Transcripts For BLOOMBERG Bloomberg Daybreak Americas 201712

at what'stake a look going on in to those brexit talks. the pound is up by .2%. stronger dollar story throughout the day and dollar-yen is up to .6%. 58 basis points. that's really steep. time for the morning brief. ahead.a look at the week today theresa may is scheduled to meet with jean-claude juncker. then social democrats hold their convention. congress has to act to avoid a government shutdown and we are also going to get on friday u.s. jobs numbers. big week ahead. topics tax, u.k., cvs buying aetna. the talk on the talk shows was all about taxes. had towhat the senators say. >> when you heard the president say we are very close to the finish line you know he has wanted a 15% right from the beginning. is parted to a 20% rate of the discussion. the house as a 20% right now. we are happy with both of those numbers. if something small happens in conference that gets us across the finish line we will look at it on a case-by-case basis. >> business tax all the way down from 35 to 20. it could be 22. it could also be 20. we will get to it in the conference. i'm very optimistic and we think this will make a big difference in getting our economy moving andn and providing jobs opportunity for the american people. alix: president trump says unless they have somebody we don't know about right now we are unbeatable. what happens next? send theire votes to built a conference with the senate. the makeup is going to be very important. represents whom and businesses can try to figure out who needs to be lobbied and what tax breaks may survive and they spend a week trying to merge the bills. technically harder than politically at this point because there are a lot of unintended consequences that came out of the fact that they wrote the senate bill while they were voting on it. they've a lot of fixes to make. alix: over the next 24 hours people are going to be reading it. stop. the big criticism of the bill is there were so many changes that a lot of the senators didn't even know exactly what they were voting on. they were counting on being able to iron out any differences in the conference. >> businesses in full refund against the senate bill. they kept the business amt. alternative minimum tax because they need the revenue. it never applied to businesses before. you drop the rate to 20% and then equivalent businesses go to the amt and they lose a lot of tax deductions. one that really bothers them is the research and development tax credit. they've got a problem. david: there are some suggesting been a mistake. >> there are going to be so many mistakes in here. if you are a third grade teacher you would be calling the parents. david: let's talk about the corporate tax rate. a big difference which is when it takes effect. in the house and takes effect january 1. the senate it doesn't take effect for another year. that could really make a difference for some companies. >> the whole problem with the bill is how do you pay for it and keep it under the deficit the senate allows for the camera really do it the way to structured now. there is some talk that it may get phased in over a number of years. have potentially president trump giving more leeway for the corporate tax rate going above the 20% limit. now we are talking 22 percent because that could raise another $200 billion of revenue. there is a big concern also about to do options for r&d and whether that would be come into effect and would not be something that would make companies invest more in their businesses. the boosted toce growth. alix: that's ok because president trump is unstoppable. >> the bottom line is this is all about what can pass not what's good for the economy. the backdrop of all of this is what's going on with russia. we keep saying it doesn't matter. on friday we saw that it mattered. 300 50 points. we saw erased in just seconds when we had the abc report that was later discredited. how does that all makes sense? how do you manage that? >> you don't. >> then you are sitting pretty because it was erased and all of the algorithms that did respond in a way that doesn't totally makes sense. the only way that drop made sense was if traders thought that somehow the investigation would derail the tax bill and any agenda and create gridlock and a constitutional crisis. otherwise i don't know. what example can you give? >> this is what's going to happen over the next several months because every time mueller take somebody to court the markets are going to react. speculation among lawyers this morning that jared kushner is going to be the next one who has to face a judge and imagine what kind of results you will get in the stock market. david: mueller is moving faster than anybody thought he would. he is moving very fast. a big day today in brussels. theresa may is going to meet with jean-claude juncker. what are the chances they are getting a deal? >> probably not very good. >> that would be amazing. >> there are still so many things that are undecided. she doesn't have a good ireland deal. going to beare looking for today is what did they finally agree on is the number for the divorce bill. that hasn't even been completely finalized or talked over in parliament. betweenan awful lot here and there and you just don't see how it comes together. i findknow what fascinating, how much different industries in the u.k. depend on the european union for everyday business. the airline industry for example relying on the u.s. missions and what happens if the eu says you don't get flyover rights unless you pay us this amount of money. all of these negotiations -- david: and the auto industry. >> and the financial industry. to me all of these kinds of details, how are they going to work it all out? alix: and how are they going to aetna?t cbs -- cvs and >> good transition. >> my favorite tweet of the to cvs and you go you get incredibly long receipts. imagine $67 billion deal. the length of the receipt that took. this is going to be a very interesting antitrust and because in the past this is the kind of vertical merger with no competing businesses that would have gone through but now with the at&t deal there are signals that the trump administration may not be as friendly to this kind of merger. david: it would have gone through with the behavioral remedies. now we have an assistant attorney general for antitrust to doesn't like that anymore. test of the be a doj and antitrust regulators. go after this they are putting themselves up for accusations of political interference. this sets up an interesting tension. in the past these clips of mergers were not necessarily for the doj. what i find really interesting about this is who's going to get the breaks? is aetna going to give people at cbs a discount -- cvs a discount? ? will this get done? this is going to be pulling a lot of leverage. alix: this is not necessarily a bad thing for cvs because they don't have the money. >> full circle back to the tax bill. they want to get rid of interest expensing. >> one of the scary things about the whole thing is just how big this deal is. you put the companies together you have 240 billion dollars in annual sales second only to walmart. this would be the second biggest company in revenue to walmart. david: mike mckee and lisa , thank you for being here. coming up, the vice chair of ubs investment bank joins us to discuss the cvs aetna merger and how it will affect m&a. live from new york this is bloomberg. ♪ >> this is bloomberg daybreak. i'm emma chandra. there's a big takeover in the industrial cable business. italy's company has agreed to by general cable. that's an 81% premium to the closing price on july 14. that was a trading day before the company said it was reviewing strategic options. shares of dialog semiconductor are coming in europe today. it told investors its biggest customer apple could design its own power management chips within a few years. on apple forelies about 75% of its revenue. disney has renewed talks about buying a significant portion of 21st century fox's media assets. discussions are said to include the 20th century fox film studio and fox's stake in u.k. satellite provider sky. that's your bloomberg business flash. david: late yesterday we learn the drugstore giant cvs will acquire health insurer aetna for $67.5 billion. that will potentially transform the health care industry in a nerd states. we welcome drew armstrong who leaves health care coverage at bloomberg. this had been rumored before. it is now a done deal. how will it change the health care industry? >> it essentially condenses a huge part of the supply chain that exist between patients on one and and their money on the other end because what we have is an insurer combined with a drug benefits manager combined with a retail pharmacy that also runs a lot of clinics and other stores. you are really taking a lot of pieces that exist as almost middlemen in the health care supply chain and combining them into one big piece. going to change how people get care, how their care is managed and it's going to resemble something a lot more like a united health care than the separate pieces. david: you talked about unitedhealth group. -- united health care. >> everybody has been looking at two things right now. they have been looking at united and saying these guys are performing -- outperforming a lot of the health care sector. it is a ghost that exists over this large group of middlemen and suppliers that people have felt needed to be under pressure for some time and that this was going to collapse. it was those factors coming into play. david: drew armstrong, thank you for being with us. we welcome someone who knows big mergers and acquisitions. jim forbes as vice-chairman of the ubs investment bank. let me start with the basic question. why is the sum greater than the parts? aetnahink what cvs and are trying to do here, i call it the 80-20 rule. 20% of the population is responsible for 80% of health-care costs. by getting more people into i think what you are seeing is some of the parts -- they're going to try to control more of the health-care dollar going forward. ishink the sum of the parts it's not so much a synergy play, it's getting more revenue. getting more of the health-care dollar going forward. to see what is a reaction to walmart and amazon. >> great question. this has been the ghost that people have referred to. project 1492. alix: is that the codename? interesting. >> which is columbus. david: columbus discovering america. or six the last five years you can -- a physician can buy almost anything in his office. gloves, ton, exam depressors. everything. they very quietly have been in the drug distribution business. i think part of this is a reaction by cvs saying if amazon enters this business it is a huge threat to us at the end of the game. -- end of the day. and them and segment were denied by the justice department. where is am i going as well? -- aetna going as well? take: whenever amazon something over the prices go down. what about this merger? do they get more pricing power? is alarge part of cvs pharmacy benefit manager to large insurance companies. part of this is going to be more buying power. the question is does that translate into deeper discounts on drugs. typically it does. i'm sure the justice department is going to be pushing that question going forward. alix: what does it mean for the broader area? health careals, services. health