that disappeared, delta is bringing back free meals in coach. The Service Begins next month on delta flights from new york to los angeles and san francisco. That is your Bloomberg Business flash. Tom, guy. Guy thank you very much. We spoke to tony blair. Lets rejoin our conversation now. We have been speaking to rob carnell, chief economist at ing, mark gilbert. Both still with us. Wants abert, tony blair ersse grouping of remaind to come together across party lines to make their views very clear. Mark ali evidence on the ground suggests that is a distant dream. Deal when it is finally sign, when negotiation is finally complete, at that point we should have a say. You talk about the mechanics of how that should happen, and that is strange indeed given parliamentary sovereignty and taking back control. It is not clear how the mechanics of this are supposed to work out. You can see there is an argument that the angry remainers need a voice in the process. I dont see how they get a final say in what deal we end up with, which to repeat is not really hours to give, but it is the eu dictating. Tom we have had an extra ordinary week, speaking with ofk gilbert, david lynch our dartmouth. Lets talk about weak sterling. What is the ing call on sterling, and can we migrate to wear Deutsche Bank thinks we will settle . A lot of viewers want scenarios. You dont know where the world is going. It is all about outcomes. We scratch our heads and think about these things. The path for sterling does not look good. I think Deutsche Bank has made we pushed it a little far. It is already extremely weak. Pushing it even further out, it is a possibility. There is no real science involved. It is very much confidence viewed. Or are you going to be with a 108 sterling . I will be buying you cocktails. That has never happened before. What are the ramifications . What good news is that you get inflation back to target, each takes a lot of the pressure off the bank of england, and they have to no longer send letters about why were missing inflation targets. It is not all terrible news. Reflation is a big feature of what were hoping to see. Rob is right. The currency, you have to look at theirs. The u. S. Administration wants a weaker dollar. On balance you probably end up with probably staying roughly where they are. Did the british people vote to become poorer . Is the currency story going to make them aware of it . Rob there was a point during the Brexit Debate when one of the ukip candidates when confronted with the likelihood to gdp, said that even if it is right, that is a fair price to pay for getting back to our sovereignty, getting our country back as trump would put it. There is some logic to that. I think people are prepared to pay for celtic termination. We can see that across the world. It is happening in europe in a big way. Nobody wants to be poorer. People dont care about gdp. It is about their own personal circumstances. That is where it might start to get different when the individuals pocket is being affected. When they buy an apple online that is 20 more expensive, that is when it becomes a political issue. All of the aggregate numbers are for the birds. Tom rob carnell, mark gilbert, thank you. Absolutely fantastic. And to all of our london team for arranging this interview with the former Prime Minister. On the equity markets, we have been deficient on that. We have to catch up. We will do that with howard ward, he has been a bowl. Bull. Looking at the dow at 21,000. From london and new york and worldwide, and extraordinary week for finance and International Relations and the politics of london and washington. Coming up, howard ward. Stay with us. This is bloomberg. Of this morning, all awarding to recovers from a press conference for the ages. The president takes another and then another and then one more question. The general just says no. This friday, Dollar Strength takes a pause. Rising inflation. Do not do a hard brexit a former Prime Minister lectures. He lectures Prime Minister may and tony blair says the United Kingdom must reconsider leave or remain. I am tom keene. Guy johnson is in for grantee look. That was absolutely extraordinary. How will the british press, how will london politics pick up on what the Prime Minister said . Guy do you want the honest answer . I think they will rip them to shreds. Is momentum to be honest currently behind theresa may as a result of which i think only will i think tony blair have a hard time getting headway with this. He hopes there is an angry group of remainders that will ride that will rise up and coalesce behind this idea. There is scant evidence of that at this moment. Tom right now, on another donnybrook, that would be washington. Trump isresident trying to erase doubts about his early days in the white house. At a News Conference yesterday, he attacked the press as dishonest and blamed the democrats for the mess he inherited. This administration is running like a fine tuned machine. I cannothe fact that get my cabinet approved and they are outstanding people. Taylor the president traveled to the boeing plant in South Carolina. Tomorrow, he will hold a Campaign Style rally in florida. On taking a second shot at the travel ban. He says he will sign a new executive order on immigration tailored to address the objections of a federal court. Banh halted the temporary of travel from seven predominantly muslim countries. Urging opponents of brexit to fight to keep the