Transcripts For BLOOMBERG Bloomberg Daybreak Americas 201703

classes for you. futures in the united states, the s&p 500 on a three day losing streak. look at the euro. 1.08. the politics, the risk diminishes a little bit. a confluence of different pressures taking us there. alix: part of that has to deal with the new pressures. the pound, look at that, 1.24. that is up 0.8%. gold is going nowhere. it is treading water. crude oil is up about 0.6%. jonathan: we start with the french national debate last. macron and le pen coming out on top. our deputy europe chief covers french politics joining us now. let's start with macron. where did he strike his blows? >> i would caution you on saying this is an actual win for him. he went into this as a potential front-runner, tied with le pen. what he needed to do was maintain that position. it is fair not to say that he maintained that position. two polls since the debate last peoplehow that 29% of thought macron did best in the debate. that is better than anybody else. that is a good thing. he probably consolidated his face more than actually gained new voters. jonathan: what does he need to do from here? macron need to maintain their positions as front-runners. fillon was looking for a breakout moment. he was trying to present himself as presidential and experienced. he did come across as presidential and experience. in order to catch up to macron, something else has to happen. what else he can do at this stage to make that change occur. alix: how many are undecided at this point? >> about half of the electorate is undecided, which is massive. if you look at the numbers, in the polls, the pollsters ask -- if you were for le pen, how sure are you to vote for her? the numbers ourselves. it percent say they are -- 80% say they are maintaining that vote. with fillon, you are at 50%. there is a lot of fluctuation here. a lot can happen. jonathan: great to have you on the program. appreciate your time. joining us is the wells fargo head of global strategy. jordan rochester joining us from london. let's start with you and talk about the fx markets. a squeeze on the euro. do i still need that hedge? >> maybe my college educated french was not up to scratch, but i agree with mark that it was not such a grand slam. let's go back to donald trump and hillary clinton. 10 minutes in, dollar mexico was already heading lower. the market was saying donald trump is not winning that debate. this time around it is different. the polls are nowhere near as close with hillary clinton and donald trump. balancing this risk about le pen in the breakup risk of euro, we think euro gets to 115 this year once the french elections are out of the way because the ecb story is massive. this is a huge impact. that is why we think euro-dollar should have higher. if we close above 1.08 today. we are about that range. that does not close the 1.08 since november of last year. jonathan: when will we see an aggressive repricing of the bund curve? seen a little bit of repricing. you are seeing 10 year moving from 15 basis points to about 45 basis points in the last three months. you will start seeing some tapering effects strongly. the next question is when will rates follow with that? taking this point and putting it into this bond s pread, it is about 65 basis points. that is where the danger is, anywhere above 60. how much uncertainty you think is priced into this spread, and how much will need to rerate? >> not enough. unfortunately, we are underweight developed market debt. if you look at the story domestically in the u.s., you taperingve off of and into higher rates. you see that as europe is moving into tapering. we expect them to move more significantly into tapering. if you take that as a precursor of what happened in the u.s., you will see higher rates in europe recent. jonathan: looking at the currency market, ubs is kind of with you. a euro target of 1.12. the only thing stopping people buying europe right now is the french election. talk to me about the flows that are pent-up waiting to go into europe if we clear this hurdle. >> the japanese flow story is interesting. you have seen buying from the japanese side. the past couple months, you have seen a lack of french fine. of thee election out way, you will see a rally in favor. like we said, the ecb story is still a cell. people will take advantage of that straight after the election. alix: how do you deal with volatility? where do you want to be positioned over the next few months into the election? fascinatingolutely what is going to happen in the next few weeks. from the first of april, what we will start to see is a lot of people leave there is a chance marine le pen goodwin. tap on yournt that shoulder from your boss saying you have too much risk in this event, you were burnt on trump and brexit, you should take that risk off a little bit. will we will see into the election is a big spike in the events premium so people will be rolling their hedges and say it is not going to happen, but just in case. when you see that mechanical rolling of your pages and the fx this goes higher. maybe the events premium of le pen is going up, while each time into the scottish referendum, u.k. brexit, donald trump, you see that spike higher three weeks beforehand and two or three days before he had a cell up as people take advantage of that high level of implied volatility. we will see a similar pattern, but maybe less because the polls are not as close. jonathan: there is a was going to be something else. across the bloomberg right now, setting a date for grexit summit on april 29. we have two years of this to come. is that -- >> i think u.k. and brexit is specific to that side. rather than affecting the euro-dollar, it is more of a cable story. i don't think the brexit story is going to hinder people buying european assets. what is all about u.k. uncertainty there. i'm still trying to find a reason to buy sterling. when everyone around you is a green, that is usually assigned to get out. a lot of people are agreeing sterling is going lower. year,rowth of 4% year on but we are not there at all. alix: on days like today, if you are short sterling, it is the pain trade. if you look at what is happening in the bund market or the treasury market, the short trade has been the pain trade. if we get a stronger ecb taper, what is your playoff of that? >> we have seen that short trade spike up. we saw a standard division of roughly three standard deviation event earlier this year. it has spiked more significantly than that. although you might see short-term rates moving up. i believe is you will not see intermediate or long-term rates move significantly because of that short trade. alix: great stuff. jordanrusnak and rochester. later, paul quinsee, jpmorgan asset manager, this is bloomberg. ♪ ♪ bob dudley speaking earlier today. that is leading up to chair yellen on thursday. chicago fed president evans says he can support two or three rate hikes this year. minneapolis that present the lone dissenter. bloombergon television. >> i look at this as repeating the same mistakes over and over again. i think we are behaving as though 2% is the ceiling rather than the target. i'm hoping to remind my colleagues to step back and not repeat the same errors. when the data calls for, we should move. jordan rochester and george rusnak. it seems the market is agreeing with evans. the market agrees with fed chair janet yellen. >> i think it is fascinating how the market reacted. the dollar should not have sold up as aggressively as it did. it tells me that the market really needed to hear the words three or four hikes not two or three. i think euro-dollar higher. cable is trickier. sterling should underperform. the fed is not pushing the dollar here. it is about the fiscal policy. alix: same question for you, george. is this monetary conditions or capital flows or vc? >> i think it is a little bit of both. we are transitioning to looking not just to monetary policy but physical policy. i believe is monetary policy will be a little more passive and reactive to the market. we expect to rate rises this year. if you look at the path of when they raise rates, it is when they have best conferences. have press conferences four times a year. the first one was in march when they raised rates. the next one will be in june. i believe is they will likely hold off in june and look to another rise in september or december of this year. they just raise it in december and march. jonathan: they were not reacted this time around. then let the market in an aggressive way over two weeks with aggressive speech driving rates higher. why won't we get another repeat of that? >> that is a good point. since every 10, the expectation of a rate hike was only around one third. that moved up significantly over three weeks. part of it we believe is the market drove them to raise rates. it led them to the idea that if they raised rates in march as we think they are gearing up to a june rate hike, it would not affect the market negatively. that is our belief. therefore they raised rates in december and again in march, we think it is likely they will digest the data in june and hold off. just listen tou the conversations that are emerging around the central banks right now, the federal reserve is having a real conversation about normalizing the balance sheet. the discussion around the ecb about navy taking the deposit rate to -20. we could see an aggressive repricing in the bond market. curve. seeing on the bund treasuries on offer. at what point do we have a bond that echoesout some of the stuff we're hearing in the fed and ecb? >> if we take a page out of 2013, what really happened was you had a huge taper tantrum. a big amount of the premium went into the curve. the dollar did very well and had a big outflow from em. this time around there is that talk about raising the rates before they do any tapering. in essence it is still monetary policy tightening. we are going from very loose policy in europe to what would be less loose. that would be a big push for the markets. i think the ecb will be trying to avoid that. it is hard for yields to go lower. the only way to go is up. no rights are in a bubble, and when that bubble pops, it is going to have big reverberations in the bond market. what would happen to see that scenario play out? >> inflation would have to pick up dramatically to see that play out. if you look up close and supply demand technicals, they are supportive of a low interest rate environment. if you look at differentials between u.s. rates and developed market rates, there is a big spread. roughly 150 basis points late last year of that to 200 basis points. we think that will keep that in check and not necessarily a bubble burst. we expect rates to and roughly where they are currently. alix: take a look at volatility for treasuries. that is going nowhere right now. what is your favorite trade in the u.s.? if the pain trade was short treasuries, what do you do? things we think are operating in the market place, one is complacency. we think that is happening here domestically. the complacency factor of evaluating what happens in the market where you evaluate both monetary and fiscal policy has been a risk on environment. we have seen money flows into high yields and spread compression dramatically. roughly 50 basis points away from five-year lows and not significantly away from 10 year and 20 year lows. that is roughly 150 basis points away from averages. we think high yields could back up here. as far as where you put that money, we think missable bonds offer attractiveness. there has been the idea that there may be lower tax policy. right now if you are looking at it, it is actually a seasonal affect that happens around caps on were people sell municipals to pay for taxes. we think that could cause a backup in the marketplace. we see flows go negative over the next couple weeks. we think that is a good opportunity for long-term investors. jonathan: thank you for sticking with us. sticking with us on this program, the ceo joining us from their investor day. can you down to the market open, two hours. futures are firmer. % on the s&p 500. you are watching bloomberg. ♪ alix: >> this is bloomberg. u.s. regulators are talking to find deutsche bank and the foreign exchange market. that is according to a person familiar with the matter. they have agreed to settle the currency case. on monday, the banks that the justice department closed the criminal investigation without filing charges. preparing a second takeover it for the european clothing company. ppg $22ected the billion offer earlier this month. fbi director revealed that the organization is best getting whether any trump says it's collaborated with the russian government during the campaign. he said there was no evidence to back up president trump's claimed that he was wiretapped by his possessor. -- predecessor. this is bloomberg. alix: president trump's supreme court pick faces a tough day of questioning in the senate. democrats have