alix: they were never gone. david: timeout for your morning brief. it is joel jobs opening data. the u.s. treasury will auction off notes. disney reports third quarter results after the bell today. get update on what is making headlines outside the business world. we turned the emma chandra with first word news. emma: on capitol hill, republicans are discussing a compromise when it comes to overhauling the tax system. according to people familiar with the matter, lawmakers are talking about mixing permit revisions with temporary rate cuts for individuals and businesses. changee trying to the tax code without adding to the federal deficit. president trump plans to wait a week before going ahead with the trade investigation of china. according to an administration official, that is because china supported those united nations security council sanctions against north korea. the white house is still concerned about possible chinese violations of intellectual property laws. country's moste senior judge says the government must provide clarity on post-brexit laws. the supreme court president said that lawmakers must be specific about eu legal decisions and how it will continue to affect british law after the split. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, i'm emma chandra. this is blabe bloomberg. alix: the dow has hit 35 record highs already this year. is it still too good to be true? many renowned investors believe so. >> i actually do not say it's time to get out. i don't say anything about getting out. i say it's a time for caution. >> instead of buying low and selling high, you are buying high and crossing your fingers. >> there are some warning signs here that are getting darker. >> we have a bond market bubble, which is now in the process of the flooding. -- deflating. it's got a way to go and it will affect the outlook quite significantly. >> at this point, i would be moving toward the less risky. >> returns are going to be lower. >> if we have more of the same for the next year, the markets are going to be quite a bit lower. >> if they will be quite a bit lower. quite a bit means what? >> 15%. alix: joining the ranks is the double long capital ceo saying this is not the time where i can buy anything and not worry about the risk of it. the time to do that was 18 months ago. he is worried about junk bonds and emerging-market debt that's overvalued. joining us now is a global strategist. how do you interpret all these big-name investors coming out and warning for caution? : we are definitely past halfway in this low interest rate, steady growth, low volatility rally where money go searching for yield. raising ratesen incredibly slowly. we are reaching the point where the european central bank is going to taper bit more. we will get to the point where the fed starts reducing the size of its balance sheet. we cannot get infinitely the same kind of news with this kind of heavily correlated low volatility move going on. bigt of the folks who are names who may be got it right at the beginning of this rally are beginning to say, look, this cannot go on forever. that is self-evident. happens tost is what the kind of spread product and particularly the bond space and emerging-market corporate debt. the big beneficiary of investors being crowded out of the u.s. treasuries by the fed when they built up that quantitative easing armory. what happens to those yields when those balance sheet strength? we don't know that. if rates are low and inflation find that we may go to a world where there is not something a disaster but harder to make money. alix: you hearken back to what was written today by a big treasury bull. you're not getting compensated for the amount of leverage and the amount of risk that you taking on. do you feel like it's going to be an event risk or is it going to be a slow grind as you talk about the normalization? kit: i think it's more likely to be choppy. there will be days when i come into the office and i'm really sort of panics for can. like 2006 or 2007 in the sense that we are not going to get interest rates up enough to cause major damage. if i look at where money was going, i don't know the kinds of things that mean beneficiaries could you have very strong unsecured credit in the u.k. you have a big revolution of money going into cyber currencies . we don't have the same excesses as we had 10 years ago. once. looked at modeled it will be choppy and at some point we will run out of steam. i'm still really struggling to see a catalyst for things that are going to really scare me if we don't get inflation. david: maybe not a big downturn, but if there is this choppiness or slow grind downwards, where do you put the money? people are looking for yield. do you go longer duration or less to liquid assets? what do you do as an investor? kit: investors are going to be tempted to look for yield. let, i'm old enough that what i would like is a little bit higher real yields to be able to put some money in long durations. by not driven to excitement fortysomething basis points on 10 year inflated securities pick . can i get something well on the other side of 1% please before i pack up and get my pension working for me? that's the trouble. there's not a lot. you can see that we are still buying property and still buying safe assets to protect against inflation. i think it's just going to be quite difficult to get the kind of returns we have had in the past. is even missing out on the last 10% of the body that could be quite painful. david: you suggested central banks have really contributed to the situation because of the enormous injection of liquidity/ what. what about the demographics? you have an aging population putting more and more money out for longer time spiri. is that driving yields down? kit: unless you get inflation. if inflation does not average more than 2%, if inflation stays below 2% most of the time, and of central banks continue to believe the right pace for interest rates is for them to peak not much above