u. K. In the European Union. He spoke today at bloombergs European Headquarters in london. Tony blair the people voted without knowledge of the terms of brexit. As these terms become clearer, it is their right to change their mind. Our mission is to persuade them to do so. Taylor player accused risa mays government of having the policy of brexit at any cost. Global news 24 hours a day powered by our 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom extraordinary news flow on this friday. Let us get to it. I will get i will let guy do pound sterling. Point 98 basis points on the steepness of the yield curve. Euro comes in. Guard, quickly. Guy take a look at what is going on. Stoxx 600 softer this morning. Just before the release of the retail sales. Amazing how that happens. A sign that causes everyone to scratch their heads. Look at the spread between france and germany. Political risk in europe is not to be ignored this morning. Guy howard ward will join us this morning but first we speak to lord kevins really in washington. Inlord kevin sirilly washington. Or i had any ideanon of what was coming down the pike. It was truly remarkable as he delivered what was a 75 minute at least press conference where he battled not only members of the press, but also democrats and folks within the u. S. Intelligence community. Tom what sticks out . Do not give me a 75 minute review, but help me here with a singular item that you learned in the sprawl of this moment. There was one moment in particular where he said his chief of staff, former head of the republican party, was trying to put out so many fires, which that he was not able to work on the issues of his legislative agenda. That tom, is why all of this matters. Guy let us pick up on that point. When are we going to start to see policies that matter for the Financial Markets . You are saying that the president admitted yesterday that it is longer it is going to be longer than he first out. Going President Trump is to South Carolina to tour a boeing plant. I spoke to the members of the , theyfinancial committee will release a doddfrank alternative plan to repeal parts of doddfrank. Saying thataul ryan tax reform is in the works after a weeklong recess. We could start to see movement on that next week. Of theealing parts Affordable Care act, obamacare. All of this is in the works. Is thekes it difficult moderate republicans in the upper chamber. The white house is facing pressure. Republican party distancing itself from what happened yesterday . Night, we get word that admiral harward declined his post to replace general flame. I would also point out that yesterday President Trump met t with the original members of congress that supported him. He is looking to elevate some people. Tom thank you so much, kevin. Great coverage this week. Try to get two hours off this weekend. Howard ward is with her belly funds. Is with gabelli funds. Wonderful to have you. You have been so on about this bull market. How do you stay invested given that the given the distractions of the moment . Have a you just have to full appreciation of the difficulties of the market timing. The stock market has been at levels that are defensible valuation wise. I will point out that after this latest surge, it is up 12. 5 since the friday after the election, we are now at 18 point five times Forward Operating profits, the highest multiple of operating profits looking forward since 2004. Evaluation is getting stretched particularly if the forecast for higher inflation comes true. Those multiples then tend to contract. Tom here is a chart of what mr. Ward just described. Here is the election over here. Here is the trump bump. And then stability. Based on what howard ward just said, responsible cfos and ceos should not be acquiring their shares here. Help you with the dynamic of a Cash Dividend increase versus a lesser share buyback. Howard as a shareholder, i almost always prefer a Cash Dividend. Youre buyback routine never really know is the company overpaying for its shares or getting a good value . There are examples overtime where companies have spent billions of dollars to buy back their shares to see them be significantly lower 12 months later. If they want to buy more stock, let them buy more stock. Guy good morning. Guy johnson in london. It has worked for so long. There were a few issues yesterday. We have had this incredible complacency in the market. It has been so complacent at the biggest pullback we have had since the election, remember we had seven straight seven straight weeks after the election of rising stocks. It was the last week of the year where we had a whopping one. 3 pullback in the s p 500. Thebiggest pullback since election and it has been a steady rise in stock prices which has lulled the market into complacency. Be very muchave to prepared for greater volatility. There is tremendous policy uncertainty going into this year. About the Affordable Care act. About dodd frank. About taxes. About fed policy and i could go on and on. With this kind of uncertainty and so many expectations built into higher stock prices, the turbulence will be there. We are way overdue for a correction. Even if it is only 3 or 4 , it will happen. We have not out a deflated we lated for thelegist stock market. Of where me a sense that stronger dollar could strike the most. Howard the dollar is up presently 7 recently since the election. 