accused him of backing corporations over people. ron is a former supreme court law clerk, former senior aide to mr. obama. we set up your resume there. what can you expect out of gorsuch when it comes to regulation? >> yesterday was the overture. you saw both sides setting up the themes today. the real show starts with questioning in about two hours. on the topic of regulation, judge gorsuch is in a different place than his predecessor, justice scalia. he believed that one agencies were a lot of things, the court should defer to that. judge gorsuch is a leader on a new way of thinking about that, saying the work should be more active in questioning regulation. that is one of the few areas where they differ. you'll see a lot of questioning on that today. alix: what regulation to be most at risk of thing overturned by mr. gorsuch? >> you will see this on issues relating to energy and the environment. people will here today senators deference,ds chevron firstagency deference was created. ironically enough, the centerpiece of that case was judge gorsuch's mother who ran the epa under president reagan. it is not a surprise that a lot of these deference issues come to areas where science is at the center piece of regulation, and that is often environmental regulation. why watch justice kennedy? >> he is the supreme court's window. he was put there in 1988 by ronald reagan. many people thought if a republican took the white house, justice kennedy might retire. the republican has taken the white house for the first time in eight years. how this hearing plays out with the democrats and republicans could be influential in his decision. if he leaves, it will set off about roy out for control of the supreme court. a conflict we have not seen since he was it on the supreme court in 1988. jonathan: thank you. we will be bringing you the confirmation hearings live and in full today at 9:30 a.m. eastern time. coming up, joining us from their investor day. that is later. we will talk brexit and pound cable rate that keeps squeezing higher. you're watching bloomberg. ♪ ♪ jonathan: from new york city, this is bloomberg. let me get you up to speed on the markets in new york city. futures squeezing higher. s&p 500 coming off of a three day losing streak. in europe, the banks outperforming. the electoral risk in france, the consensus view is that it is diminishing somewhat. the euro squeezing to a 2017 high. the bond market largely on offer this morning. political risk diminishing on the margin. that is taking treasury yields higher on a u.s. 10 year. let's get you up to speed on the news outside the business world. emma: the trump administration is imposing a new role and that travelers coming from the mideast and africa. they will have to store electronic devices or to the mobile phone in their checked baggage. they say the numeral is based on what they call evaluated intelligence. a former ira commander who helped negotiate peace in ireland has died, martin mcguinness. he later became one of the most senior leaders and instrumental in the peace process. he eventually became the deputy leader of northern islands power-sharing government. appeared for questioning in the first day in that corruption scandal that involved her government. she had immunity from prosecution while in office. global news, 24 hours a day powered by more than 2600 , journalists and analysts in more than 120 countries. thank you. the bank of england raises what you call a classic emerging-market dilemma. upside risk to inflation. the downside risks to growth have not materialized. the upside risks are materializing before our eyes. cpi, theprinting 2.3% fastest inflation growth since 2013. north of their target. joining us from london, u.k. economist dan hansen. great to have you on the program. talk me through what is pushing inflation in this direction. >> good morning. there are a few things going on here. it is all focused on the good side of the uk's cpi basket. , and one ofd, fuel the surprises is recreation and culture prices. all of those things together, taking them together, they are very sensitive to sterling. the u.k. imports all those things. when you think about that, you are seeing the fall in sterling coming through. is this fuel for the hawks? are they saying i told you so this morning? >> quite possibly. all of this externally generated inflation, domestic cost pressures remain muted. wage growth remains very muted. the fact is she will still have one eye on that. it is worrying. inflation is running at the same pace as annual wage growth. real income squeeze is coming through. you can see that having a feedback affect on to the economy. that is potentially more than the bank of england was expecting this year. jonathan: the ecb was talking about whether this pick up inflation was transient or not. on the back end of this year, the basic facts are not going to be where they are. what does the picture look like at the back end of 2017? >> we see inflation getting up to 2.8% at the back end of this year. that is where we see it peaking. you'll have temporary effects over the coming months. of aprices jumped because big surge in prices. that is because of the bad harvest in europe. inflation will surge to about 2.8% at the back end of the year. jonathan: cpi getting us to talk about lettuce. great to have you this morning. squeezing higher by 0.8% this morning. still with us is george rusnak of the wells fargo investment institute. great to have you with us. i want to begin with you, jordan. talk about the squeeze in sterling, the cable rate. the initial takeaway, threading the needle, does this translate to a change of policy? trader over the last couple weeks, sterling moves erratically at times. article 50, we have a date when it is going to be triggered. we know what was going to be triggered before the end of march. this was growth led inflation. this was inflation from sterling devaluation. you will see the consumption squeeze coming into effect towards the end of the year. we are practicing this in retail sales. the big number this week is wednesday. you have u.k. retail sales coming up. if we see a disappointment like we saw in january, the conversation will be different at the bank of england. we will be talking about is this a canary in the coal mine? the rallies over the next two years? is that a trade? >> i am finding a reason to buy sterling. if i can find a reason, the fundamental picture is still negative because of brexit. take a look at real yields. threek. is in the bottom of euro and swedish yields. u.k. is an bottom place. the ftse is overvalued. it remains a cell on rally. 125.80, we are not going back to 135 for a long time. alix: that brings me back to the pain trade. the probability of a rate hike is now at 50% in february. yesterday we were at 55% in august. how do you square that with the longer-term view versus the shorter term? >> rates are going up mystically. the magnitude of that and speed of that is less and slower than people are expecting. important point is that short-term risk can be dictated by the fed. long-term rates are impacted by the market. alix: i was talking about the gilt market. longer-term, you can have a pessimistic view. short-term, you are stuck dealing with markets rewriting a rate hike. >> it is similar to or europe where you're seeing inflation pick up but not growth pick up with it. be raisingere will rates. the dilemma they are facing right now is obviously the growth component if that does not come through, and it is just inflation, the markets are moving rates up and making the boe follow suit. jonathan: just to wrap things up. trigger brexit next week, may take two years or longer, what is the political guide from the fx team in london right now? >> on monday, the discussion was whether there would be a snap election. i think that is quite unlikely. we wills is triggered, find the response from the eu side. the first response will be acknowledgment and probably some sort of indication of what the u.k. might expect to receive over the next two years. we think it will be rocking. jonathan: coming up, jordan rochester. thank you very much. sorenson,next, arne marriott ceo joins us from there investor day. later today, a conversation with the ibm ceo and chairman. from new york city, you are watching bloomberg. ♪ ♪ emma: this is "bloomberg daybreak." coming up, we will bring you the gorsuch confirmation hearing later this morning at 9:30 a.m. is the time. -- eastern time. prices down 10% in march, the worst month so far since july 2016. providing some opportunities for private equity players. three energy terms have teamed up to create argis energy managers. their pitch, let us buy a stake in your company, and we have a network you can work with. they focus on energy debt, oil services, and currently manages more than $1.7 billion in committed capital. their cofounder joins me now. great to see you. your company, a kind of opportunities to you see right now in the energy space? >> this is an extremely cyclical industry. in, downturn such as we are there are a lot of good companies with balance sheets that can be recapitalized with private equity so they can take advantage of the up cycle when it comes. we are seeing a lot of opportunities to help companies with too much leverage or end and ability to generate -- an generate working capital to move forward. alix: they are going to have a hard time as drilling picks up globally. the guys are going to do much better. credit guys have weak quality. what kind of valuations are you seeing? >> valuations on the public side are heavily inflated even with the recent rundown. there has been a strange phenomenon where companies are being valued off of an imaginary 2018 or 2019 earnings number. it is based on the assumption that the market will grow rapidly over the next year or two. we don't think that is a safe assumption. valuations are quite tied in the public -- quite high in the public arena. ,hether it is fracking watermelon, etc., there is too much capacity left over. alix: what about private markets? >> that is bifurcated. part of the reason we exist is we see more opportunity to invest at the small end of the market. there are much more companies at the small and. there is less private equity choosing those companies. they have less access to that capital at rates bigger companies might enjoy. we believe staying small generates more opportunity and efficiency. alix: we have a canadian ipo lower their estimated range yesterday. we had another canadian company saying they would not i feel at all. what does that tell you about the cycle we are entering into? this is supposed to be the boom. >> we are not even close to that in our perspective. the market still has a massive inventory overhang. while supply and demand are getting closer to balance, we are not in a position where we are working down that inventory in an aggressive way. 2025, we will have a substantial shortage of oil globally. we are not there yet. that will be a function of the that has starvation happened over the last couple years, and if you think about deep water projects, doesn't cut back to medically. that is -- those have been cut back dramatically. now, if you are buying 2020-2025, is that you are boom? >> there are opportunities even market like today to buy assets at a discount. dime for a nickel, there are great opportunities today. seeingour affiliates are great buy and opportunities at the moment. if you're talking about services, there are a lot of niche companies that have differentiated technology, whether it is projects for downhole completion that can help a driller do a better job of getting more oil or getting it more cheaply. it is much more dependable because reduction is steadier than drilling and completion. you are not alone. moneyis a ton of pe waiting to get in there. that is in part what has supported the industry over the last two years. are you competing with that money? does that money move somewhere else as we get higher rates elsewhere? where is -- is there a bubble? >> there is a bubble in the energy world as there is an a lot of asset classes these days. , $60,000 or $70,000 an acre is extraordinarily high to acquire land. those are big deals involving large checks. if you are talking about the return of mega profile private equity funds, they have a larger profile. we are still seeing very good value. if we can write a check up $20 million to $40 million for a deal initially, that rules out some of the larger private equity deals will tell you they have to write a check of a minimum of $100 million to $200 million just to get into their fund. is one saudienario arabia will not like. jonathan: great work. i can very much. erik schatzker is standing by with the guests. >> good morning. i am here with arne sorenson, ceo of marriott international. , you are gathering investors to share with them the areas underscored by me, ambitious growth targets. is the macro outlook that's healthy for your industry? the revenue and bottom-line have been growing so well since 2010. >> we do this every two years and give them a three-year forecast. you think about how difficult it is to predict the next quarter how we, we say this is think our business will perform over three years. what we're laying out today has fairly anemic same-store growth. growth. 