care products is the yellow line. pharmaceuticals is the white line. it has been pretty subdued. what area is going to see the most pick up? >> this is an example of vertical integration. when you look along the providers and the insurers and that tech etc. this is a vertical integration. you got a retailer/pharmacy benefit manager merging with the provider. we are going to see more and more of this in health care. we have seen a lot of it very quietly between hospital systems , hospital companies creating their own insurance product. this is the first in seeing many more of these. david: what will this do to the cost curve overall for health care? everyone agrees that's got to get changed at some point. what will this consolidation due to the cost curve? >> i'm not an expert in terms of health care economics. i think what we are facing is this demographic level. we've got the baby boom generation that is now going through in terms of health-care costs. people that are 65 and over. how do you bend that curve at the end of the day? cvs is going to try to get more people in the store, make sure they are taking their medicine and not having to be hospitalized at the end of the day. that's the goal. there is easy answer to the demographic bubble. alix: they will have more negotiating leverage. david: jim forbes of ubs will be staying with us. what the tax plan overhaul will mean for future mergers and acquisitions. live from new york, this is bloomberg. ♪ ash to the finish line. ceo confidence has remained very hard. waiting for clarity on tax reform. that would spur lots of m&a activity. joining us now is jim forbes of ubs investment bank. does it? >> absolutely. lowering tax rates, what that does to corporate profits and cash flow. don't forget the repatriation -- trillion of$2 profits trapped overseas by u.s. companies at the end of the day. even at a 14% tax rate it's not all going to be repatriated at once. will be used for share buybacks. some for new capital equipment. some will be used for m&a. i think it's another spur for m&a. how? it's going to be diluted. >> i don't think the big lbo's is over. if you talk to private equity professionals i think what you are saying is if you cap the deductibility at 30% or adjust the taxable income it's not that significant impact. what they will do in terms of capital structure is have more preferred equity versus dead so the days of seeing deals levered seven at -- if you think about it reduce the corporate tax rate whether it's a company owned by private equity or a public company's dramatic at the end of the day in terms of the cash flow of the company. alix: take us into the .sychology corporations have record amounts of cash on the balance sheet already. they have the ability to access loans at record low levels. they don't need the tax bill to persuade them to do a good deal. some regulatory reform which is positive out of washington. theink this was sort of last piece they wanted to see to really push forward. i have talked about the recipe that ceo confidence activism, to investors carveouts and private equity really being the formula for increased m&a activity. forecastingwe are in a substantial activity next year as well as more elephant deals which are the $20 billion plus deals. are youow concerned with the at&t time warner phenomenon? we thought this was going to be a deregulatory administration. alix: with the exception of m&a. >> if you said to me what are the roadblocks are potential , what is going to be the regulatory environment going forward. we saw some health insurance deals blocked earlier this year. what is the regulatory environment going to be from the doj perspective. the sectors to watch for. >> i would say health care, tech and industrials. you will see large companies looking at that entire portfolio and businesses already signaling some businesses are going to be divested. you will see vertical integration deals going forward and in technology vertical integration. tech into health care and other industries. alix: jim forbes of ubs, good to see you. coming up, what to expect from the uk's prime minister. will the pound get a boost as the chief brexit negotiator says we could see a breakthrough. this is bloomberg. ♪ retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. alix: this is bloomberg daybreak . i'm alix steel. monster risk on rally underway. the dow jones up 238 basis points in the futures market. it will be the third in five days where the dow rises over 200 points. itopean stocks also crushing led by the banks and the dax one of the strongest in europe. u.s.ll story of a stronger dollar. one exception is when it comes to cable. sterling up by .4%. the optimism over the brexit meeting today rates in the market. you have a lot of selling of general in the bond market. fruit not participating in the risk on rally. stronger dollar risk on, that is a tax be and marketplace. david: there's also news coming from outside the business world good emma chandra is here. >> on capitol hill republicans will try to hash out the houseences between the and senate versions of the tax overhaul bill. each calls for the corporate tax rate to be slashed. the rate trump says could be bumped to 22% in the final bill. president trump has endorsed republican senate candidate roy moore. the is been accused of rape by multiple women. the alabama election is december 12. the u.s. and south korea are defined north korea with wargames involving 230 aircraft and 2000 troops. a five-day exercise begin earlier today. north korea is warning it will take merciless revenge. global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. i'm emma chandra. this is bloomberg. the day for may be brexit. u.k. prime minister theresa may holds a critical meeting with jean-claude juncker in brussels and they are up against a deadline. to lay out the issues and the stakes we welcome nejra cehic reported from brussels. have a sense of what the issues are they are going to discuss at this important meeting. anticipation is really high where i'm standing right now because we are expecting prime minister theresa may to step out any moment with jean-claude juncker. they may be coming out right about now. this is ahead of the lunch meeting they are holding today to discuss brexit and hopefully to get a breakthrough before the eu leaders summit on december 14. here they are right now about to shake hands. we are not sure if we are going to get a statement from them. a lot of questions being shouted out. it is exciting moment for her exit. eu as been built by the the deadline for theresa may to put her best offer forward. the u.k. had -- expectations. david: they were shaking hands which is a good sign. you say there is really high hopes and we have just seen the pound is up against the dollar. the pound is rising apparently on high hopes. why are there such high hopes for something coming out of this? >> the pound rose basically after a member of european parliament for the green party said that michelle barney is the eu chief brexit negotiator said that he was expecting a breakthrough from the lunch today. michelle barnier's office declined to comment on that. there could possibly be a breakthrough today because we have talked about how crucial this lunch meeting is in terms of the timing. stumblinga lot of blocks ahead of that. the u.k. has been calling this meeting not a deadline but a staging post. there are a lot of issues still to go. we haven't had any firm breakthroughs on the irish order . when needs to be decided to keep island -- ireland happy is to avoid the -- between ireland and the republic of ireland. over the weekend we got another stumbling block resurfaced over the rights of eu citizens. this could be one of the more difficult issues to work through in the lunch today. david: thank you, nejra cehic reporting from brussels. alix: we are joined by alex dryden. it seems like optimism. you're going to sell the gilt market. you're going to go by sterling and u.k. equities. is that the trade you want to be taking on today? yes. with brexit discussions reaching a pinnacle point we are looking at a relatively tough backdrop. irish border, the divorce settlement between the u.k. and the third and final point is trade negotiations because we haven't made much progress with the first. the one investors really care about is delayed to next year. the pound is starting to grind higher. bank of england has begun a rate hiking cycle. we are quite hands in the u.k. markets. alix: rate hiking cycle? one and done is a cycle? very gradualin a pace versus history but they have created the illusion that is granted some support to the pound going into next year. got threey've stumbling blocks. let's assume they do come to terms today. how would that change your assessment of the investment >> we have to settle the irish border which is betweengislative jungle the eu and the u.k. and various border agreements. if we were to move on to trade would be very interesting. the impact on the irish border could filter into the trade negotiations. it would change the dynamic of the trading discussions later down the line. it is hard to think about where we are going to be even in a few months time. 's they're priced in some kind of huge potential breakthrough even though you have earned a saying we could have a break through today? you have to position for long exposure carefully. >> the discussions at the moment have gotten very bogged down. readu like a good bedtime take a look at the treaty of rome. 280 pages. alix: you would totally read that by the way. david: i have read it. the treaty of rome, 200 80 pages. have a page is dedicated to how a country actually leaves the eu. it is great difficult to be positioning for an upside when they are still stuck in the mud with these discussions. thed: sort out if you can brexit issues from the underlying structure of the u.k. economy. suppose for a moment they get a trade agreement of sorts with the eu so we are past the hard brexit. what about the underlying economy? a trade deficit forever. >> yes. the hope has been the trade deficit would begin to correct. that would help exporters in the u.k. and start to correct the trade deficit which at one point reached 5% of gdp which is gigantic. that has come back in a little bit. with trade deficits and the correction in the pound there is a sort of j curve. when the pound crashes you don't immediately see an improvement in trade deficits. it takes time for firms to relocate to the u.k. and normally that could be up to a year. we are only just starting to see the trade deficit beginning to correct. change in the a dynamics of the u.k. economy. politicians have talked about reestablishing manufacturing as toase in the u.k. but key the u.k. economy remains things like financial services and aerospace and defense. they are the areas where we exported the most. alix: how do you feel about european assets? >> my numbers have begun to stabilize across the board. this is not a core versus periphery discussion. now we are seeing a broad-based expansion. everybody is playing the game. that's good news. the whole team is children that burden. we are feeling more comfortable taking that risk in the eurozone again. he's very nervous about pushing up the euro. that's the big question for the ecb. a stronger euro would be a tough headwind as fragile european recovery. we have made a lot of progress. are in a position to be withdrawing large