that, then why would i be -- if someone offers me 3%, why would i be just leaving at them and a mad way and saying yes please, can i have some of that? that is the reality of some people who need security in the longer run. i think what changes everything is inflation. right now with the way technology goes in the way the if il labor market goes, can see how we can generate meaningful inflation. alix: the other question becomes where is the missed price? there's volatility across the board. you have purple for treasuries and the blue for stocks and volatility for upper fx. we know the story. at multiyear lows, we are questioning what is going to take it up. fx has the best chance. what do you say? kit: fx is a relative price and it has me either apartment only bullish or bearish. you will get an adjustment. we have seen now from this world of the european central bank keeping the euro incredibly weak with policies designed to do that. if they take their handoff the currency for two minutes, suddenly it's much stronger than anybody thought it would be an awfully goes. and often goes. you get the volatility coming out of the fx market. the bond market is where the source of real potential movement is. if we find ourselves with the same kind of thing. i genuinely don't know what happens to the high yield corporate bond fund it and the dollar denominated emerging-market debt market when we start seeing balance sheet reduction in the united states. but it's the bellwether for whether we are going to see volatility pick up more widely over the course of the next nine months, . david: to what extent do energy prices affect this? rick rieder said with energy coming down and staying relatively range bound, we do not see spikes in oil. that was with rapid inflation and volatility. is that right? point. to a the big driver of inflation was the ability of the labor market to make it persist. we all does have less money for everything else in the inflation is low. certainly what is true and where he is right is that where we are today is that we have this long time of oil prices and the they come down. it's harder to see oil breaking out of a broad range because of the way technology is making us more efficient and climbing as global demand increases. that is kind of the standoff. that is another source of volatility. it is a source of comfort across the whole of the commodity sensitive world that this helps the resource producing economies , which not all of them, but in many cases, kind of emerging-market economies. david: kit juckes will be staying with us. coming up, we will be talking with sir martin sorrell. he will be joining us right here . this is bloomberg. ♪ >> we were telling a story and inflation was going to gradually return to target, and especially on this measure, you can actually see the gradual return to target. it seemed to all be going according to plan until we got this year. off number has fallen way at least on the scale that you have got here. this number has fallen quite a ways off. david: that is what st. louis fed president jim bullard had to say about the fading inflation numbers yesterday. the minneapolis fed president had some with thoughts on the subject. still with us is kit juckes. you referred to inflation and the mystery of where inflation went. the real question is -- is this likely to affect the trendline of rate hikes by the fed? kit: i think it provides the fed with maybe the wrong word, but may be an excuse of not to add on any given day. there's always the field that the path of caution is to be too slow and hiking rates and not too fast. if they come up to the run-up of any given meeting and economic data is a little bit soft or there's a little bit of turbulence in the world, they wait. that is why they only raise rates when the markets have completely prepared for a rate hike. in and's a 99% priced then they will deliver rate hikes, but they are not. they are very easy to dissuade. last year we had brexit in the u.k.. we had the volatility that came out from china at the beginning of the year. they did not get any rate hikes for most of the year. i think that is what the lowflation grants them. it is not going to stop a really slow normalization of rates. it is going to mean at any meeting you have the option. you have the option of saying let's not make things on beer the need to the while we start introducing the balance sheet reduction program. let's just pause for a bit and see how that goes. david: as you say, give someone an excuse if they don't want to raise rates. what if it is the reverse? what if they want to raise rates for a whole bunch of reasons? would they be weak enough to prevent them from raising? kit: they don't have to be. i'm going to flip it around and say, what it stop the european central bank from normalizing rates if there was a debate that said rates are too low and we should be getting them low we don't like them down here? you might see that happen. you might see a different dialogue despite the inflation tha data. for the fed, it creates a consensus in favor of getting rates up any faster than the have been going. that's probably the right way to describe it. david: finally on the subject, both fed presidents said we don't think gradually rolling off the balance sheet will make one bit of difference. do you agree with them? kit: i hope they are right. they are talking a good game. it's hard to be as confident as that, but i think the right thing to do is put your toe in the water. if you did think it was going to disrupt markets significantly, frankly why do it? why not leave the balance sheet for another five years? it's not completely clear to me that that changes anything. testing the waters on a day when all is well the world is not stupid. if it did disrupt the market, the pace at which the balance sheet shrinks gets pretty slow. alix: kit juckes is sticking with us. david, what i don't get is the balance sheet reduction, what does it have to do with growth? i don't get that in my