1% to 3% is no great shakes. opening aking about hotel every 14 hours for three years. rooms by 2019. >> that is a record for the company. we have a bigger platform we are growing. opening new hotels, that tends to lag the travel cycle so. >> how many of those 300,000 are already taken to the cake, and how about have yet to be contracted? >> 90% of those have been identified. some of them may not have contracts signed, but we talking to specific partners for 90% of those rooms. this is fairly predictable for our model. >> let's talk about that macro backdrop. when we last spoke, you raise concerns about the immigration policy of the trump administration might impose. we have a much better idea of what those policies look like. >> do we? >> sure, we do. we have seen to travel bans attempted. we have seen restrictions on electronic devices today. >> i think the market continues to be optimistic. the market has some was the. it does not always get things right, but it is a collective source of wisdom. we think the market will perform better in the years ahead than we thought six months ago. the fact that continues to be the case is a positive sign. on the negative side, do we really have that much clarity because when it comes to trade at large we are not yet engaged in negotiations with the mexican government, with the chinese government as far as i can tell. i'm not in the middle of any of this. >> will we get a sense of intentions? >> we get a sense of intentions, and sometimes that tends to beat we want to deal and we will get a deal. sometimes that is great. sometimes those intentions are rattling sabers, and we don't want to deal. that is less great. travel bans are their own radicular issues. they affect travel more directly. >> do you factor those things into your medium-term outlook? >> not really. we're looking at granular data every day. decisions travel ban have not yet had a profound impact on travel. 285,000 rooms 300,000 rooms, where will we see most of that growth? >> it will still be the biggest market in the u.s. >> i'm thinking in terms of slope. >> have to rooms in the u.s., and china will be the next biggest. hotels in the pipeline. that is a sign of how the chinese economy continues to grow and how they are shifting towards consumer behavior, which is good for a business like tourism. >> do you feel that are or worse about the prospect tax reform, which could be transformative to your bottom line? >> maybe a little better. there is not a lot of conversation about tax reform. the president has been clear he wants tax reported the challenge the specificsget in place to reduce corporate tax rates without knowing a whole in the budget? that requires real work. it will cause winners and losers. arers being folks who already paying very little in taxes because of deductions and like, and thehe winners being those who already pay high tax rates. this is months long, maybe it gets done in 2017. it is a lot of work. it would not be surprising to see it shifted to 2018. >> any general thoughts on the change of progress in the new congress and administration? i'm just trying to get a sense of whether you are more encouraged or discouraged. >> i would say about the same. there are some positive attributes in the sense that the market continues to be optimistic. we hear a little bit of that optimism come out of other big employers, big investors, big companies. i am always optimistic. in our business, there is a lot to be optimistic about. economiclook at the growth, i don't think we are seeing a materially different gdp forecast. that causes me to be a little cautious. let's wait and see the data as it comes in, and then we will proclaim victory if it makes sense. >> you have a number of properties for sale. where do those efforts stand, and do you foresee obstacles with respect to potential chinese buyers either because of political issues or capital controls the chinese government is putting on the outflow of money? >> i'm not an expert on what china is doing with outflow of money. we are seeing investment continue to take place in europe and the united states. there is already money offshore which is available to invest, or because there are tools to get money outside china to invest abroad. i think the chinese government is encouraging companies to be global players. i don't think it is a firm block. i think chinese investors will continue to be active. i think that is a great thing. hotels thatave 15 we intend to sell over a number of years. activethose we are in conversation. there are some chinese buyers in there. there are other foreign buyers in there. there are institutional and american buyers. i think they see positive long-term dynamics in real estate. >> how long until we see those half-dozen negotiations done? >> they will be done one at a time. we hope to announce a few this year. >> we want to thank you very much for joining us. >> thank you. >> that is arne sorenson, ceo of marriott international in manhattan. he is about to step on the stage to speak to investors will have many more questions than i do. jonathan: thank you very much. coming up, paul quinsee, jpmorgan asset manager. continue down to the market opened, 94 minutes away. let's get to the boards. futures squeeze tire. the s&p 500, three days of losses. will we get a bounce back? gilt ones on offer, offer. switch up the board. 10 year yield question that up higher about three basis points. four.nd up you are watching bloomberg. ♪ jonathan: it says you were in the french presidential race. emmanuel macron comes out unscathed. prime minister may even pulled the brexit trigger. u.k. inflation surges beyond the bank of england's target and u.s. equity bulls stay somewhat focused. a partisan clash brews over the president supreme court nominee. welcome to bloomberg daybreak. i'm jonathan ferro alongside alix steel. david westin is away. futures this morning a little bit firmer. .2% on the s&p 500. the euro a year to date high. on some of that political risks diminishing maybe. alix: u.k. inflation data playing out across the pond here. aboutpoints rising by five. dollar index a little bit softer. flat and nymexh crude up .7%. d.c. neil gorsuch appears before the senate judiciary panel today. he is the favorite for confirmation given the republican senate majority. kevin cirilli is standing by on capitol hill with the latest. how well does today have to go for the market and the rest of d.c. to have more confidence in trump's agenda? >> there's no question that on day two of neil gorsuch's confirmation hearing he is going to face tougher questions coming from senate democrats. patrick leahy, the democratic senator from vermont, will press him on his corporate interests. they are going to try to portray him as someone who is just in line with special interests and big business. look at the math in the senate and on the committee and it would be incredibly unlikely that mr. gorsuch would not be able to get confirmed. alix: this puts in the spotlight yesterday with what we saw with fbi director james comey and the bazooka that came out between what transpired between the trump administration and russia and what did not transpire with surveillance before the election. how does that set up the rhetoric in washington today? >> it was a stunning hearing yesterday when james comey said publicly for the first time that there is that ongoing investigation at the fbi into whether or not president trump's campaign liaisons had interactions with russian counterparts in the meddling of the u.s. election. he is facing questions not just from democrats but also from republicans. just three days before the house is set to take up his health care proposal to repeal parts of the affordable care act. yesterday dominated by director comey's testimony. the more that russia is in the is forhe harder it republicans and the administration to get across their own agenda. especially when republicans themselves are part of those asking the questions. alix: absolutely. thank you, kevin cirilli. how does that uncertainty play out in the market? take a look at the dxy. lowest level since the beginning of february. paul quinsee, is j.p. morgan asset management and global head of equities, and mark -- good to see you both. at what point do we see the markets start reacting to this russia distraction meaning it removes us from the health care bill, tax reform and the budget? to be market is going very focused on the potential for tax reform, infrastructure spending and regulation. those are the big three policy questions investors have been very focused on since november. they have taken a relatively optimistic view. that's really where the discussion is going to be. alix: can it happen if russia is dominating it? >> investors still seem to be prepared to believe that they will have tax reform. jonathan: to some extent the pessimism is already there. isn't that a message that there is some doubt baked into the equity markets? >> absolutely. the trump trifecta, every day that goes past is another day that people are going to say where is the beef? where's the outcome? where's the progress? you're starting to see financials will little bit. those are not things that usually do well. jonathan: what do you make of that? what'sou think about happened in the last few months you can trust how people feel about the world now. the year ago we work on the edge of recession. fearhere was a tremendous that that would spread more broadly and that's what was being priced in. we have come a very long way in the last year in terms of taking a more optimistic view. we think that reflation direction is the way to go. nothing happens in a straight line. 2525 onrclays saying the s&p. 75 points of that is a fiscal option embedded in it. do you agree with that kind of assessment? >> i'm very skeptical of how much progress we are going to have on the fiscal friend -- front. i'm also pretty skeptical of how much benefit there's going to be to this tax reform. a lot of companies don't pay the headline tax already. impact than people think. on regulatory reform there is a great story on bloomberg this morning about how this dodd-frank repeal everybody talks about is going to take years. i think there's going to be a lot of hurry up and wait and hope is not an investment strategy. alix: how much of that premium needs to come out of the market? what about the s&p? unfortunately we think we are in the euphoria phase of a bubble. the market is going to keep plodding higher slowly grinding through the summer and then maybe we have a big correction later in the fall. we think the market is significantly overvalued. or 40% just to0% get back to fair value. we need some earnings things to happen. jonathan: want to get to the word bubble very quickly. the bond market, the equity market, what do you say back to that? >> u.s. stocks look a little bit overpriced but i would not go as far as to use the phrase bubble yet. sincee had a move november. it is normal to get some kind of reaction to that. profits are growing again. we have had two years of no growth at all in earnings. we think the stocks look much better value than bonds. those drivers will give us some positive returns. jonathan: we can bring up a board of what is happening in buns and tragedies -- treasuries. we are of four basis points. the emmanuel macron candidate came out relatively unskilled -- unscathed in the televised debate. when does that board start to matter materially to you? reaction against moving along way in short time rather than the new trend. we've got little more confidence in that view than we would have had six months ago. i don't think hans are going to head in that direction for very long. we have to listen to what companies are telling us. so far they are not telling us to buy bonds. yusko are you telling us to buy bonds? >> i am actually a buyer of long bonds. i think it's a very out-of-favor trade. we haven't seen this much negative three -- negativity toward bonds in the u.s. in a very long time. there's going to be a lot of money flowing into things. one thing that is interesting is last year everybody said earnings and energy are not bad. now the energy comprises more than 50% of earnings growth nobody wants to strip out energy anymore. alix: that is an excellent skeptical point. shorting bonds, is that what you do or are you just rotating to cyclical? >> we just try and get the stocks right. it is important in terms of what it singles -- signals about the economy. that trade is going to work much better when bond yields are tending to rise. alix: how do you make that case? have japanese investors coming in because yields are higher. how do you make that case? we see bond yields tending