amounts of stimulus would be getting ahead of ourselves. markets have got a little bit carried away with forecasting interest rate hike next year. i don't think that's realistic at the end of the day. the u.s. federal reserve took one year to get an interest rate hike on the table. the ecb we don't think we'll be done until the end of 2018 therefore we are not looking until the end of 2019 before we start seeing the first rate hikes. for being withu us. just moments ago we saw theresa may and jean-claude juncker shaking hands in brussels before this historic meeting where they are going to try and come to terms. they shook hands. questions were shouted at them. they declined to answer. we will bring you the stories wall street cares about this morning including bank of america's debate over building out a european trading hub in paris trade alix: yes please. david: you can talk to tom keene on the radio. bloomberg surveillance can be heard across theand on the wrist xm radio. live from new york, this is bloomberg. ♪ >> this is bloomberg a great. i'm emma chandra. coming up in the next hour, --clays head of publicist public policy research. this is bloomberg. alix: three things wall street really cares about this morning. bank of america is exit planners are said to have molded bigger moved to paris. that's going to the world's largest money managers less than a decade away from managing a total of $20 trillion according to bloomberg calculations. joining us now, jason kelly. he really has a pulse on wall street. >> i learned that from tom keene. you can get it out of your system. alix: let's start with bank of america. >> you guys were talking about brexit in a totally different context. bankers think about where am i going to go. if you are in europe where are you going to live. where's my job going to do. for new york it's like where would i rather go, to paris? you sort of made a joke. alix: it wasn't a joke. that was real. >> all of these banks are having very serious internal conversations. laura keller really got inside the discussions at the of a -- bank of america. they have made some aggressive moves. it looks like they are going to be more measured for now. david: it's the trading part of the operation. they thought about 600,000. alix: the labor laws are the issue here. david: they already said dublin is going to be at the european center. >> that's right. that may be more for tax purposes and planning purposes. what is so interesting is you do have this derby among the non-london financial capitals of europe. you have dublin, frankfurt and paris. david: and a lot of uncertainty which leads to we works. your favorite story. there offering the business space in london. >> we will see how the story plays out. it's one of the most read stories on the bloomberg today in part because this is really where the rubber meets the road. >> one of my favorite stories came from the financial times. they said that the -- big banks are selling their inventory and basically taking on more risk. walk us through some of the numbers. >> $170 billion has been added by six of the big banks. what jumped out to me about this story was the mention of the volcker rule. that is two words that wall street has been so focused on since the financial crisis. it really diminished a lot of the risk-taking. the landscapeged in terms of how banks and asset managers act. there's a lot of talk in the administration. they want to cut back, eliminate the volcker rule. it certainly feels like we are seeing some potential rollback. alix: it's more like things aren't going to get worse. we are not going to have extra stuff. if we take this risk over here that's ok. thed: it's not going to be top priority of the administration to make sure the volcker rule is implemented. right.'s this is real money we are talking about here and it is something wall street has attributed a lot of its profits to. trading and one of the lucrative prices -- places for bankers themselves. david: what about all the banker saying we don't need volcker to be changed? alix: they're probably not going in and doing securitized obligations. >> they are doing this in part because this is what clients are asking for. clients want the ability to make these bigger trades and let's be clear, the banks want to be of to take the other side of that. david: there is a series starting at bloomberg this week. the first installment from today is fascinating. a series called the future of investing. the next twos over weeks are going to have a series of blood esther stories that are so fascinating. i am a geek for big numbers. $20 trillion is the number here. between two firms. blackrock and vanguard. what is so interesting is this is where the future is as this debate really takes root here. david: is that what it is? all the debate money pouring ino passive and these guys are ahead on that. they've had some pretty good results. >> because the margins are thinner to make money they need bigger and bigger numbers. one of the steps that jumped out at me in this story is etf assets by 2025 could be $25 trillion. we are talking in the trillions. it's real money. that has never been tested in a downturn. is the real long-term impact of so much more money going toward passive assets like what's the actual effect on the market when moves are made by indices rather than individual security. >> you have to put it together with artificial intelligence. it's not just passive. it's going to be machines doing it. they have been pushing active etf strategies. also one of the stories i liked was that in the u.s. 37% right now according to bank of assets in u.s. equity funds are passively -- that's up from 19% in 2009. in the u.s. it is still largely active. when you go over to japan nearly 70% of their domestic equity funds are passive. alix: that's why the boj probably likes them. jason kelly, thank you. up, we will take a look at jared kushner's increasing role in middle east policy. we have some movers we are paying attention to in the open. s.u have aetna and cv antitrust may be the issue. it's one of the biggest mergers ever in the health care industry. about mergers the fox disney deal rumors that will not go away. intoght see fox looking attacking disney again. fox wants to take it total ownership over in sky. and wrapping up with banks. bank of america of almost 3% all thanks to tax reform. jpmorgan at a record high. that's your monday morning. mover check. beautiful day in new york. this is bloomberg. ♪ trump the men president has put in charge of bringing peace to the israelis and palestinians made a rare public appearance yesterday at a brookings conference in washington and he was very careful not to make an announcement that he said was really up to his father-in-law. >> the president is going to and he isecision still looking at a lot of different facts and when he makes his decision he will be the one to tell you, not me. he will make sure he does that is the right time. i was focused on this. what he's talking about here is when the united states officially recognizes jerusalem as the capital of israel. very controversial. jared kushner may have a plan for peace and his father may make the announcement as early as wednesday. alix: haven't a lot of presidents promised this and then it never goes through because of the political turmoil? as the capital of israel. very controversial. david: that is the big question. rex tillerson is really upset because he doesn't feel like he's part of this process. let's not give that up unless we get an overall deal. once we give that up to the israelis there won't be as much leverage to have them come to terms with the palestinians. ministerm a foreign and rex tillerson comes to meet with me. why would i even meet with you? david: in fairness, rex tillerson is not unique in this. for some time now the secretary of state has really been diminished. to have jared kushner the designated to do this is a break from policy. president obama and hillary clinton didn't have a through line of communication. it's not like he left somebody else to do her job. than wehis is worse have seen before. alix: then how do you think of foreign policy? hour, -- in the next will be joining us on what tax reform winds up meaning for the markets as well as all the drama in the u.k.. actually get a breakthrough in brexit? who cares? we get a risk on rally. it's a stronger dollar story. selling in the bond markets all across the world. this is bloomberg. actually get a breakthrough in brexit? ♪ ♪ >> house and senate leaders hammer out differences to a tax overhaul package. the bill will be on president trump's desk next week. theresa may trying to put her in brussels.ward the health sector transforms. cvs set to buy aetna for $68 billion. >> welcome. happy monday. here is where the markets are. risk on rally. that is all you need to know. do all future is up triple digits. euro dollar weaker. yields up in the u.s. by three basis points. i wanted to hit on what is happening in the u.k.. selling in the bond market, very extreme. >> time now for the morning brief. today, theresa may is scheduled to meet with his jean-claude juncker. you have june -- germany's social democratic party meeting thursday. have a potential government shutdown and the u.s. jobs report coming up this week. on friday, republicans did what they promised, the senate passing its version of tax overhaul. a view of getting legislation to the president for a signature before the end of the year. rich mcconnell was confident they would get the job done. >> we will get to an agreement during the conference. we think this will blake -- make a big difference providing jobs and opportunity for the american people. to give us his latest take milieu welcome back with barclays head of public policy. welcome back. did you underestimate the senate? did palm --rs ago i publish a note, if doug jones were to win, he could be seated as early as january. i have thought the republicans will try to get this done in december. momentum is on the republican side. tweeted thistrump morning you have to elect roy moore. to go through the numbers, even if they lost that seat, and they lost corker, that is still two votes. they can still get it through. be more is going to speculation as to what is in the bill, what is not in the bill. what is the impact on student debt. you are also going to see people do their models on economic growth. are things that could help the potential, but i still think they are probably going to get a tax cut through. alix: walk me through what happens now. how do they get it through committee? >> starting today they are going to announce who is involved with this conference. for will elect a side moving the fine on these individual mandates. you will talk about different actions on the corporate tax delay. also individual tax side. how do we think about the side on the senate read -- legislation expires after 10 years. that shows in the analysis individuals below a after 10ncome bracket years will see a tax increase. if the reply is we will just cut taxes again to resolve that some might get worried. you will see house and senate leadership try to iron through this. alix: the alternative minimum tax. that seemed to get shoehorned in. rate, then a 35% tax you have to manage deductions they are, why is this so bad for companies like energy and industrial companies? >> i think they are working through that. you are seeing lobbyists