40 of s p 500 revenues come from abroad. Going to have a 7 increase in the dollar, you are your hurt your export volumes. Your hurt your export volumes. You are talking a couple percentage point of hit earnings here. Some companies are giving guidance forward as a result of what has happened to the dollar. If the dollar continues to increase, this becomes a bigger problem. The administration is talking about an adjusted tax. Built it into the thinking of that is that it would cause a further rise in the dollar, potentially as much as 20 . That would be extremely destabilizing for the Global Economy and harmful to u. S. Corporate profits. Tom howard ward will continue with us. Rob hutton here shortly in london off of the blair speech. Coming up on bloomberg surveillance and radio today, what a wonderful time to speak to the admiral harward. We will look for that soon. Guy johnson will stay with us. This is bloomberg. Taylor this is bloomberg surveillance. Sued. S. Government has United Health for overcharging medicare possibly by billions of dollars. If the the insurer falsely claims that its members were treated for conditions it did not have. Sales in the u. K. Unexpectedly fell for the third month in a row in january. Sales were down 0. 3 . The number at two evidence that Household Spending is cooling off because of rising prices. Inflation is work as to keep climbing this year and the sharp drop in the pound has boosted import cost. That is your Bloomberg Business flash. Guy thank you. Tony blair has declared that brits have the right to change their minds on leaving the u. K. Having a highprofile speech at our headquarters. Blair also spoke to tom and i in the last hour. If for example you do not want people from europe to come here or you want restrictions on them, it is hard to reconcile that with membership in the Single Market. I think the problem is i can say what i think she should do from the perspective of what would be in the interest of the country but im not sure it is negotiable given the red line she has set herself. Tony blair, the former british Prime Minister. Howard ward is still with us. Rob hoffman is also here. Tony blair is an exceptional politician. That previousings labour governments were not able to do. That is a given. Todays speech reflects that town much. The problem is reflects that talent. The problem is tony blair wants this speech to mark a starting point where disaffected people with the process we are in at the moment can come together and mayt to shout against the administration. He is the wrong person to be doing this. You could see that argument already in the rebuttal. You already have people talking about it. Guy the noise is drowning it out . The question is, who is this aimed at . If it is aimed at people determined to leave the European Union, it will not work. Atmay be that this is aimed people who are deeply unhappy about the decision to leave but do not know what to do about it. To them it is possible that this message cuts through. Obviously very angry with him. He may be the wrong person. His argument would be who else is making this argument . Guy you look at this speech and it is a well thought out, it neatly delivered message. Not getting it elsewhere. From that point of view, somebody with some political talent is able to make this point. One of the light notes in this speech was a driveby shooting of the current labour party. Which he said is partly responsible for the brexit. Yes as you say, it was tightly argued. There was a case against the position. All of the things that we have come to expect. Tom give me a clinic on london politics. Is tony blair a representative of the labour party after mr. Or is the new labour party a year or five years down the road something that you or mr. Blair do not know . I dont think anyone knows the future of the labour party. Is coming backe as its leader. I think he is now speaking for himself. He is clear that the labour party do not want him. Getier this week i tried to the labour party to offer a criticism of theresa mays nato position. Cameeremy corbyns office back and said we do not want to get involved in that one. They put out a rebuttal on blair while he was speaking. They really do not like him. They are not sure about the Prime Minister but they really do not like tony blair. Tom thank you for that clinic. And thank you to our team in london for that speech. Howard ward is with us. You are with u. S. You are u. S. Centric. We showed a chart a week and a half ago about the immense value of shares. Do you need to go there to make capital gain . Howard in addition to my domestic fund, we run a global fund. We are overweight u. K. And overweight europe. We are looking forward to a elections this year in france, germany. The dutch will also be voting. There are tendencies towards a more nationalistic view. There is a growing risk of more countries leaving the eurozone. Not about tony blair only is he not popular in england, he should not be arguing what he is arguing. But that horse has left the barn. It is out of step with public sentiment. We are focused on that. There are good values in europe and we are getting a better Economic Growth rate now in the eurozone. 0. 