to rise everywhere. i'm not sure that's really going to drive the yield down for too long. are inbout where yields an absolute sense versus what we see in the economy, there is still really low. i agree that bubble is in a bubble. i am more inclined to look at markets than equities. alix: to this is how we make a market. jonathan: coming up on this program, we are going to bring you full coverage of gorsuch's grilling on capitol hill. confirmation hearings for supreme court nominee kicking off at 9:30 a.m. eastern time. we will bring that to you live. one hour and 20 minutes away from the cache open in new york. futures positive. you're watching bloomberg. ♪ jonathan: france's presidential candidates kicked off the presidential event last night. emmanuel macron coming out largely unscathed. gap between the marine le pen and emmanuel macron beginning to close for the first round. still with us is paul quinsee and mark yusko. leading candidate for the second round as far as the polls are concerned is emmanuel macron on. macron. you want to get into europe before the result is out. why? we like europe a lot. reallyk stocks were cheap. the movement to the far right is dissipating. we saw that in the netherlands recently, in italy. and the financial stocks are super cheap in europe. we really like europe and think you should be acquiring assets slowly and carefully. there is still a chance for a surprise. macron could certainly lose but he looks pretty good going into the election. see, the colquitt valuation gap between european equities and u.s. equities, how big is the political risk premium that has been built in? >> it's huge. i think europe is really interesting. after this eight year bull ,arket we have had in the u.s. the real problem in europe has been the lack of earnings growth. the s&p 500 at a 40 year high. all of that has come from relative earnings performance. we have seen the same movie play out. investors start the year thinking earnings are going to grow by 10% and they end up shrinking. we really think this time is different and that is going to lead to some of that premium being given that. -- back. jonathan: is it financials? >> we like the financials. we also like the cyclical. earnings finally are turning the corner and i don't think it's different like it is not normal. i think it is finally coming around to a cyclical upturn in europe and that's going to be good for equities. alix: sectors or regions? >> you want to buy value in europe. in sectors.is financials across the region, you have to think about the country context. you can't ignore the political risk. when it comes to politics investors last year were perhaps overconfident about their ability to predict politics. alix: we were making the market. you were skeptical on u.s. equities. now everyone else we have in this program is saying valuation is cheap and we don't need to price in geopolitical risk. that makes me nervous. what about you? >> i couldn't agree more. have the sameays opinion, one is unnecessary. we are just trying to be necessary so we can be on the program again. i will go a little bit out there. we really like greek financials. you don't hear a lot of people talking about that. we think you want to buy the really outcast regions in europe right now because they are the cheapest. we think he will concede what he needs to concede to get this done. merkel came out and said that she is in favor of a resolution. we think greece looks really interesting. jonathan: what have they done to clean up the banks and a significant way that makes this an investment and not just a trade? restructured twice in the last five years. wiped out common stockholders almost about 99%. some decenty've got capital. you are starting to see the money come out of the mattress that can to the banks. the ceos inanged some the leading banks. we think management is better, confidence is better, the big families in greece that really matter are starting to get confidence back in commerce and business. you are starting to see gdp turn up and all kinds of good things. jonathan: paul quinsee? >> i am not quite as brave as mark. the money hasn't really moved yet. etf's losthe major half their assets. it is still a very interesting set up in terms of pessimism. alix: the longer the reflation trade goes on, the bigger the fall is going to be. because you have money coming into global equities, that could apply to europe. >> the more you have value on your side the more you are protected. to've both got more exposure reflation and more upside in terms of profitability are you are paying a much lower price to participate than buying u.s. stocks. jonathan: you bring europe into the conversation, all of them have had a very calm bond market over the last couple of months. are you surprised by how calm it has been? there's a conversation about tanning normalization of the federal reserve and a report about a near time rate increase over at the ecb. potentially that huge anchor for the front end of the european curve might not be there. >> people focus on the wrong part. short rates need to come up. they should be roughly equivalent to nominal gdp growth. they have been pegged to load to recapitalize the banking system. the long end of the curve is what we should be watching and rates are actually falling. we have not seen a secular low yet. we don't see much increase in gdp. lots of negative surprises on the macro front. things are not as good in the u.s. -- talk about emerging markets. we think they are cheap, growth is good and all of the worry about rising interest rates is a tempest in a teacup. the yield curve is going to steepen.not stephen -- next coming up in the hour, a very busy day on capitol hill. confirmation hearings for neil gorsuch will kick off 9:30 a.m. eastern. we will bring that to you live. this is bloomberg. ♪ alix: all the action happening on capitol hill today. you're looking at a live shot of the sun. you will have judge neil gorsuch gearing up for his second day of confirmation hearings. supremeus is bloomberg court reporter, kimberly robinson. how well does this hearing need to go and what does that mean for trump's agenda? we have seen really broad agreement that neil gorsuch is very well-qualified. we have also heard a lot of questions from senate democrats about how he might push back on some of president trump's agenda. in the middle of a rocky week me some -- we still may see questions about how he will push back on the person who nominated him. jonathan: the grilling is going to be about judge gorsuch backing the corporations against the little guys, the employees. is there anything in that? >> we heard a lot of senate democrats push on this idea of voting against the little guy. by one count he had voted against them 27-2. it's unclear how firm those numbers are. a lot of the cases were just preliminary determinations and they were not on the merits. as far as neil gorsuch he said he was just following the law. every a judge who likes single decision that he makes is probably not a good judge. this is something we will probably hear more about but we will not really know how he will really vote until he gets on the supreme court bench. alix: for the investor what really matters is what happens with regulation. where does he stand on regulation? >> that is one place where he could make a huge shift in the supreme court. he is replacing justice scalia who had a long time deferred to agencies who make the regulations. neil gorsuch has been a strong proponent of these kinds of different theories the courts typically give to agencies so we could see a lot of pushback on regulations or the deference courts give to agencies and coming up with regulations and that could really be a big shift in american legal jurisprudence. jonathan: can we assume the confirmation is going to go through or is there a bigger hurdle down the road? senate republicans have a majority and even though it is a slim majority, unlike the affordable care act they are united on neil gorsuch so he is likely to get through. will bequestion mark house-senate democrats react. they are looking at being in the minority for two years and maybe even longer. with multiple supreme court openings possible in donald trump's presidency they will have to think long and hard about these consequential contingencies. jonathan: thank you, kimberly robinson. we will bring you those confirmation hearings live on bloomberg television at 9:30 a.m. eastern time. we are one hour away and four minutes from the cash open. futures are firm. the tao positive. after threes&p 500 days of losses. government bonds globally on offer this morning. yields higher by three basis points. presidentialench debate last night, the euro high. from new york, you're watching bloomberg. ♪ the biggest week in tv is back. wow, watchathon has netflix? hey, drop a beat... [ beatboxing throughout ] show me orange is the new black. wait, no bloodline. how about bojack? luke cage. oh, dj tanner. maybe show me lilyhammer. mmm, show me last chance u. on second thought, maybe pompidou. narcos, fearless, cooked, the crown. marco polo, lost & found. grace and frankie, hemlock grove. season one of... show me house of cards. xfinity watchathon week starts april 3. get unlimited access to all of netflix and more, free with xfinity on demand. the dinosaurs' extinction... got you outnumbered. don't listen to them. not appropriate. now i'm mashing these potatoes with my stick of butter... why don't you sit over here. something for everyone is awesome. find your awesome with the xfinity stream app. more to stream to every screen. you'ren: from new york, watching bloomberg daybreak. i'm jonathan ferro. in new york city futures are firmer. upon the dow and the s&p 500. the halfway point of the trading day and beyond. the financials improve because global bonds on offer this morning. still well south of where we traveled to last week on monday. the euro a standout in the fx market. political risk on the margin diminishing in france after televised debates last night. the year-to-date print high in today's session. that's the story in the fx market and beyond. here's emma chandra. isthe trump administration imposing a new rules aimed at travelers coming from the u.s. from 10 airports in the middle east and north africa. they will have to keep electronic devices in their checked baggage. numeral is what they say is based on evaluated intelligence. mark mcguinness -- martin mcguinness has died. that hed allegations took part in terrorist activities during the time known as the troubles. he later became the chief for the political arm. he became the deputy leader of northern ireland's power-sharing government. i'm emma chandra. this is bloomberg. the eu setting a date for brexit negotiations, april 29. one month after theresa may plans on triggering article 50. donald tusk spoke about the importance of getting the transition right. >> our main priority for the negotiations must be to create as much certainty and clarity as possible for also the, companies and member states that will be negatively affected by brexit as well as our important partners and friends around the world. jonathan: joining us from brussels is matt miller. europe does this funny thing with time. takes its time even when there uch.t m how long before we have serious negotiations between britain and the european union? is to their advantage and britain's disadvantage if they eat up time on the clock. monthill make -- wait a and then they will have an eu summit where they lay out a framework on april 29 for the negotiations. that framework goes to the european commission. the european commission takes the framework and turns it into directives and those go to the general commission counsel and they try and work out a legal set of directives they are allowed to use. it could be june or even later until the european union starts to negotiate the terms of brexit with the u.k. and that only leaves them 22 months or even 21 and the clock continues to count down. jonathan: that negotiation has to take place but there's also this negotiation around some kind of exit bill. talk to me about that. and: the question has been it is one that we have been putting to every finance minister since we arrived in brussels a couple days ago, will britain be able to negotiate a new trade relationship with the eu simultaneously as it negotiates brexit and will britain have to pay a bill before it starts either one of those negotiations? said herian chancellor thinks it will be about 60 billion euros that the u.k. has to pay to get out of the eu. said he doesn't expect them to pay that before brexit negotiations start, but he doesn't want to have brexit negotiations before he starts to negotiate a relationship on trade. that goes to the disadvantage of the u.k.. they have to get the trade relations sorted out or it's going to have a negative impact on growth, gdp, and jobs. jonathan: european finance ministers are meeting in brussels. to me there is a contradiction between