blowing up this week. alix: they don't get to deduct. >> they are going to try to iron through this. a lot of people are waking up now monday morning in washington beginning to go through this on the corporate delay to iron through this. to give the president a single piece of legislation. the house and senate have to agree before christmas. senators voted for this. they cannot lose 2 of them. davis: when the corporate tax cut goes into effect, the senate said no we are going to put it off. does the house have to go along with the senate because of the [inaudible] doesview, the senate dominate. we just can't get this done on urine. put out a note, it may help on expensing as companies look to spend money in the short term. >> maybe 22%. this is what he had to say. from 35 toway down 20 percent. it could be 22. we are going to see what ultimately comes down. >> is that an alternative way rather than postponing at 2%? >> you probably would be safer going to 25%. you do save a lot of money. for every percentage point, it is 100 billion over 10 years. there are still a few deficit hawks beginning to raise their hands saying this may not be the best idea. alix: the white house reporter here in new york, talk about the response from the white house. i heard some unbeatable references from president trump. >> you have two things coming -- going on. this is a big win for them. on the other side you have the robert mueller investigation hovering over the president's agenda. you sold twins from the president attacking the fbi, trying to explain away what happened with general flynn and why he was fired. you have two things happening at once. time, somewhat upset and concerned about what is happening but they feel confident they are going to get this passed through the house and senate. alix: i like that you brought up the two competing forces. if we bring up that chart from friday, you saw a drop right away. a false report but nonetheless abc coming in and saying there was collusion basically at the end of the day. how do you square that when you have calls for 3000 on the s&p? there is this overhang that is not going away. >> we're still going to see the investigation go forward. there is not too much i can comment on other than it is significant news. i was on a plane flying back having my phone blowup. it's interesting to see the presidents reply and his own lawyers reply saying some things can't be put on the president. cannot obstruct justice. you are seeing democrats beginning to circle around this. they think.ans what they are going to say we need tax cut's. this done before the election and anything else were to happen. who isf you ask someone a regular voter what do you care about, your 401(k) or what is happening is russia? i am going to bet it is the former. >> someone commit to him in a rally and said thank you for -- my wife -- 401k is up 60%. what we are going to hear in the campaign. whohis is a president really cares about what is happening on wall street in the dow, he is watching it every day. he thinks he should get the credit. >> very important to the president. surprise.a you want to ensure your reelection in 2020. >> 2020. [laughter] alix: betting on bitcoin. regulators will offer bitcoin futures. we need to look at what that means for the already volatile cryptocurrency. this is bloomberg. >> this is bloomberg daybreak. i'm emma chandra. remaking be making -- the u.s. health industry. they would have a hand in everything from stores to insurance. they take over will test the trump administration's approach to antitrust issues. the big takeover in the industrial cable business, cable,g to buy general the price $3 billion. that was the trading day before the company said it was reviewing strategic options. disney has renewed talks about buying a part of 21st century fox's media assets. it will include the 20th century studio. that is your bloomberg business flash. alix: the next big short. the introduction of bitcoins future. the three questions i have, does this bring in new investors? how does risk and clearing work? jeff, the founder and principal tothe first fcc cftc advisor christopher jan carlow. he is an outspoken voice on bitcoin and a five-time jeopardy champion. how do you become a five-time jeopardy champion? does this wind up bringing in new investors? >> absolutely. newink this is a major development in the legal and bitcoinry certainty for and cryptocurrencies. i think it will bring in new investors. first of all, there has not really been a truly regulated market. analogy. is just an from a regulators perspective, and exchange is overseen. it has trading rules and discipline. these instruments will trade on a market that is overseen by the cftc. they will be traded on an tohange, cleared and subject a lot of oversight that never existed before. many investors are drawn to regulated markets. alix: you can't physically delivered the contracts. how is it going to work? >> this will be a cash settled contract. in the early days of the futures markets, they began as physically settled contracts for farmers and ranchers. wasof the great innovators the ability to have cash settled contracts. for that you need an index price which the exchange obtains. investors will not actually have to invest in physical bitcoin. for many, they'll be a big advantage that attracts more investment here. there are well-documented difficulties in holding these assets. of somerters organizations do not permit them to do that. economy,art of the new the ability to hold these digital assets outright is part of what is ingenious of bitcoin. investors it is too much of a challenge. >> i have always been told it is transmitting in the marketplace. whether it is about grain or something. information gets shared. they go sure, they go along. what is the underlying information? it is not a country that has balance of payment or agricultural issues with whether. what is the underlying information being transmitted? message, welying tol see continued evolution refine this kind of thing. one of the things cftc emphasized was the fact that there are information sharing agreements that will be in place and provide access from the cash cboeng platforms and the and see t-wolves have access to information from the underlying trading. having said that, what does that mean? what percentage of the actual do these information sharing agreements give you a look at? >> you have to look at those case-by-case. you have this unique digital asset that can be traded. the trades all around the world and in europe and asia. not all of those organizations informationto these sharing agreements. that is something regulators will have to monitor. will it be easier to manipulate the bitcoin price? >> i think that there are risks that will exist because it is being traded in a regulated future that did not exist previously. two of those are very important. first, the fact that there is leverage in a future. from public reports, i understand the contract will trade at 20-30% margin. clearing members can add on top of that. investors can trade 3-1. previously they may have not been able to get leverage on their investments. there has not really been an industrial strength way for bitcoin skeptics to short the contract. now those who have a short view will have to enter short sales and express a negative view that was not available before. >> really fascinating. thanks once again. record deal, the that could be a test of the trump administration's approach to takeovers. that is coming up next. this is bloomberg. ♪ going to buy at no for $68 billion. to take us through what it means we are joined by a panel. jonathan palmer, and jennifer read. one of these issues, what is going to be done with the antitrust issues. changes this.er >> we're in this uncertain time. we would have said vertical deals are going to go through maybe with behavioral issues. one of the reasons why they tend to go through is because one of the things that is weighed and looked at, vertical deals tend to bring a lot of those inefficiencies. >> procompetitive inefficiencies. things that keep the price down. when the companies come together, when there is vertical integration it brings things to consumers. >> is this going to bring good things to the department of justice? who is going to decide this? do they have a problem? will it look like maybe it was because of time warner? bewe do not know if it will -- the doj has only stake in insurance deals. they might be battling this out. they will be talking about it and saying we do not know where it is going to go. into vast.ig deep will it help me? >> if we take a step back it is apparent this is a preemptive move to avoid the specter of amazon entering the pharmacy. amazon has been great at driving down prices. cm -- cvs is going to start doing things there he amazon like. >> how long will that take? >> probably as early as next year. it should be beneficial on a number of fronts. >> there is a larger issue. almost every merger that goes before the department of justice now, there is this digital company bigger than we are. look at netflix, look at amazon. >> it is a good argument. they are supposed to look at the specter of new injury. all of them are going to be raising amazon. they use the amazon defense and it did not work. >> is this the next step in more and more consolidation? >> absolutely. whether it is pharmaceuticals and devices, and now we're seeing more. cvs is placing their chips on that. >> who would acquire them? >> there. still united health care who assets.nt their own a lot of consolidation could happen. >> what is the process now? >> they need to do their hsr filing. it hits the threshold. that is when this battle starts. they will see who is going to pick this up. they have 30 days to decide. i suspect that is what is going to happen here. alix: both of bloomberg intelligence, david was an antitrust lawyer. that is why i was like, i've got to get in there. coming up, it is deadline day. in brussels.t boost despitenice the stronger dollar trend. this is bloomberg. ♪ alix: this is bloomberg daybreak. president trump tweeting today is going to be a big day for the stock market. he is indeed so far correct. s&p futures up 13. the rally continuing in europe as well. banks really leading the way for european stocks. it is a stronger dollar story with the exception of cable. 