3 last year and we should be close to 2 this year. I want to talk about apple shares. Guy we look forward to that conversation. Remember as well that later today we have a conversation with michael fallon, the u. K. Secretary of defense. We will talk about defense spending. That conversation is coming up later here on bloomberg. Tom our technical team. Boy, do they do the job on the shots. That is spectacular. That is the worlds new york city. Maybe it is Donald Trumps new york city. I read an article of the cost of protecting the president here in new york city. It is jawdropping. Let us talk about something you have been courageous on which is ownership of apple shares. In this chart this is an approximation of the value of Apple Services a year ago. Here is apple cash. This is a stub. How cheap is apple when you look at services and all of that cash . From the chart you can see the stock has done well. Looking at a 10 bump in earnings each year for this year and next year. There is a lot of excitement. Tom dirt cheap. Howard not dirt cheap. Times fouro 14 earnings. Multiple points of expansion in apple last year. They will benefit from hopefully being able to repatriate a couple of billions of dollars of cash that has been abroad at a 10 tax rate that they can put to use here. The bottom line is that the Revenue Growth is not stellar growth, aa cyclical Mature Company right now. The services component, 11 of the total growing. Lead toe, that will further multiple expansion. Not beinguse apple of innovative enough. I do not buy that at all. Apple has been held to a standard that no other company has been held to. Do not forget they are accumulating all of the cell phone profits in the industry. If it was that easy to do what they are doing, there would be other competitors doing that. Should look at unit of cell phone versus profitability of cell phone. ,e continue the conversation the smart conversation on Bloomberg Radio today from california. We will discuss President Trumps dollar. Wet in munchen. These are World Leaders gathered for a security conference. Let us get a bloomberg first word news. we are going to do you see with a wild and combative press conference. President trump nominated a new labor secretary, said the democrats left him a mess and accused the press of being dishonest. Untruthful things. The tone is with such hatred. I am not a bad person by the way. Good ratings, you have to admit that. Taylor he also made a pivotal statement saying he was not aware that any of his Campaign Advisers were in contact with the russian government. There is a report that michael he did notfbi agents discuss sanctions against russia with the russian ambassador. Communicationss intercepted by intelligence agencies according to the washington post. Vice president mike pence heads to europe as we can to usher leaders that the u. S. Is a reliable alley. The trumps hartline on nato contributions may have made his job a little harder. He will speak to the Munich Security Conference tomorrow and meet with you leaders in brussels. Global news 24 hours a day powered by our 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Johnson in london and i am tom keene. It is a good friday. Howard ward with us here. Roger is here. At jones day. Spend the entire hour on constitutional law. How does a grizzled wrote like you said the nice synthesize the constitutional law of washington right now. How do you day to day sift all that we are seeing in washington . the boardrooms around the country is a level of uncertainty. There are a lot of big things on the table right now. When there is this kind of uncertainty, people have a tendency to pull back. I think we will see it in regular, durable goods numbers. And in capex. We have not quite seeing it in m a. We will see. I think this uncertainty is having an effect. Tom help howard ward. If we get rates up like Stanley Fischer talked about a normalization. What do cfos and ceos do when the free lunch is over . Do they call you up even more . There is a tendency when things are going up to move quickly. The 10 year is up almost 100 basis points since the election. The debt markets are fabulous. They are just fabulous. The rates are up, but not a lot. For a mid credit, they are absolutely great and so is liquidity. Tom what about the big deals . Is it a big market or is it more about going to the midwest and finding small industrials . It is both. The market is still good but a lot of ceos are saying let us way. Let us see what happens with repatriation or the border adjustment tax. Frankly, it will affect the valuation but it could be stimulative. Where wet a period have to get more of a signal. Yesterdays press conference was interesting for a lot of reasons but for me, it was pushing the tax thing back again. Last week we heard that something phenomenal was coming right away and now it is that we are going to deal with the Affordable Care act first and then taxes. Bes uncertainty needs to sorted out pretty quickly. Even with the increase in the debt rate, even with some uncertainty, the market will be on fire. Guy picking up on the point regarding debt, should it be tax deductible . And if it is not, how will it impact your business . Can you hear me . Tom i guess we have a technical challenge. He is talking about the tax reform and how you will be affected by tax legislation. The repatriation possibility that people have been talking about for a long time, is coming. Issues about deductibility of interest, the adaptability of capex, they are much more complicated but they are on the margin. Tax, that border is an issue and it could be a game changer. Wonderful to have robert with us from jones day. This is an exceptional issue. Joined by a guest to talk about the toolbox of central