the approach of the united kingdom and preaching free trade in forums like the g-20. how do those things reconcile and how do you thrown in prime minister abe? it's going to be pretty difficult for the u.k. to pursue free trade with the european union. they will have to find other partners which is why theresa may has gotten so close with president donald trump lately. abe coming here only puts salt in the wound because he wants to negotiate a swift trade relationship with the eu and that leaves the u.k. out in the cold to some extent. about freeot of talk trade and globalization especially from countries that have trade surpluses like germany, china. there are a lot of inward looking policies being enacted by countries like the u.k. and being talked about by countries like the u.s. we have this remarkable situation where you get institution like the european union preaching free trade and trying to strike a deal with japan and at the same time, all kinds of protectionist measures throughout negotiations with the united kingdom. reconcile those things for me. the one that was really anti-protectionist at g-20 and the u.s. was on the other side. you would not have thought that a decade ago. jakehan: still with us is quincey and mark yusko. -- john quincy and mark yusko. the eu is desperate to keep the eu together. are they willing to sacrifice issues like free trade just to do that? >> i think the whole purpose of the eu masterminded by germany is all about trade. they keep the euro lower than where the deutsche mark would be so they can be working to merca. they are in favor of as much trade as possible and if the u.s. wants to become isolationist, so be it. they don't have any choice but to be very pro-global trade. jonathan: the headwinds to the , realase for equities protectionism. do you see that happening after the g-20. >> something we have to very carefully. it would be bad. free trade is good for companies and it is something that investors will not want to see go away. butearly to call that something everyone has to very closely. it's a real risk. alix: haven't we seen global craig. just a touch? deteriorate just a touch? >> the idea that we can't ignore facts should be disconcerting to all of us. the reality is global trade has been falling. growth has been close to zero for the last couple years and it is getting worse. the u.s. talks about being more isolationist and more protectionist. it's not a good trend. we have seen this movie before in the 1930's. i wrote a whole letter about this, welcome to hooverville. if we go down the path of triggering trade wars, bad things are going to happen. for growth and prosperity and wealth. marketsu like emerging but we are having this debate on what's going to happen with protectionism and global trade. how do you make that case when asia is dependent on global trade? >> they are dependent on trade amongst themselves. to the world economic forum this year and you saw the president get up and talk about the benefits of globalization. that is awesome. you have also seen them say, you don't want to do tpp, find we will just trade amongst ourselves. it used to be all about made in china. now it's about made for china. china is about to become the greatest consumptive force along with india over the next 30 ever that the world has seen. it's going to be a massive opportunity. jonathan: prime minister abe doing the rounds in europe. i remember several years ago when the trade in japan feels like the trade in europe now. everybody want to get along with japan and now everybody wants to get along with europe. what's the story with japanese equities? >> we love japanese equities as well. they're not quite as cheap as they were because they have julyed a lot since last when abe got his bring back after he lost it in january last year. plan is the abenomics actually working. they have some work to do on deregulation but they are growing. gdp is going to be positive this year. be-san has this field under control. alix: thanks very much. and paul quinsee, thank you very much. watching ibm reporting after the bill today. one of the biggest focuses will be on cloud revenue. the company announcing a new pricing model for cloud storage designed to reduce data recovery times plus a partnership to broaden their storage options. joins us from los angeles. he woke up so early for us. what is your top pick in the industry and was? -- we did the report last week when we looked across the cloud universe. this is a report that was done by five analysts across three continents to get a unified view across all the cloud vendors. i cover the software space. i like microsoft a lot. hardware.rs the she likes ibm. unified view of how margins are going to trend over time and how to value these companies, one of the interesting things we found in the report was we are pricing in a pretty sober view of how this cloud opportunity unfolds over the next five to 10 years. the exception was ibm. it was still 20% undervalued versus what our models show ibm could do in the cloud. alix: salesforce and growth has been really great over the last few years. you mentioned microsoft and now ibm. how stiff is the competition? is a huge market opportunity unfolding over the next three years. the data we get back shows a tripling of adoption in terms of the public cloud. this is software service but also platform and infrastructure service which are more nascent opportunities and could be bigger. workloadsout 16% of running in public clouds today. we expect that to triple to almost 50% by 2020. if the rates of monetization on those workloads hold you could see a tripling of that market from $50 billion to $150 billion by 2020. there a lot of dollars to go around. some of the newer areas aren't necessarily competitive. dominated.com has amazon and microsoft are going into more infrastructure and platform services that are not necessarily competitive. alix: amazon are the leader when it comes to cloud vendor. you have microsoft and then amazon. ibm is trying to be more of a hybrid company. >> yes. there's two main types of companies coming into the marketplace. plays --he cloud amazon and google are becoming more enterprise focused for infrastructure and platform as a service. coming into this market fresh. they don't have installed bases in terms of customers that look for them for enterprise computing infrastructure. companies like microsoft and ibm have these large bases that have sold into their on premise environment and are looked to as trusted providers for this type of technology. are seeing is where amazon took an early lead in marketplaces, microsoft and ibm have a chance to catch up. environment going from on premise into cloud environment. stock up 18% over the past year. keith weiss, thank you very much. coming up, a conversation with 2:30 pm eastern. and a busy day on capitol hill. confirmation hearings for neil 9:30 amkickoff at eastern. we will bring that to you live. this is bloomberg. ♪ >> this is bloomberg daybreak. i'm emma chandra and this is the hewlett-packard enterprise greenroom. coming up, a conversation with ginni rometty. ibm chairman and ceo. ♪ >> this is bloomberg daybreak. i'm emma chandra with your business flash. bmw is forecasting sales and profit will rise slightly this year. they are dealing with an aging lineup and rising investment in self driving electric cars. the ceo says the company will launch 40 new and revised models this year and next. according to a person familiar with the matter the investment value could be worth more than $17 billion. it rents out desk and offices to people seeking temporary working space. that's your bloomberg business flash. this is bloomberg. blackrock believes u.s. commercial real estate recovery still has room to run. average yields at 3.5%. flipside, the warning bell. boston fed president keeping an eye on such assets. saying if you look at prices of commercial real estate they have been going up very rapidly. here with us now is christian .lbrich you will stand on the bullish side but tell us why. >> the interest in real estate is ongoing. theallocations of institutional investors into the real estate sector have been increasing over the last couple of years and that is an ongoing trend. that's kind of a wall of money trying to get into real estate also facing limited availability of stock. alix: where's the money coming from? >> the money is coming from all over the world are at asian money is growing very rapidly. the chinese have taken over in the third and fourth quarter of last year to be the biggest foreign investor into real estate and that is a sustainable trend going forward. you see other funds from asia and also from norway increasing allocations to real estate. alix: china, potential trade word. canada renegotiating nafta. saudi arabia dealing with opec cuts. how do the politics play? >> politics are quite concerning at the moment. you could say we have so many issues in the world that they are diluting each other and so people just tend to ignore them and do their business. once something is really blowing up people will deal with it. for the time being politics are not really concerning people too much in the investments. jonathan: probably investors -- the overseas flow is not about appreciating asset. it's about parking their cash where they believe in the rule of law. in the u.k. that has always do nothing. -- it has always been a thing. in the united states have you noticed a change in that sentiment? >> not recently. we saw the change in the sentiment after 9/11. that was certainly redirecting money more into the u.k. not recently. the u.s. is still being seen as a very a place to invest and we see no change. alix: what regions? >> i would say it's the big gateway cities. new york is always very strong. last year los angeles really spiked up. generally saying it's always the big gateway cities taking most of the attraction. alix: what happens when the fed continues to raise rates? what happens to the real estate market? >> we still have a very attractive gap between the real estate yields and the rates. if the rates are continuing to grow relatively slowly the market will adapt. i don't think it will change anything around the attractiveness of real estate. compressionyield come to an end and may be yields will raise slightly. not too much. at the moment it's very attractive yield gap between real estate and bond markets. about thealked general areas of where money is coming into and who is dying. what is your top investment idea for 2017? >> i would go for london. prices have come down quite a bit. volumes have come down. i think london is a very we may beplace and surprised how they are coming out over the next couple of years. jonathan: the fx move flatters that as well? >> for non-pound investors is pretty attractive. they would get a lot more stones than they got six months ago or 12 months ago. that is helping asian investors in particular. alix: good to see you. we have a bloomberg terminal. check out tv . interact with us daily. by u.k. housing. just go to tv on your terminal. this is bloomberg. ♪ jonathan: jeffries returned to profit in the first quarter. foreshadowing the performance of larger investment banks. joining us now is laura. great to have you on the program. give us the numbers. , big trading bank. really great numbers for them this quarter. they were up six times trading. froms about 378 million trading revenue. that's pretty great for them continuing last year's first quarter was terrible. jonathan: where are we relative to their guidance? >> they don't really give guidance. the other banks have been saying we think modestly we will be doing better for the first quarter. this is much better than modestly better. saying,igroup was single digits and we will see that from them next month. maybe that's a little bit of under guidance. that's the conservative estimate. alix: we tend to look at jeffries because it helps that forecast. >> probably the banks that do a lot more with fixed income because jeffries is more and tradingting bond corporate high-yield bonds. some of the banks that do that really well are goldman sachs, jpmorgan, bank of america a little bit more than citigroup. that could be great for some of these other banks. we will see reporting in three and a half weeks. you're going to be seeing much more of laura. coming up, confirmation hearings for neil gorsuch kicking off at 9:30 eastern time. we will bring that to you live in about 34 minutes. futures are positive marginally by .06%.w 5.06% -- bonds are on offer this morning. up three basis points on the u.s. 10 year. from new york city, you're watching bloomberg. ♪ jonathan: equity bulls face more distraction in d.c. fbi director comey deals president trump a blow over his supreme court nominee. france, emmanuel macron comes out unscathed in the tv debates. the euro climbs. a corrective summer, our guest lays out the case for one sector continuing higher. from new york city, good morning. i'm jonathan ferro. we continue to count you down to the cash open. that is under 30 minutes away. future is positive, the s&p 500, a three-day losing streak. banks outperforming earlier in the morning in europe. core government bonds are on offer this morning. treasury yields higher by three basis points. we talk about the euro climbed. 