110 of 1% as optimism over some kind of breakthrough in brexit negotiations radiates. avon selloff across the globe, on not yield, that risk and commodities. crude down by 1%. now an update on what is making headlines. hill, republicans will try to hash out differences between the house and senate versions of the tax bill. president trump says a rate could be bumped up to 22% in the final bill. president trump has endorsed roy moore. roy moore has been accused of sexual misconduct. thatresident tweeted democrats would not cast one vote for tax reform is the reason he is needed in the senate. day fight began earlier today. north korea is warning it will take merciless revenge. global need 24 hours a day powered by 2700 journalists and analysts. this is bloomberg. alix: today may be the day for grexit. theresa may is holding a critical meeting in brussels. they are up against a deadline. here to take us through the issues, what do we know as of now? may and jean-claude juncker have been in their for an hour. what we heard and what the pound moved on, this is the eu chief brexit negotiator, they reached members of parliament. his office declined to comment. ae told reporters breakthrough was likely today. things are looking positive. talks gopecting, if well, for theresa may and jean-claude juncker to make a statement later this afternoon. that would cover the three main sticking points, the brexit bill , citizens rights, and the i wish border. some progress has been made but there is some stumbling blocks. >> it wasn't just what was reported but we have the irish foreign trade saying they are going to be satisfied with what they do with the border. greg -- i'm glad you brought that up, the irish foreign minister. isdid say that the border close to being agreed. just to be clear, what they want to avoid is any kind of hard border between northern ireland and the republic of ireland. they want to leave both of those when brexit occurs. he hopes the irish prime issue a positive statement within an hour. keep your eyes peeled with that. that could be a sign key progress has been made. in terms of how disappointed markets could be, we could see a retracement of what we have seen at sterling today. it is questionable. i would say the u.k. was pushing back before today on today being a deadline. that was set by the eu. they say we have to hear your best offer. we will discuss that with a deal to move talks on to trade at the eu summit. the eu council president did tweet he was feeling sufficient progress was being made to move talks to trade december 14. even if we don't get a breakthrough today the key question be can talks mood to trade at the end of the year. december 14 could be make or break. alix: the first minister of scotland saying if one part of the u.k. can retain regulatory alignment and stay in the single market, which is the right solution, there is no practical reason why others can't. what should have expected that. >> thank you for this. reporting all day from brussels. joining us now, the managing director, where are you on the pound, on the u.k. generally. >> i think the markets and many observers have become very bullish, more and more convinced that with the anxiety and worries, ultimately the first stage is going to be passed. there has not been any negotiation really with europe. within the u.k., as we just side, buth the irish with europe there is no negotiation. there is a set rulebook. they said months ago it is all about the check and the date. it is not really a negotiation. there is not much you can negotiate in terms of the divorce. all they're going to be talking about is the terms of the divorce. progressively the markets have become more and more conscious of the fact that this was going to ultimately lead to an agreement so the real negotiation can start, about the future. >> where there is not a set rulebook. >> how difficult will those be? >> i think it will be very difficult. that is where the markets are going to realize the negotiations become very complex because on the european side of the equation, a lot of european countries will necessarily agree on what is being negotiated. side, iton the u.k. will be part of the trade deals. you will be different from one sector to the other depending on the deal agreed. i suspect now to start from december 14 to be conservative, and reach negotiations by march, which is subjective, that is going to be the big challenge. i think these markets have been positive on the sterling. they are going to rely that it starts now. shortingould be sterling and buying guilt. how do you deal with the shorter term positive energy? how do you long position cautions? >> the bearish view has to stop now. alix: shorting sterling now? >> that is right. i think there is this capacity for the market, sterling, to finish the year in style. the markets are finishing the year on this positive note. alix: does that continue next year? what's i don't think so. we are buying the hope and next year is going to be about what is really happening with the u.k. economy. alix: the idea that they are going to finish in style, what does that mean for next year? where does the dollar go? >> i would think the taller is going to weaken -- the dollar is going to weaken. i would think what is going to prevail initially is going to be the fear that this good news turns into more hawkish banks. the markets are going to be concerned about the impact of more hawkish in us. s.wkishnes much for thosee to be less supported. concerned, does that include the ecb? we are seeing a growing your row . at what point are we concerned mario draghi will say we have to back off policies? >> he has been explicit about the fact he would be clear on tinkering inof that interest rates. they will not start rising until after it has been completed. from this stance the next moves are going to be about recognizing the european cycle strongerto be probably than the u.s.. certainly in the u.k.. i would expect likewise, for a second quarter of next year the town to start changing which will support the euro further will make the bond market volatility quite exposed. >> fascinating. thank you for being with us today. coming up, the probe into alleged russian meddling in the u.s. election has a new phase. more on michael flynn's guilty plea and what it may mean for the investigation coming up next. this is bloomberg. ♪ >> this is bloomberg daybreak. this is the hewlett packard enterprise green room. coming up, this is bloomberg. now to your book -- bloomberg business flash. shares plummeting in europe today, dialogue told investors the biggest customer apple can design its own power management chips within a few years. they rely on apple for three fourths of its revenue. seeking an maker ipo. they are considering an ipo as soon as next year. banks have suggested hong kong is the most likely place for shares to be lifted. chase says it is too early to turn bearish on stocks. activity is still likely to remain above trend. they are up 20% this year. that is your bloomberg business flash. >> thank you. michael flynn's guilty plea friday for line to the fbi raised a question, some people thought it would be alarming news for president trump. thought it was alarming news for his son-in-law, jared kushner. eli, you haves, watch since people have said what this means. i'm not sure i know what it means. take us to the central charge. about whatthe fbi he'd talked to the russian ambassador about. what does that tell us about the larger question of collusion between the trump campaign and the russians? >> what michael flynn lied to the fbi about was activities after the election. theoriginal claim was that trump campaign or people in trump's orbit colluded with russia during the election to publicize the stolen emails or in other ways work with russia's espionage investigation. i'm convinced the russians did metal in the election and did hack those emails according to our intelligence committee, we haven't seen is the connection between the trump campaign and the russians, other than trump's own statements where he played up a lot of these wikileaks revelations on the trail. as for michael flynn, even though it -- he has pled guilty to lying to the fbi, it was an informal interview where he had no attorney present. james comey did not conclude he had lied to the fbi, he had forgotten details. but michael flynn has pled. he was legally vulnerable for other reasons independent of the collusion. such as his contract with turkey. >> this is speculation but we are trying to figure out what is going on here. other things look like michael guilty oft have been which raises the question of why didn't they charge him with more? a statutere wasn't here, everyone seems to think he would not have been prosecuted. did he make a foolish mistake? or was he trying to cover up something broader? >> neither one of that -- neither one of us can answer that definitively. i would add a wrinkled. if there was any kind of justice department investigation in the final weeks of the obama administration that raises serious questions about sally yates and the justice department. potentially me like a politicalization of the statute. that is an obscure law that has never been prosecuted successfully. only prosecuted once. it is something both parties, cranks on both parties have occasionally tried to use against their opposition. in this case it is crazy. if this was the beginning of an investigation. we don't know, but if that is one of the things they were trying to look into, the obama administration has more to answer for at this point as well. >> a lot of that percolating in terms of politics, diane feinstein weighing in. >> i think what we are beginning to see is the putting together of a case of obstruction of justice. i think we see this in the indictments that have taken place and some comments that are being made. attitude of the white house, the comments every day, the continual tweeds. alix: this is a question for eli and david. how do you start proving something like that? >> i have to say, the obstruction of justice issue, if we are talking about the president, it is in impeachment question. in watergate, obstruction of justice was relevant because the crime was established. in this particular case obstruction of justice of what? was the president, by urging comey, citing justice in a logan act violation? democratsink a lot of would go along with that. was the instruction of justice something more serious? collusion with the russians? that is something every american citizen would have to say is serious. that probably does warrant impeachment. obstruction of justice alone strikes me as a i don't know what we are talking about. likes initially he said the only reason he fired michael flynn was because he lied to the vice president. he is saying that was also because i knew he lied to the fbi. if he hadn't tweeted that he would not have this problem. >> he is his own worst enemy. that is why we have gotten so far with this without having any evidence of the underlying crime of collusion. it could be there using the razor of occam. stuff,s lying about this there must be something to hide. that is usually how it works. rankuld be that you have a amateur in the highest office in the land who has no idea what he is doing, operating not in some , reacting every minute to his very win, which is dangerous for the country, and probably could be grounds for impeachment. we have a north korean nuclear crisis in all kinds of other things. where is the collusion? proper made, an offer of what mr. flynn would testify to if asked. when are we going to find out what is in that? wish i knew the answer to that. i'm trying to report that myself. thank you. great to get your perspective. some moves we want to take you potentially a lot more upside on tax reform. by 2%. america up jpmorgan seeing more upside for equities. being quites underpriced. tesla should benefit from a headline perspective is the senate tax bill retains the current tax credit but it should be less important moving forward. good for tesla on that. cvs and that net worth $68 billion. the question will be about regulation, and will it end up passing antitrust, and how will cvs pay for it? terminal,a bloomberg watch us online, interact with us directly. go to tv and scroll for a check on anything you have missed. this is bloomberg. ♪ chart of theor our day. $100 trillion. check out this chart. global market cap nearing that $100 trillion. -- it ism panel falling. sense, trying