banking and we will talk to him about his cyprus. This is bloomberg. Tom bloomberg surveillance. Good morning. Guy johnson in london. He has been a lead researcher in thinking about Monetary Policy worldwide. His tour of duty in washington and his Public Service in cyprus. When you hear me talk about toolkit, trust me that this professor owns the phrase. Wonderful to catch up with you. Box youabout the tool are looking at for mr. Draghi right now. Be withanides good to you. It is really has not changed. Quantitative easing is the main tool. They should be using it more effectively. They should continue to use it. I am going to tell you one of the things i am concerned about. When i hear some analysts in europe talk about the ecb the ecbtaper needing to taper this year. I think this is the wrong way to go. Recent minutes appropriately noted that insufficient progress has been made on inflation. We should worry that europe will turn into japan with the way they are going so far. Know theresor, you was a moment for japan in 2000 and 2001 when they acted against rising inflation and they got it wrong. Bring up the charge. This is the emotion chart for guys like mr. Orphanides. They raised Interest Rates in 2000 and had to capitulate before the crisis in 2008. Tell me about the remorse and the regret professor of getting the inflation called wrong. Theorphanides it was not first time it has happened in history. The Federal Reserve made this same mistake in the 1930s. We should really worry about this. What the bank of japan did back then was to raise Interest Rates thinking they were out of the crisis. They ended up turning the japanese economy back to recession. They did not manage to get out of it and restore positive inflation rates until the 2008 crisis hits. This is why it has been so difficult for them. I have to give a lot of credit to the bank of japan that in the last three years, a really have turned it out. The toolbox is very simple. You start purchasing massive quantities of government debt, as much as necessary to reflate the economy. They are finally doing there. I hope the ecb follows that lead and avoids the japanese mistake from a decade ago. Guy professor, good morning. Guy johnson in london. Is the ecb in danger of strain if itolitical territory decides to depart from purchasing bonds on the k basis . Mr. Orphanides the ecb is already following a terrible policy. It has been a constraint it. They have been overly careful. The ts not the the the key issue is that the ecb made a mistake in my view in deciding not to buy government bonds on its own. Bonds on its own. But rather in struck the national Central Banks to buy their bonds. The bank of italy is buying intel you in debt italian debt. This was unfortunate because it increases the spread between the two bonds. This makes german debt have yields that are too low which is inappropriate for germany. And italian yields are too high for what italy needs. They can still make the program productive. It is not their fault. Governments are operating unfortunately in your. Of a germannce election, how does mario draghi convince the german population that germany should accept a higher rate of inflation than the rest of the euro. When it comes to the ecb, they think about it from a blended point of view. Mr. Orphanides this should be incredibly simple. Give credit to mario draghi for doing a little bit of this and i wish they did more. I wish the president of the bundesbank did more. It is very simple. The ecb has a mandate for the euro area as a whole. The ecb should have adopted the policy that brings euro area inflation close to 2 . They have not delivered. This is not about germany. Given how well germany has been doing, they should really be clean, they should come clean with the german public and tell them that german inflation oruld rise to two point 5 3 for a while so the rest of the area can adopt. This is the treaty. Right now, by maintaining core inflation so incredibly low, they are not doing their job which is with the treaty suggest they should be doing. Werofessor, i must ask look at washington every day and we look at london and the drama in europe. In your cyprus, there are ongoing negotiations sponsored by the United Nations of a idea andyprus back to 60 and the turkish moment of 1974 and on to 1983. What would be a successful outcome for the people of cyprus to reunite in 2017 . I am glad you bring this up. It is a tragedy that this problem goes on for such a long time. The simplest and fairest solution in my view would be a solution that would allow everybody on the island of all ethnic backgrounds so we have muslims,christians, and we also have Catholic Christians on the island if they could all enjoy the rights, fundamental rights that the citizens of the European Union do, frankly, that would be a sufficient basis for a solution. Im going to point out that several years ago, i was hoping that turkey would join the European Union because then that would have virtually automatically solved the problem. Respectss someone fundamental rights in the European Union, you cannot have divisions inside. Negotiationsave close to that solution, that would be good. But given the political situation in turkey and the noises i hear from european nations, it does not look as promising that turkey will be joining the European Union as quickly as i was hoping a few years ago. Guy professor, it has been great seeing you this morning. Joining us from