1.08 handle. upgrades and downgrades. carnival of 5.8%, upgraded to outperform. -- up 0.8%, upgraded to outperform. these guys are intrinsically undervalued. it is a disconnect between how much loyalty programs are worth and how much the total airline is being a valued. downgraded kellogg and bernstein on lousy consumer trends. they say the deterioration of these trends at least the possibility of further dealmaking. tracking apple in the open as well, slightly higher, getting an upgrade and bernstein as well. price target coming in. updated price target over at bernstein. graincorp nomine neil gorsuch races nominee hearings. trump heads to capitol hill to speak to republicans about the health care overhaul. with us now is kevin cirilli. let's start with president trump and his meeting with the gop. what are they doing? kevin: the president is expected to arrive shortly at the capital or he will meet with house members in the republican caucus to talk about the health care bill. plan isn's health care scheduled for a vote on thursday. he will also get some tough questions on a variety of topics, including yesterday's hearing about fbi director james comey saying there is an open investigation into whether or not president trump's campaign officials had any interaction with russians meddling in the u.s. elections. he could also raise questions about what is happening in the upper chamber, across the hall, where neil gorsuch is having day to before the senate judiciary committee to be confirmed for supreme court justice. alix: he want to talk health care and then russia is coming up in the conversation as well. let's talk about near gorsuch as well. what is at stake over the next way for hours? kevin: i spoke with some aides on the senate judiciary committee on the democratic side who say they will try to press neil gorsuch today at the hearings to align him with big interests, special interest, sticking up for large, financial institutions, as opposed to someone who would be able to be a more moderate judge, which is what the white house has been trying to frame him as. either way, you look at the numbers, it will be really tough for any democrats to substantially block his nomination from moving forward. that said, this is just a way to characterize him as they move forward. asked the, you question, how does this impact investors? if russia dominates all the headlines over the next few weeks, what does it mean for tax reform? jonathan: what does it mean for equity bulls? let's bring in david left of it. those distractions in d.c., give me the bull case, with all of that going on. >> from here, the real question is, does it change consumer and business behavior? i think the answer is probably not much. consumers are still going to take vacations, go out to dinner , as long as they still have money in their pockets from job gains, the job market continues to be strong. do businesses pull back on investment spending because of some of the noise from washington? i don't think so. they are responding to demand trends they are seeing, investment opportunities they are finding. it doesn't change the outlook for fundamentals. overall, at this point, it is mostly more noise than it is a signal for investors. jonathan: let's talk what was that noise could mean for investors. for the business leader, you may not pull back, but you will not go all in. if you are optimistic about what will come, and it does not come, that will not translate into increased investment. at one point does that disconnect between the investor remaining patient and the business leader who says i want to see real policy, at what point do those things break? >> the market understands it's going to take a few months for us to see real progress. the big issue is tax reform. i think most investors understand, most business leaders understand that is something that will not be tackled in earnest until after the summer. we will see more details around that but really the market understand this will take some time. as we get into the summer, after labor day, and it becomes more uncertain at that point, that is more of an issue to be concerned about. if we are just talking about slippage, that is not much of an issue. but if we are talking about no change in policy, that's a concern. alix: bank of america coming out saying equity allocation is at a two-year high. which areas most complacent? what i would be looking at at this point is what is underperformed, energy really stands out to me as an area where there really are some opportunities. oil prices are down, largely, for temporary reasons, because of the fact that we have not seen inventories start to decline. last week's reading was relatively benign. we think it will get better from here. you look at valuations for the s&p 500, energy index, on a price-to-book index, these stocks are trading at 40-year lows relative to the market. the energy sector seem to have a lot of pessimism, one of the worst performers year to date. that stands out as a place to be deploying capital. alix: where is the market complacent on trump's political agenda, where is there too much evaluation -- valuation? >> i would not say there is a tremendous amount of complacency. we hear a lot of nervousness. even though markets have done , il, near all-time highs still hear a lot of concern about, i am worried about x, y, z, some of the issues we were talking about. i wouldn't characterize investors as complacent. the areas we would stay away from in the market are some of the defensive that will be more negatively impacted by higher interest rates. jonathan: you mentioned all-time highs. you draw a clear distinction. talk about that. >> it's really important to keep in mind that an all-time high is not the same as a market peak. rising overets are time, so markets are usually at an all-time high. , 20% oft so uncommon the time markets are at an all-time high. forward returns are really no different from what they are when they are not at all time highs. so the real question is what is , is it basedarket on fundamentals that we think are sustainable? in this case we believe it is. accelerating, earnings growth should be of double digits in the quarter, the best quarter in over two years. the first quarter of double-digit earnings growth since 2011. looking very solid. we think that will continue into 2018. we need some tax reform help into 2018 to get another year of double-digit growth, but i think that is likely. alix: then why are small caps rolling over? >> there has been some rotation within the markets but bear in mind -- first, small caps do not look very inexpensive at this point. they have done well since the election. the other thing is that high-yield spreads are pretty narrow at this point. small caps tend to be pretty correlated with high yield spread. the scope for upside is a little lower. we are also not at the end of longycle but we are pretty in the tooth in terms of this business cycle. small caps tend to do better earlier in the cycle. it is a confluence of things. if you are cautious on the dollar, that should benefit large caps more than small caps. jonathan: coming up on the program, judge neil gorsuch is gearing up for his second day of confirmation hearings. we will bring you that live at 9:30 eastern time. counting you down to the cash open. futures are up a bit. a three-dayed losing streak here in the u.s.? you are watching bloomberg. ♪ alix: is a summer correction ahead? oppenheimer seems to think so. the s&p versus the 50 and 100-day moving average. is 100 days, the pink line is 40-day. head ofme now is the technical analysis at oppenheimer. , you have a call for a summer correction. was not necessarily our call, a summer correction is reasonable but the point we have been making, it is too early to play for that, and we think it is likely the s&p could be at a higher price level by the time that tactical opportunities presented. our indicators are still positive and we recommend a procyclical stance to the markets. you can work off over conditions without the s&p moving lower? >> that's right david i think risk is more so maybe sideways with the potential report that this uptrend can continue. we are actually seeing more early to mid cycle conditions rather than light cycle. alix: what areas of the market are you looking at to capture that cyclical side? here, hasorite sector been for some time, is technology. when we look at the technology sector, we see a group recovering from the downturn it 2002,ed between 2000 and still in underperformer since that top. i think that underperformance continues to be retraced. we are very encouraged about the broad-based leadership of the sector. it has been throughout hardware, bigmis, caps, mid, small. looking at the sector complex, technology is the sector we have most conviction about. jonathan: why should i play the global growth story through the u.s. and not just europe where the composition into cyclical stocks are bigger, where valuation is lower? why not europe over the u.s.? we likea fair point, u.s. stocks but we also like non-us talks. if you look at where we are in this learning cycle here in the united states, we think people move higher. because of all the things we were talking about a few minutes ago. , weings are 30% below peak are much earlier in the recovery. if things start to turn right outside of the united states in those regions you mentioned, emerging markets, europe, there is definitely scope for upside on valuation and earnings growth. i think it makes sense to have a mixture of domestic and non-us exposure. in then: the bull case u.s., how dependent will that be on foreign participation in the coming years? of ithink it's a big part and it's a risk reward case for us. the s&p is an ample secular market. on ball case is dedicated europe rallying back. your fails again at those prior resistance levels, that could be a headwind for global equities overall. case, ifon the ball europe enters a secular bull ballt, that is the uber case no one is talking about. i'm a risk reward, we like the u.s. in absolute terms, we like europe from a near-term trading basis. alix: everyone is saying that is the value trade, definitely people are talking. whether or not money is moving is a different question. what are your top three stock picks right now? >> let's just stick with technology. a lot. semis if you drill down into the sector and key in on the relative trends, yes they have worked but they are breaking through 10-year resistance versus the sector. lamike stocks like research, skyworks solutions, even apple, largest capitalized in the sector, breaking above resistance, just getting going on a relative basis. we think apple continues to do well. alix: if small caps are weaker, or large caps the way to play the trend? >> we prefer large caps over small caps. mostly because of the reasons we talked about, later in the cycle, that is a good environment for large caps. again, we have seen high-yield spreads compress. that is one of the biggest drivers of small cap, what is going on with high-yield. both high-yield and small caps tend to be the riskier parts of their respective markets. to the extent we have compressed yields and the spread over treasuries within high-yield, it suggests maybe there are other opportunities within the equity market. finally, as we are later in the cycle, it does make sense to look at balance sheets. large cap balance sheets look stronger relative to small cap balance sheets. if we see a pickup, large cap should hold up better. i mention the dollar in the previous segment. we are cautious on the dollar. if the dollar weakens, that should benefit large caps more than small caps. are you saying small caps are more vulnerable this time around in a rising rate environment? i wouldn't say their leverage is so high that rising rates are going to be a problem. if rates are rising because growth is picking up, that should benefit small-cap earnings growth because they are more cyclical. but if we have a hiccup and we see a risk of environment, leverage is higher in the small-cap space and you could see that lead to more downside risk for small caps versus large cap. alix: what do you think of large caps? >> we like large, we like small. light respecting the more cycle valuations at work here. one thing being missed, if you are concentrating it simply on we had key point here is a stuffed bear market from 2015 to 2016, the s&p 500 retraced 18 months of prior gains. 