to come out over the weekend. saying that equities look frosty, especially in the u.s.. >> that blue line is interesting. it says something about emerging markets. they are growing fast. >> they are still under owned. if you wind up having them come in, does it prolong the bull market? it is a little hard to believe. $17 trillion. we might have to learn a word after a trillion. alix: your would attract the storys across different count. .ou can see 400 four bitcoin this shows the fervor in the market of potential risk. >> how much are we helping that number? alix: it's going to get to 10,000. hsbc, the market open is next. find out if we will hit record highs in the open. from europe to the u.s., the dow jones futures up. a strongerry of dollar with the exception of the cable race. sterling up by 3/10 of 1%. selloff in the bond market continues. this is bloomberg. ♪ is this a phone? or a little internet machine? [ phone rings ] it makes you wonder. shouldn't we get our phones and internet from the same company? that's why xfinity mobile comes with your internet. you get up to 5 lines of talk and text at no extra cost. so all you pay for is data. choose by the gig or unlimited. and ask how to get a $200 prepaid card when you buy any new samsung device with xfinity mobile. a new kind of network designed to save you money. click, call or visit today. jonathan: from new york city, i am jonathan ferro. this is the countdown to the open. ♪ coming up, beginning the week risk on. futures climb. theal equities close in on 100 trillion dollar market cap. the house and senate moved to reconcile their differences on taxes. the stage for another test of the antitrust stance. cbs agrees to buy aetna -- cvs agrees to buy aetna. all-time highs insight once again. futures firmer on the border. euro-dollar weak. a stronger dollar story in g10 today. 239 onor -- on offer, the u.s. 10 year. while robert mueller's investigation picks up steam, equities continue to power forward. with the global market cap approaching a $100 trillion cap. the story of the moment is this does not matter. when will it? brian: good morning. congrats on the new gig. i think it will take another year of credibility with respect to what will happen in congress. if you thought we heard noise this year and last year, we heard a lot more noise heading into the midterms for at least the house. approval ratings for congress are even lower than for the president. we need to start even -- start to see even more things happen. good in terms of credibility that they can actually pass things. we are still in the credibility game. from our view, when we talk to the last year -- and we were here year ago -- we were talking about how nobody believed tax cuts would happen. so they were not positioned for that. that is why you have seen this lift off on this emotional chase the markets here. there is a big game of catch-up. jonathan: for the markets, you have tax cuts going through, and then the new approach. it did not wiggle without the abc correction over the weekend. what you witnessed him a was that an escalation in terms of political risk? isaac: i think we have to look historically for what the impact is. these investigations generally take three years. this will be in the background for a long time. more broadly, my sense is the market should be focused on what the senate is doing and what the senate did on saturday. which is move the bill to the next stage. we will have a conference committee that will most likely end by december 15. at that point, we are going to be able to have the president signed a bill this year, which i do not even really think republicans expected. jonathan: let's talk about what comes out of the other end to pay the house and senate get together. they have 20% on the corporate tax rate. the resident -- president hinting he could settle for 22%. where do we see it go? isaac: it is best to separate these issues into structural ones and then secondary ones. the structural issues will take most of the time in the conference. we are talking about the actual corporate rate, the individual rate brackets and sunsets, alternative minimum tax, international tax -- all of those are on the structural side. the governing believe at this point is that the senate bill tax is going to be the main driver throughout this process. mostly because they have a tighter margin. my sense, at this point, is we should expect the corporate rate to become effective at 20% or 21% to 22%, but not until january 1 of 2019. republicans continue to focus on this timing mismatch, where 2018 can we a year where you can fully expense, and 2019 seeing a higher rate. hopefully, that timing mismatch pulling forward economic activity. jonathan:--20%, 22% make a difference to you? we will spend a moment talking about the year ahead. brian: yeah. what we have to see is how companies actually begin to implement those changes. if you look at where earnings are, earnings expectations, we in yet. are not built we have to feel more confident than the corporate level. once we know what that number is, that is more important. then, companies can move forward. capex cycle ind a america in over 20 years. jonathan: will we get one? brian: yes. if you push it to 2018, then companies can think about spending for 2019. the consensus is recession in 2019 by economists. that pushes it out even further. jonathan: look at the chart we began with. the fact that we melted off global equities to the $100 trillion mark. does that mean anything? when the bottom bar, the share of the u.s. market cap decline for global equities, does that put into context that this is not all about the united states? brian: this is about equities again. this is about a global equity bull market. the most on believed -- unbelie in myated bull market career. and it is just going higher. we have not seen what will drive it higher, the rotation into bonds. jonathan: you think that will happen? brian: we do. especially given as the yield's start to head slowly higher, your fixed income assets are going to start losing money. the negative sign will force people to go to assets that are losing. laidler joining us cable we finally get the rotation from bonds into equity? we have been asking that question for years. ben: i do not think so. i think equities will go up. we have great earnings visibility that will potentially go up. but we still think bond yields will stay pretty active. jonathan: the buy everything stays? ben: you have to be a little selective. but given our view that the bond yields start low, things turn out pretty good. jonathan: what about anyone says yields will remain anchored? brian: that is what everybody thinks. consensus has been wrong since 2009. --s lower for longer mantra we have been doing this for 28 years. during that timeframe, we have seen 35 years of downward rates andinterest inflation. at some point, that has to reverse. i am not saying we go to 5%. is, at somesaying point, we will start to see slightly higher yields. it probably will not be 2018 with all of the rhetoric and noise. and 2020.e into 2019 we have clients and investors that about things like the pimco total return fund at 1%. what will happen when they look at the 10 year treasury? they will lose money. when people lose money, they sell. jonathan: what do they sell? brian: there bought products. jonathan: or do they sell their stocks? brian: why would they sell stocks -- jonathan: why would you cash out a losing position when you could cash in a winning position? brian: that is a trap. if you look at where people are positioned, they are not in stock. there may be some in spite his or etf's, but the majority of assets come in fixed income. we have seen the movie before. it is not different this time. they will sell the assets that are underperforming, and the assets underperforming the next three to five years will be bonds. jonathan: thank you for joining us. coming up, netflix getting a boost in the premarket. we will hear from the analyst behind the call. this is bloomberg. ♪ ♪ from new york city, 19 minutes away from the opening bell. risk on very much on the table. futures firmer by about 14 points on the s&p 500. time for the morning call. you will look at some of the notable movers on the back of analysts' recommendation. raised to a hold. -- mmerce growth blue apron getting its first upgrade. barclays .2 improved margin since the end of the third quarter, or raising blue apron to equal weight. netflix initiated with a buy rating after monta christie's scenting a 34% increase. closed on friday. the analyst says nothing springs with it a singular focus, chewing as skewing -- es sports, advertising, or ownership of the dissertation channel. isaac boltansky, brian belski, and ben laidler. growthe is different profiles and margins associated with each segment. the crux of the call is this is a company with a singular mission. you look at the other competing companies, trying to throw money at this problem. but at the end of the day, these companies are trying to become everything to everyone. as we have seen from the fx the singular focus should translate into opportunity as we look forward. as far as estimates are concerned -- here is where the numbers come into play, side from the qualitative aspects. this is drastically underestimating the earnings power. is this: and how underestimated? james: to break that down, we have revenue growing at a 23% growth. ebit is only growing -- 6.50 in earnings, about a dollar above the street. but you could have an $8 to $10 number. jonathan: more broadly, this is the one sector that may face increased regulation versus the whole equity market. technology. as you look at the technology space, how do you feel about tech? officially mark away tech, where netflix is technically a consumer discretionary company. the big problem no one is talking about is the sector disruption that will happen in 2018 with respect to the new get sector called communications or something like that. when you have the majority market cap being media companies and you have this new sector, there will be a tremendous amount of disruption. the bigger question is, as we morph this new sector together and look at these companies as true linecompetitors -- true , how many ofors these companies will actually be in this sector in five years? that is a big question for 2018, something i do not think many people are thinking about, because we are so near-term focus on the momentum of netflix. jonathan: what is the answer? james: there are two companies have the the money to capacity -- amazon and netflix. >> what about the big gorillas? comcast and disney on content? they have the bigger balance sheet to play with? or maybe they do not. james: disney is a serious threat. this is a company looking to compete -- though its streaming service and bring third-party content into the fold. that would be a competing service. at the end of the day, the question is has netflix built the kind of brand loyalty with their existing subscriber base, and will they be able to improve that offering? half of their content is original. jonathan: how he is brand loyalty? james: just look at the numbers. growing domestically like clockwork, growing internationally by four times that by clockwork. and getting more non-english localize content, that will make their offense the key. jonathan: you are anticipating another year for some of these faang stocks. will we see