m. I. T. Tony blair gave a speech on brexit here at our bloomberg headquarters in london. He spoke to tom and i in the last hour. We asked him about the strength of sterling. I do not think people this large fall in sterling. I dont inc. They appreciated this was the Financial Markets future production future prediction as to the course of the british economy. America is coming up next. Jon, the pound has been on the move this might. His comments were interesting. A rallying cry he hopes for disenfranchised by the process underway. I am stunned that he came out with a comment that he made and more stunned that he thinks it will make a difference. If you are nigel farage he would be licking his lips at the prospect of a tony blair effort to fight brexit. If it energizes anybody, it will be the other side. Those that voted to leave. Tom let me bring up a chart. Sterling. The thatcher years. And their volatility. John major is here. Here is tony blair giving jon ferro a strong sterling. Sincerro has been broken tony blair left office. Guy johnson is living large in london and youre not. What does Sterling Team for london what does strong sterling mean for london . A london bubble, it goes back to a story we have heard before. Who is tony blair tapping into . The elites of london . Or is he really tapping into the disenfranchised that voted to leave the European Union . I struggle to see how he taps into that. How many of those outside of the city of london saysat the fx market and this is not what i voted for. For tony blair to come out and say this is not what people voted for, i am not sure it is even on their radar. The idea that the pound is down towards 120 against the dollar. Im not sure that is on the radar of people that voted to leave the European Union. Tom did you hear that . He is funded in dollars. Guy we now call this the cross. Ferro jon you know what it is like. Is still withrd us. Wondering when we would be done talking about jon ferros paycheck. Guy we are going to talk about tv. Back. Ll be this is what you do to check out what is going on on bloomberg. Go to the tv. You get the option to dig into the charts. You also get the option to use the ib function to let us know what you think. If you want to send jon ferro a message from this side of the atlantic, the british side, feel free. In hiswant to point it direction, that would be great. All of this is coming up. This is bloomberg. Tom a lot to get in here. In red and amazon in white. Howard ward is with us. The white line is a valuation. 16 peo is the red line. Tim cook says it is a fortune 100 company. Howard if you are going to value it on a pe basis. There are many other very High Quality Companies that sport similar numbers. Apple has got to overtime reduce their dependency on iphone profits. Services are connected to the iphone but it is all part of the ecosystem. It will help their multiple to retain services. Also as they move into video. And maybe even buy a video content producer. Tom historic moment. It directly affects jones day and roberts legal business. It this is the moment of the ninth legal court. Exjones jones day, day lawyers. Tell us how jones day lawyers get to be part of the department of justice. There whenever there is any big administration change, a lot of lawyers go into the new administration. I think we had 14 this year. If the libertarian had if the Libertarian Party had won we would have had many in there. We have a big firm and lots of points of view. I cannot comment on the specific points of the ninth circuit case. Many say it was a tactical decision. Guy how much of what is going to come out in the next four years of this administration do you anticipate will be challenged . Is this just the beginning . If you are a lawyer, what is great about this country is there is tons of litigation, there are tons of challenges. When you are in the middle of making changes like this, it makes people who think they are on the short end of the change want to defend it. The emergence of the states. We do live in a federal system. That no matterot what the federal government does in regulation in general, the states are not going away. They are players. With what weal have seen in your world and in washington, how should we watch cable tv . The president is glued to it. How do you watch cable tv as a pro . Twitter veryatch much. To step back. Ve the message is big change. We were talking about stimulating challenge, yes it will stimulate challenge. There are winners and losers in all of these issues. We live in a system right now James Madison did not assume that any time someone did something tom thank you so much. Thank you for your patience particularly with Prime Minister blairs speech in london. Sterling is down. Guy is adamant that sterling is not down because of the speech but retail sales. This is bloomberg. Jon wall street contradicted by washington, d. C. Donald trump pushes back against doubts about his presidency. Urging opponents of brexit to fight to keep britain in the eu. French bonds drop, german debt rallies. Another does of Political Risk into european markets. Bloomberg daybreak welcome to bloomberg daybreak. Point to a fourth straight week of gains on the s p 500. Futures looking a little softer in new york. We are down. 2 across the board. It is a weaker euro story, down. 25 and a stronger japanese yen. , if you are surprised by the politics, maybe you should not be. Tony blair making a series of headlines