18-month lows had been the best one-will definition of a bear market low. since then, financials, technology, industrials, the best three sectors. tens to be the leadership you see in a midcycle advance. the acceleration we are seeing, you usually don't see that during the early to mid cycle. ourl caps can do well given cycle outlook. we want to own data, stocks that tend to outperform in a rising market. not talking down the large caps either. great to have you with us. thank you very much. alix: a busy day on capitol hill, confirmation hearings for neil gorsuch it up in a few moments. we will bring that to you starting at 9:30 eastern. this is bloomberg. ♪ jonathan: from new york city, you are watching bloomberg daybreak. i'm jonathan ferro. eight minutes away from the cash open, futures are firmer, up a quarter of 1% on the s&p 500. elsewhere, yields are higher. 2.48 is the yield. the dollar is softer, the euro is firmer. op .6%. one in the u.s., a big focus the confirmation hearings for supreme court nominee neil gorsuch on capitol hill. joining us is our supreme court reporter, greg stark. what are we looking for over the next several hours? >> we are looking for a lot of democrats going after neil gorsuch as a friend of corporate interest and a powerful, someone who often rules against the little guy. republicans will say he is somebody who just applies the law, sometimes the big guy wins, sometimes little guy wins. jonathan: what do the numbers say? >> it is hard to put numbers on these things. there is certainly a volume of cases and democrats have picked out some of the ones that for them are the strongest where neil gorsuch does rule against an individual up against a corporation. there is a case they have been talking about a lot about a truck driver who was on the side of the road because his breaks for those. he eventually left the trailer, the company fired him. neil gorsuch was involved and said the company did not violate law by firing him. for those investors outside of the u.s. not familiar with the laws in the u.s., when they start talking about the chevron doctrine, walk us through the importance of that. a case withlves chevron. it says when a court is looking at an ambiguous statute, and a federal agency that enforces the statute, like the clean water act, when an agency has interpreted what those words mean, the federal courts will defer to the agency. has called for re-examining that doctrine, in other words, having courts make that decision about what ambiguous statutes mean. if he were to swing the supreme court to that view, it would mean that administrative agencies have a lot less power in enforcing and applying federal statutes, regulatory statutes, than they do now. alix: how does this compare with justice scalia? >> justice scalia was an advocate of this chevron deference but was moving away a little bit. it could have an impact in moving the court more quickly to the point where they are saying, no, we will not differ to the administrative agencies. one twist i will put in, over the last eight years, we thought about these agencies like the epa doing expensive things like interpreting the clean air act. that will change with donald trump as president, so this is not necessarily going to be something that always helps conservatives and business interests if those agencies have less power. alix: what is the procedure over the next two weeks until they get the vote in april? >> we will have questioning today and tomorrow, something on thursday as well. that will probably be outside witnesses. auck grassley says he wants vote in the committee by april 3. that could mean full senate consideration later on in the week. .hat is what republicans want the supreme court hears its last round of arguments at the end of april. they very much want him on the court for those. jonathan: great to have you on the program as we reach the confirmation hearings for neil gorsuch. we will bring you that coverage here on bloomberg television. the opening bell coming up next. there. are treasuries on offer, yields higher. session highs in terms of yield. just a single basis point. 2.48 on the 10-year. you are watching bloomberg. ♪ live-stream your favorite sport at the airport. binge dvr'd shows while painting your toes. on demand laughs during long bubble baths. tv everywhere is awesome. the all-new xfinity stream app. xfinity. the future of awesome. jonathan: from new york city, this is bloomberg daybreak. i'm jonathan ferro. moments away from the opening bell. futures are up 30 points on the doubt. up 67 on the s&p 500. will we break the losing streak on the s&p? the dollar taking a little bit of a beating. the pound is stronger after inflation data comes in to the high.t a 2013 in france, the centrist candidate largely unscathed, so the dollar is on offer, as our treasuries. the 10-year off of session highs. 2.47%. let's get you the market open with alix steel. alix: the nasdaq is at record highs, 59.23. it hit an intraday record high yesterday but now we have surpassed that. the dow up by 45. the s&p up six. an individual names, a ton of upgrades and downgrades moving the market. facebook getting an upgrade at btig. the analyst says i am fixing a mistake of not having a buy rating earlier. they say there is unexpected strength from instagram stories as well as video strategies. apple gaining on a price target upgrade at bernstein, $160 from $140. they say the iphone 8 will be big. motorola getting a much-needed boost of 2%, upgraded to buy from hold at jefferies. consensus expectations are too low. those are some of the stocks we are watching. , it is techectors and financials, consumer discretionary, telecom leading the way. it seems like we have a risk on rally at the moment. we are awaiting confirmation hearings for supreme court nominee neil gorsuch. that will begin in washington imminently and we will bring that to you live. for me, the interesting part is what is happening in the bond market. we had treasuries on offer. then the u.s. session begins to build more momentum and the buying comes into treasuries. guilds and bunds remained lower. europe, the political risk begins to diminish once again. we have talked about this before on the brexit situation and on the presidential race here in the u.s. after let's nights tv debate, france's central candidate emmanuel macron coming out unscathed. that is bringing in a little bit of a risk in europe. neil gorsuch taking his seat in front of the senate judiciary committee. chuck grassley will have the first question. also, the lack of volatility we have seen in every market, fx market, the bond market, and equity market. if you look at the s&p 30-day implied volatility, we are near lows. you can see their mr. gorsuch back to they to get questioning from the senate judiciary committee. jonathan: the distractions continue to build in d.c. today this, yesterday director comey, and president trump, that continues to move forward. the conviction still remain high on equities board. distractions, when you speak to an equity bowl, they believe it will come, the tax reform, looser regulations. it may come further down the line but they are prepared to wait. see presidentu trump meeting with gop leaders to talk about health care. health care on one side and a supreme court nomination on the other. in the s&p by2025 the beginning of the year but there is a fiscal option based in. aree do not get that, if we way down by supreme court nominees not being approved or we get more commentary from russia and the relationship with president trump, what does that mean for that 75-point premium? [inaudible] started, what happened in the middle of the summer last year. s friendly administration coming in. we are waiting for a final member of the senate judiciary committee to start their hearings. you can see the other shot of president trump meeting with gop leaders on the health care bill. atyour point, if you look where we have seen rotation as well, we have seen rotation into utilities out of cyclicals over the lasting months. today is not the exception, so how long will markets have that? jonathan: in november, they were saying go along small caps. they were more insulated from fx markets, the tax cut would be more pronounced for those companies. now you are seeing an underperformance in small caps and outperformance in big caps. is that conviction in the trump rally? i would think it says something else. alix: you have hedge funds bearish for the first time since november. optimism and large cap. is that a contrary and, do you want to go long small caps if you have a hedge fund betting that way as well? you wind up seeing a lot of money coming into the market. bank of america says cash levels have fallen to 4.8%. investors are mostly in equities at a two-year high. is there a washout if you don't get the specifics? we are hearing about the summer. that is not that far away. .3%.han: the dow is up by we are awaiting the confirmation hearing of neil gorsuch in washington. alix: let's go there now. senator grassley has the opening statements. he will continue to speak to neil gorsuch. we have a long day in front of us, so we will immediately turn to members questions. it's my intention to get through all members first round of questions today, so it's important we all stick to our time limits so we can stay on that schedule. 10 hours is a long time for you to sit there and answer questions from 20 of us, r to you when you may need a break. in the meantime, i would anticipate a break about 30 minutes for lunch time. i would hope members of the committee -- i have not made up my mind on this yet -- but we have a vote scheduled at noon -- i'm sorry, we had two votes at noon. it may be appropriate to use that time for our lunch break. i will make a decision on that later on. with that understanding with you, to accommodate you because you are the person that has to sit there and answer questions, so whatever your needs are, let us know. , started yesterday morning judge an audience, with justice scalia's comments that our government of laws and not men is the pride of our constitutional democracy. our democracy requires judges to let the people's elected representatives do the lawmaking. you, judge, said that justice scalia's great accomplishment was to "remind us of the differences between judges and legislators." legislators, in other words, consult their own moral convictions to shape law, as we best think it to be. but you said that judges cannot do those things, rightly so, from my point of view. our constitution is also a charter of liberty. justice scalia said our constitution guarantees our liberties primarily through its structure. that happens to be the separation of powers. you have said much the same "what and i quote you, would happen to disfavored groups and individuals" if we allow judges to act like legislators? only need hisuld own vote to revise the law willy-nilly in regards to preferences." the separation of powers in our system requires an independent judiciary made of judges respectful of the other two branches, but not beholden to them. judges must be equally independent of the president who nominates them and us senators who confirm the same judiciary members. let's start with independence from the executive. no one, not even the president, is above the law. one of the most remarkable things about your nomination is the broad bipartisan support you have received. you have earned great praise from individuals who are are not exactly supporters of the president but who strongly supported your nomination. yesterday, we heard from one of obama's former solicitor general said "you will not compromise principle to favor the president." in 2006, former colorado senator salazar, a democrat, said that you have "the sense of fairness and impartiality that is a keystone of being a judge." and the legal commentator jeffrey rosen, similarly praised .ou for your independence so let's start with my first question. i would like to have you described, in any way you want to, what judicial independence specifically, tell us whether you would have any trouble ruling against a president who appointed you? >> [inaudible] that is a softball, mr. chairman. i have no difficulty ruling against or for any party, other than based on what the law and the facts and the particular case require. i am heartened by the support i have received from people who recognize that there is no such thing as a republican judge or a democratic judge. we just have judges in this country. i think of what judicial independence means. i think of byron white. that is who i think of. fierce him as rugged independence. he said, i have a job. people asked him what his judicial philosophy was. i give the same answer. i decide cases. it is a pretty good philosophy for a judge. i listen to the arguments made. i read the briefs put to me. i listen to my colleagues carefully. and i listen to the lawyers in the well. this experience has reminded me what it is like to be a lawyer in the well. it is a lot easier to ask questions, i find, as a judge, then it is to have all the answers as the lawyer in the well. i take the judicial process very seriously. i go through it step by step, keeping an open mind through the entire process as best i humanly can. and i leave all the other stuff at home. and i make a decision based on the facts of the law. those are some of the things judicial independence means to me. it means to me the judicial oath i took. to administer justice without respect of persons you to do equal right to the poor and the rich. and to discharge impartially the duties of my office. , it's abeautiful oath statutory oath written by this body. that is what judicial independence means to me. happy to talk about the separation of powers, too, if you would like, mr. chairman. or i'm happy to answer another question. clear youcord made are not afraid to fulfill your roll independently and you emphasized that. you vacated orders of administrative agencies acting outside of their authority and you ruled on cases where congress has overstepped its bounds. so i think you can maybe speak ,bout the separation of powers but at the same time, maybe you could give me a couple of your your that demonstrate commitment to that independence of the executive branch of government. kevin: sure. on the first point, i have decided, as i noted yesterday, over 2700 cases. my law clerks tell me that 97% of them have been unanimous. 