another year like that? 40%, 54 -- 50% gains? james: this is only 36%. [laughter] there is one company that can continue to exhibit the kind of momentum we saw in 2017. amazon. there are more question marks around facebook and google and regulatory concerns and things like that. competition on netflix. at the end of the day, amazon is the one horse you can truly bet on in the 18. jonathan: -- in 2018. jonathan: is is the value trap? that everyone says europe is undervalued and the united states is versus europe overvalued? but these guys are not listed on the european index. there's nothing like faang in europe. ben: european offerings look extremely depressed. they will not recover next year. is i have noe problem with u.s. evaluations and where they are. u.s. equities are by far the most profitable in the world. what is interesting is a number of levers tech has to pull. the relative lack of buybacks they do. the profitability they have not started pulling any levers yet. brian: the biggest consensus call is that europe is cheaper. about that worry denominator. if the denominator goes down, the valuation goes up. but the u.s. and canada have the best balance sheets, strongest cash flow. they are at an excellent point and ams of tech companies lever. they will craig of dividends even more if and when something happens to their growth. the thing people are missing is tech companies in the s&p 500 have become the most stable earners of all companies because of where cash flow is. tech could be the new consumer staple. jonathan: if you want to buy the u.s. over europe, is that more than just tech? is there something else happening? brian: it is about a realization that american companies in general have become increasingly stable. it is not just tech, it is industrials, financials, that have shown a strong balance sheet in growth. and the consistency of earnings growth. ofathan: james cakmak monness crespi, thank you. brian belski and ben laidler are sticking with us. brian belski is betting on another 50% run in stocks. this is bloomberg. ♪ jonathan: the bell nine minutes away from the opening bell. futures are firmer ahead of the open in new york after a couple of weeks of gains. the dollar stronger. hans a little weaker. thend the table, we have biggest bowl on the -- bull on the street. bmo's brian belski favors large-cap over small. brian and ben laidler of hsbc still with us. what is the biggest conviction call? brian: there are three stocks you should buy. those are anything to do with financials, financials, financials. i still think, in my comments and our work and projects for clients, our clients around the world, are massively underexposed financials. i have been telling everybody the last two years, in anticipation of some of this happening -- it is a product of the market that we are so near-term focus, so afraid to be wrong we do not want to be right. there is such a lack of perspective. analysts -- all they know is you buy stocks because of quantitative eating and death to america -- that is not a trend we are in pain we are heading back to the 80's and 90's -- the 1980's and 1990's. jonathan: what do you say to people who wish they listen to you two years ago? brian: if you think everything that happened this year, active investing begins to perform again. what is interesting is over the last five years, we started to see the alpha, the spread beginning to increase. as the big starts to go up with interest rates, that is the key thing over the next few years. the lower for longer thing is very much intact. muchthing is getting longer to unwind. companies will wait until they positively know what their bottom line is. into 2019 you start to see earnings really accelerate. jonathan: the one question people ask you, the one pushback, is the flatter yield curve and what that means for financials. what do you push back after you get that? brian: we published a piece on friday about that. the best equity is during a flattening environment. jonathan: why? brian: you are starting to see the economy begin to improve. financial companies in particular. the market is beginning to react to the improving economic environment. when inversion happens and it stays inverted for a while -- not three days, but several weeks or months, then ultimately, the inversion of the yield curve is the best signal on fundamental perspective in terms of looking for a recession. what is happening is near-term, everyone is thinking we will invert. the market is so default negative -- negative, negative, negative -- the easy trade is it will always be negative. from our perspective, there is not a good amount of work being done. you are still saying large caps off over small caps. why? earningsrnings growth, consistency. also, cash flows. remember when donald trump won -- there was a huge move in small caps. agenda did not occur in 2018. midyear, small caps got crushed because earnings were not there. aat we think now is a will be wait and see deal because earnings start coming in. of earliest second half 2018. you large cats over small caps? ben: i prefer small caps. small-cap earnings have absolutely been lagging. small-cap earnings are very depressed. about 20% compared to large-cap. twowinners by a factor of over tax reform. the sentiment is very low. yourisk reward is there for to buy more small caps. we like u.s. equities. jonathan: ben laidler of hsbc sticking with us. we have to let brian belski go, a beam of. the opening bell coming up next. four minutes away from the opening bell. after a couple of weeks of gains, it is risk on worldwide. dow futures up to 35. futures up 6/10 of 1% and out solid rally across -- and a solid rally across europe. this is bloomberg. ♪ retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. ♪ the opening bell just around the corner. about 25 seconds away. up 240 points on the dow. positive 16 or 17 points on the s&p 500. gains across the board. risk back on. the story across assets look something like this. treasuries on offer. less about the neoprobe, a lot more of out progress in terms of tax cuts. with the exception of maybe sterling, currency. the dollar index gets up to 9320. 93.20. oil up tomex crude 57.71. david kotok of cumberland advisors with us. still with us, ben laidler. mr. kotok, it seems nothing will bring this bull market down. certainly not politics. david: the market is repricing in a change of level of earnings. we now have a tax bill. everybody's beginning to believe we will get one. you have to ask, how do you price a permanent shift in the to 500 index earnings of 10 $14, which is what this tax bill gives them? a permanent shift, not an earnings growth shift. a permanent shift in level. i do not know how to put a multiple on it. it is a big issue. jonathan: we are up by almost wonderful percentage point on the dow. of 18 or 19 points in the s&p 500. you want to get you up to speed hyman,oomberg's julie abigail doolittle, and taylor riggs. julie: the deal we have been talking about now for some weeks is finally happening. that is cvs health agreeing to buy at not. -- aetna. this combined company will have to hundred $40 billion in annual sales. let's explain the price action. cvs trading lower by about 3%. aetna trading well below the deal price come even though shares are higher. there is a lot of question about what type of antitrust scrutiny the deal will receive. the businesses do not overlap much, but there are new questions about critical deals after the justice department sued to block the at&t purchase of time warner. the ftc has also successfully sued to block some health insurance deals in the past, including one between aetna and humana. the second thing is what effect we will see, not just from this deal, but from the assumed entrance of amazon into the health business. what affect will that have on health care inflation? jonathan: one deal down paper eventually another one coming up. disney. abigail: we are looking at disney, popping higher along the open, along with 21st century fox. there are reports disney renewed discussions to buy some fox assets. renewing discussions with you for century fox and the murdoch family. of interest, sky assets in london. we first started to hear about this possibility in november. since then, comcast and verizon have also entered. since early november, shares of 21st century fox up nearly 30%. some analysts are saying the highest bidder will be the winner. sources are saying the murdoch family will make a decision by the end of the year. truly a pivotal moment in the media industry. onethan: crew down by about point three. some enthusiasm around energy-related stocks. walk me through. taylor: the energy sector, we start with chesapeake. up about 4/10 of 1%. oil recovering around the key $55 benchmark level, but some of these junk energy producers -- three points. the recent rally in some of these commodity -- commodities could create a high-energy way. and high-yield debt has not rally to this level yet when oil prices were this high last time. maybe some high-yield debt rallying. and $55 per oil could allow some of these junk producers to generate free cash flow. all of that helping chesapeake today. jonathan: energy stocks lagging in 2017, but morgan stanley says yet.could be the best wave energy stocks have consistently outperformed in lake -- late cycle environments. laidler ofus, ben hsbc. ben: energy is actually very interesting here. .tocks have been a huge laggard this decline in free cash flow breakeven is allowing them to throw off these very big dividends. we have reports they will continue to grind higher. jonathan: do you need the positive price action in commodities to be long on the stocks? ben: you do not want it to go down, but you do not want to do go up too much. jonathan: why do you not want them to go up too much? market will not believe it is sustainable. that you will get a supply response to demand. i think there is a gradual grind higher, which is what we are forecasting. jonathan: in the short-term, it looks good. the likes of xiao moving back to a long-term dividend. saudi aramco selling things down. norway potentially getting rid of their energy stocks. long-term does not look so bright. david: we have had phases of that from the days when worldwide do was 50 million barrels a day instead of 100 million a day. a word about the saudi's -- they of thetain 90%, 90% offering to they do not want a lower-priced are they won a valuation of that offering for very long time. i do not know how much that diminishes things. i like french point. he likes gradualism. i like gradual is a. we all like gradualism. we do not get it. that is why we have volatility in markets. energy.with overweight there is a play. whether it is long or permanent remains to be seen. jonathan: in terms of energy and saudi aramco, there must be some signaling. it is 5%. they are looking for price on the asset. i do not think that is necessarily a directionality of whether oil prices are going long-term. jonathan: is of the kind of energy company you want to be exposed to? the big diversified players we are used to? ben: it is integrated names, the ones that can pay big. jonathan: is that what you see? david: i like to peace in the u.s. natural gas. there are two etf's. one is fcg. it captures u.s. natural gas business at -- that has been expanding volume. i really favor that, because it is safe. we own it. it is right within our borders. it is insulated from shocks. jonathan: what about the passive versus active debate? ben: i think we have seen peak passive. up,ink growth is picking which is definitely helped. correlations of collapse close to all-time lows. that would be the position i would put on. jonathan: ben laidler of hsbc sticking with us. david kotok of cumberland advisors staying with us as well. seven or eight minutes into the session, up by over 200 points on the dow. positive 7/10 of 1% on the s&p 500. next up, we will debate the tax bill and what it means for companies as they shift from capital returns to capital spending. this is bloomberg. ♪ ♪ is "bloomberg markets: open." coming up, gary, "bloomberg view" columnist. this is bloomberg. ♪ the house and senate republicans race to bridge differences. experts say the plan could be a boon to mergers and acquisitions. call, we are seeing that for increased m&a activity at work. aetna for $67.5e billion. do we believe companies will move away from by back and the villains -- dividends to bigger m&a activity? david: we were just talking about it, how some of that will happen, because the level has been so low. but how much of it depends on what opportunity that company sees. wesee that opportunity, when are a 70% service sector u.s. economy, and the structure we are in now is questionable. we get some. not a lot. jonathan: some will look at that deal and say that is defensive, potentially fending off amazon. will this be defensive or offensive m&a? -- u.s. m&na is down is down year-over-year. he was corporate's are sitting on a lot of cash. i definitely think we will see a pick up here. i think we will see some things on the capex prime. a little boko a long way, given that u.s. cap axis the most oppressed in the world. but most of it goes to buybacks. jonathan: cash levels are high did it makes you wonder where a drop in the corporate tax rate will make a difference in this narrative. will a change the story? 20, 21i do not think changes anything. there is a sleeper secret coming out of this. 270 we are today with a taxable year u.s. treasury and a 4% plus housing authority bond being rushed to issuance because of the tax bill that is tax-free. behind that is a basket of mortgages guaranteed i the federal government. that is being issued right now in the high taxol to states. it is the bargain of the century. it is coming into a market that does not want to look at it, because they are too busy looking at the stock market. tax-free, gross it up to seven. no matter which tax bill you get. that is the treat sector in the market. -- cheap sector in the market. jonathan: why are people not talking about it? david: they are afraid the interest rate goes up. package with a pastor housing authority in a state like new york or someplace else -- i do not know why people do not look at it. i look at it. there is a jammed calendar because of the tax bill. jonathan: your thoughts on that? ben: sounds interesting. jonathan: but the idea that there are yields that people are not paying attention to -- are we seriously say you get it risk free? david: 4% because of a passing of a basket of mortgage securing the bond, which is mostly utterly backed paper. ben: we were talking about, earlier, how wide expectations are or are not. i look at my world, the equity world, at long duration sectors out of favor. i look at consensus on the 10 year. 50 or 60 basis points up from here. i am not sure the lower bond yield is as consensual as people think. david: what is at the lower for longer treasury yield we are worried about when the tax-free muni yields are higher than the treasury a higher without taxing. foreign buyers, who do not pay taxes, go into that bond instead of paying treasury bonds because it is such a bargain. americans do not recognize the bargain. jonathan: let's talk about the consensus trade last year. typically, we go into the following year, and the forecast is high yields, high yields. this time, i do not see that even with fiscal stimulus. i do not see the fiscal story of cell treasuries. speaking to many investors, they are just forecasting a flatter yield curve. ben: i guess we are little different. i think the 10 year expectation is still 50 basis points above where they are right now. we think they say absolutely flat and i look at these long duration bond proxies. i look at things like financials, consumer discretionary, very short duration. sensitive to bond yields. those are the best earning sectors certainly in the u.s. jonathan: are those the biggest headwinds? david: banks and financials will do very well past tax bill. they will do better if they get a little uplift in interest rates. i also like the small caps. playg bowl player -- bull coming into small caps. jonathan: why is the most efficient discounting mechanism on the planet supposedly not pricing in the kind of things you are talking about that should be priced in? david: it is pricing it in this morning. jonathan: a little bit. but did it look like it was happening for weeks? david: there is a lot of doubt about the clinical outcome, which now seems to be accepted. if you accept the fact that we will get a bill, and you look 20, 21, 22, you get some amount of repatriation. you put it together and you have a bullish story for stocks. you have to decide how to play that. we like financials. we like this small cap way. we are fully invested in our u.s. etf proposals right now. we also look at the bond side and sete a 40% tax-free muni. a 40% tax-free muni. investors, deal accompanies ago companies to go from capital returns to capital spending? david: the economist in me wants growth and a spending. the investor in me wants, and for the clients we serve, is go wherever the best risk-adjusted return is today and be paired to change tomorrow. jonathan: ben? ben: you get 10% u.s. earnings growth next year. they may not bash that may or may not be after tax reform. the best global earning story got dramatically better. play 19, 2020a debate. maybe that extends the cycle even further. jonathan: david kotok of cumberland advisors, thank you. ben laidler of it hsbc will stick with us. about 20 minutes into the session. strong gains across the board. up by 230 on the dow. by 20 points on the s&p 500. all-time highs on the screen once again. this is bloomberg tv. ♪ ♪ time for the trading diary. today, the u.k. prime minister is meeting with the european commission president and the chief negotiator for brexit. serious pressure mounts for progress in the divorce deal. in the united states, a partial government shutdown friday if congress can not agree on a spending deal or a stopgap measure by then. joining us, michael mckee, bloomberg international economics and policy correspondent. still with us, ben laidler. more of the same? more of the same. no change in unemployment. but we have seen it bounce around a little bit. 1/10, depending on their composition of the household survey. what would be interesting if we go down, we hit the 3% range. that would get wall street's attention. jonathan: it is a decent estimate on your-end wages did what is behind that? michael: the fed would tell you the phillips curve. we are starting to see employers have to pay up for employees. i talked to an investor in the cleveland fed. she said the ceo we talked to had a problem where we cannot find tech workers. now, they cannot find any workers. they have to pay for it now. jonathan: that conviction you have around on yield staying low, would it make you toomfortable for jobs to go three? ben: well, not only does that , that gapcredibility has really driven margins and also forced the fed to be more aggressive. that is one big risk for us. jonathan: we have a situation where the payrolls report, if the federal reserve gets what they want, that could be a problem for the federal reserve. that they drive inflation and finally get it. michael: that is what some of them are worried about. that is why you have the hawks to want to be preemptive and move quickly. bill dudley said the problem they see when they look at history is when you get uplation and wages moving faster than their target and get above the target, it is harder to bring it down then to push it up. we have seen how hard it is the push it up. if that were the case, there would be something to worry about. jonathan: for equity markets, if you get that shakeup in the data, finally get that inflation pressure come through, whether it is wages or elsewhere, and get a little bit of volatility, which sectors do you want to be in? there arenk it is -- a lot of reasons why that which number will not take up. there is also a stock market issue here. the consumer is a lot more relevant for the economy and it is where the stock i get. he had to be focused on capex indicators for the economy. consumer staples, consumer discretionary -- that lack of purchasing power relative to inflation has been a drag. jonathan: is unemployment drops to the threes, it makes sense wage growth starts to appear. the gapis a question of between wage growth and production. that is along the u.s. profitability story to pick up. is a lot here. technology is the big one that is really depressing the middle-class job in putting a lot of downward pressure on low income jobs. technology allowing emerging markets and international workers, people retiring much later -- you put all about together, it is really depressing rage -- wages. jonathan: are we facing a government shutdown? michael: vr. but maybe not friday. there is some talk of a may extended to december 22, because christmas. nobody wants to have to stay. that may put pressure on them. this could even go into next year. but right now, it looks like democrats will be in no mood to compromise. the question is will donald trump be in the mood to compromise, particularly if you get a tax bill and is really feeling good about himself? maybe he tells the democrats, i will not tell -- do anything on big dreamers, immigrants issue. i will insist on the wall, etc.. all nonstarters for democrats. then you could have a real problem. jonathan: bloomberg's michael mckee and ben laidler of hsbc. about 25 minutes into the session. equities have been a storm or in the open to kick things off. we have had two weeks of gains. it looks like we are off to the right direction as far as the stock market in the united states. up to 50 in the doubt. of almost 20 on the s&p 500. more record highs insight. in the bond market, this is what we look for. treasury yields grinding higher. in the fx market, with the exception of sterling, an exceptional dollar story. this is bloomberg tv. ♪ ♪ 10:00 in new york, 3:00 p.m. in london and 11:00 p.m. in hong kong. mark: live from our brand-new european headquarters in london, i'm mark barton. welcome to "bloomberg markets." ♪ vonnie: u.s. stocks started with a shortly higher open this morning. we are breaking economic data here and here is julie hyman. julie: falling attempt of a percent in october. these numbers are dated here and durable goods orders, the final reading for october dropped a tense of 1%. that is a smaller drop then was estimated. of 0.9%tation, a gain and then if you look at capital group orders, nondefense, a group -- gain of 0.3%. overall, looks like a mixed between factory orders and durable goods orders. we will keep digging into those numbers. in the meantime, the driving impetus for stocks here is the tax cut package.

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