99% i have been in the majority. that,ell me as well according to the congressional , my opinionsice have attracted the fewest number of dissents from my colleagues of anyone i have served with that they studied over the last 10 years. the congressional research nervous speculates whether that i if i am persuasive or believe in collegiality, i don't see why it has to be a choice. me thatlerks also tell in the few cases where i have that i'm as likely almost to dissent from a democrat appointed colleague as a republican appointed colleague. that is again because we don't have democrat or republican judges. according to the wall street journal, i'm told, of the eight cases that they have identified that i have sat on that have been reviewed by the united states supreme court, our court was affirmed in seven of them. i think louise may argue for the eighth because in that case the supreme court did not like a procedural precedent in our court that we were bound to follow, so they remanded it back. we decided on the merits as the court instructed. eight.ut of on the separation of powers, it is, mr. chairman, the genius of the constitution. madison thought the separation of powers was perhaps the most important liberty guaranteeing device in the whole constitution . and this is a point of civics that i do think maybe is lost today, how valuable the separation of powers is. have, in article one, the people's representatives make the law. that is your job. i don't think it's an accident the framers put article one first. your job comes first, to make the law. article two, the president's job is to faithfully execute your laws. our job, article three, down at the bottom, is to make sure the cases in -- and controversies of the people are fairly decided. if those rules are confused and , the pound isted worried that would be the very definition of tyranny. you can see why. judges make pretty rotten legislators. we are life-tenured. you cannot get rid of us. it only takes a couple of us to make a decision, or nine, or 12, depending on the court. way tod be a pretty poor run a democracy. at the same time, with respect, legislators may not make great judges, because they are answerable to the people. when you come to the court with a case or controversy about a past fact, you want a neutral, rigidly neutral, fair, scrupulously fair decision maker. you want somebody who is going to put politics aside. i the separation of powers don't think has lost any of its ingenious over 200 years. in fact, it has proven it. >> thank you. i have heard my colleagues and people not in the senate say that now more than ever we need a justice who will be independent of the president who nominated him or her. i would like to ask about your nomination and your independence. a lot has been made about the list of judges, then candidate trump proposed as possible nominees. to me, it was the most transparent we have had in history. we did not have secretary clinton give out such a list. of course, you were not on the first group that came out. otherwise, added later. i'm curious, when did you first learn that you are on candidate trump's extended list? mr. chairman, you are right, there were two list, as i recall, over the summer. i was not on the first list. i remember having breakfast one day with a friend who may be here. brian? there you are. you remember this. we were having breakfast one day and he said, you are not on the list. i said, you are right, i'm not on the list. he said you should be on the list. i said i love my life in colorado. i wouldn't change a thing. i am happy man. i have a loving wife, beautiful home and children, a great job with wonderful colleagues. i'm happy person. breakfast, ifrom get an email from brian saying there is a new list. and you are on it. that was the first i heard of it. >> and i assume you thanked him. hon. gorsuch: i don't know about that. we were all surprised. >> i am kidding. hon. gorsuch: at any rate, we are where we are. me about the process that led to your nomination, did anyone ask you to make any at alls or assurances about your view on certain legal issues, or the way that you would rule in certain cases? hon. gorsuch: i think you would. assured by the process that unfolded -- would be reassured by the process that unfolded. to live under a shell during the campaign season, watching baseball and football, go about my business, but i did hear a lot of talk about litmus test from all around. it was in the air. i don't believe in litmus tests for judges. know that years ago. i was not about to become party to such a thing. i am here to report you should very assertive. no one in the process, from the ane i was contacted, with expression of interest for potential interview, from the time i was nominated. no one in the process asked me for any commitments, made promises about how i would rule in any kind of case. >> and that is the way it should be. we have just discussed your independence from the president. but there is also independence from the legislative branch. it is odd that some of the same folks that will claim that you are not independent from the president will turn around and try to extract from you promises and commitments before they pass judgment on your nomination. the irony, of course, is that extracting commitments during the confirmation process is exactly what would undermine your independence as a judge. one way they will do this is by asking you about precedent. let's talk about that. for starters, i have a book your that you cowrote, and 800-page .ook on precedent your 12 co-authors included judges from across the ideological spectrum such as bill pryor, who was also on president trump's supreme court list, and diane would, who was reportedly on president obama's list. you have also touched on the value of precedent in speeches you have given or in your opinions. speech youe, in the gave honoring justice scalia " evenear, you said this, when a hard case does arrive, once it is decided, it takes on the force of precedent, becomes an easy case in the future, and contributes further to the cy of our law." especially if more recent decisions have called into question the rationale of the most recent case. but you have also suggested that there may be circumstances where it is appropriate to revisit precedent. specifically, you wrote, "it may be important to reconsider a a ision where it has become precedential island surrounded by law." there are times where it is appropriate to reconsider decisions, especially if recent decisions have called into question the rationale of the original decision. i think all of us would agree, for instance, that brown versus board of education which finally overruled repugnant but equal but standard in plessis, is a perfect example of this. with this in mind, i want to explore the approach you take to supreme court precedents. could you tell us what you believe is the value of precedent in our legal system? absolutely,: senator. if i might go back just a moment to promises. i have offered no promises on how i would rule in any case to anyone. i don't think it's appropriate for a judge to do so, no matter who is doing the asking. i don't because everybody wants a fair judge to come to their case with an open mind and decide on the facts and the law. the features of law you have to decide on is on the basis of precedent. as you point out. for a judge, precedent is a very important thing. we do not go reinvent the wheel every day. and that is the equivalent point of the law of precedent. we have an entire law about precedent, the law of judicial precedent. precedent about precedent, if you will. that is one that 800-page book is about, reflecting a mainstream consensus view from 12 judges around the country appointed by president's of both parties, great minds. justice pryor prior was kind enough to write a forward to it. it makes an excellent doorstop. in it, we talk about the factors that go into analyzing precedent . any consideration. there are a bunch of them. you have alluded to some of them, the age of the precedent, important factor. up aroundce has built the president. has it been reaffirmed over the years? what about the doctrine around it. as it built up, has it become an island? those are all relevant considerations. it's workability is a consideration, too. can people figure out how to abide by it, or is it too confusing for the lower courts and their administration? those are all factors that a good judge will take into consideration when examining any precedent. you start with a heavy, heavy presumption in favor of precedent in our system. alexander hamilton said that is one important feature -- i think it was hamilton -- who said it was one important feature of judges. if we are going to give them life tenure and allow them that extraordinary privilege, they should be bound down by strict rules and precedent. francis bacon called precedent the anchor of the law. so you start with that heavy presumption in favor of precedent. you consider those factors in that light, and yes, in very few cases, you may overrule precedent. command, an inexorable the supreme court has said. that is the law as president, as i understand it, and is expressed in that book with my very highly respected colleagues. lower court judge, you are bound not only by supreme court precedent, but as you have demonstrated, the precedent of your own court. but as a supreme court justice, part of your job will be to decide when existing supreme court precedent need not be reconsidered. how would you decide when to revisit existing precedent? hon. gorsuch: mr. chairman, i don't think the considerations change. it is the same analysis that i would have as a supreme court justice that has been fortunate enough to be confirmed, that i am when i'm considering circuit precedents as a circuit judge. it's the same process, the same rules apply. this is the 14th supreme court hearing that i have participated in, so i have a pretty good idea of some of the questions you will get today you will be asked to make promises and commitments about how you will rule on particular issues. now, they will not necessarily ask you that directly. for instance, how you will rule on this issue or that issue. instead, they will ask you about old cases, whether they were correctly decided. of course, that is another way of asking the very same question. they know you cannot answer but they will ask you anyway. i have heard justices nominated of both parties declined to answer questions like these. that is because, as the nominee put it "a judge sworn to decide impartially can offer no that whicho hints showed not only disregard for the specifics of this particular stainit would display the -- disdain for the entire judicial process." know that is what justice ginsburg said at her hearing, is what we call the ginsburg standard. the underlying reason for this is, of course, is in making promises or even giving hints undermines the very independence that we just talked about. i would like to ask you if you agree with what i just said. judge gorsuch: sen. grassley: judge gorsuch: i do, mr. chairman. sen. grassley: so if i ask you to tell me if heller was rightly decided, would you answer that question for me? i wouldrsuch: senator, rightly respond that it is a president of the united states supreme court, and as a good judge from you don't approach that question anew as if it had never been decided. that would be the wrong way to approach it. i will tellviews, you, mr. chairman, belong over here. i leave those at home. he said he wanted a fair judge, and that is what i want as a lawyer. i want to decide on the facts of my client's case and leave what he had for breakfast at the breakfast table. part of being a good judge is coming in and taking precedent

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