mind. david: they are two separate things. i think that is what they were saying. alix: fair point. coming up tomorrow, kathleen hays will be interviewing james bullard. we know he is a dove, but we want to get into details on his call on inflation. this is bloomberg. ♪ emma: this is "bloomberg daybreak." i'm emma chandra with your bloomberg business flash. billionaire business investor bill ackman has taken his next step in the fight to shakeup adp. he has nominated three people to the board including himself. he says he will hold a public webcast next week to discuss ways of unlocking value at adp. and south africa, the parliament votes today on the motion of no-confidence in president jacob zuma. ballot will be a secret decision, increasing the chances of his ouster. the main opposition filed a no-confidence motion after he fired finance minister cap and gordon. -- catherine gordon. david: for more on that important south african vote, we our reporter in the johannesburg bureau. ?s he going to win or lose arabile: that's exactly what everyone is wondering coul. 201 votes are needed. equations have been put through and 50 members from the ruling african national congress would need to vote in favor of ousting the president jacob zuma and voting them with the opposition members as well. it is an interesting one. expectations are really going back and forth. the anc says they will toe the party line. whether that will be the case with some #women to vote with our conscience is going to be a different story of course. david: they may say they are going to toe the party line, but they will not know who did and didn't. doesn't that make a big difference? arabile: it makes a very big difference. that is why the speaker of parliament says she put the vote forward and that it can be done with a secret ballot. she fears members of parliament may be intimidated to vote in a particular way if this is not a secret ballot. she says it does not set a president -- president. this may be the one opportunity that the opposition members have to oust the president. president jacob zimmer has survived motions of no-confidence. this is the eighth. the reason why this one is so special is because it is a secret ballot. alix: we will be watching that at 8:00 eastern. from johannesburg, thank you very much. still with us is kit juckes. talk about volatility and it's the overnight vol for the dollar rand. we have not seen that spike since early may. what happens to the rand of the vote goes through and he is ousted? kit: the rand rallies. that is clear the markets mind. the market thinks he is unlikely to be ousted. you get a bigger reaction if he is. if he isn't, we will see the rally in the rand gain further momentum were it to happen. alix: i we looking at a break and 13 on dollar rand? kit: i'm not sure there any magic numbers. yes, we probably are. if you look at where the rent has gone this year in the context of global markets, it has underperformed the mexican peso. it's cheating, but it has underperformed the mexican peso by a significant margin. money is looking for positive stories. if you get markets excited about the idea of the future of south african democracy, than i think there's quite a lot further for the rand to go. alix: south africa is a great example of the good and bad of emerging markets. , if itother hand doesn't, there's a potential downside. what areas of emr the best calibrated to take on risk? kit: one where evaluation is attractive and where yields are good in that context. south africa has continued to benefit from attractive valuation. it's also were saying that the appeal at the moment now is that there's no sense of systemic risk. markets, you in get an event in one country and it affects everything else. that so far is not happening at all. if we get a selloff in south africa, it will not cause mexico or brazil or turkey or russia or india to miss a step. i still think that mexico has been the darling. it is the strongest performer. that is not a spence of yet. turkey's cheap. when the party ends, turkey is where it's going to end most. it is still attractive at the moment. ,ou can't go short on brazil but i'm not quite sure i could bring myself to buy it. before we to help me get excited about russia again. david: you mentioned mexico and the pace of. we start negotiations on nafta next wednesday in washington. how sensitive will the peso dollar b to what goes on in washington next week? kit: it still must be. if you look at the selloff from just before the u.s. election and to the end of the year and the skill the rally, i mean your total return so far you today buying the mexican peso and selling for 20% is an incredibly big move. thatreally down to a sense the nafta negotiations won't upset anybody. we must be sensitive. david: kit juckes will be staying with us. coming up tomorrow, facebook coo sheryl sandberg joins emily chang for an exclusive interview at 5:30 p.m. eastern time, ironic given what's going on at google. this is bloomberg. ♪ ♪ this is "bloomberg daybreak," i am alix steel. dumb by three points, small business optimism crusted in july. down joe's -- dow jones flat on the day. we have had a lot of auctions coming, a lot of supply. will there be the demand? in other asset classes, and watching what is going to happen with dollar rand, down .5%. will it move below 13? euro-dollar a little stronger on the day, and aluminum, three-year high, up almost 2%. it is not about oil today. it is really about aluminum and strength from china. let's get some headlines outside in the business world. emma: a draft of a new report ays climate change has had dramatic impact on the u.s.. according to the new york times, the average temperature has risen rapidly and a drastically since 1980. it directly contradicts claims abide president trump and his cabinet. the report will not be released until the trump administration gives it's ok. expanding sections on freezela, the u.s. will assets tied to 10 to 20 people associated with nicolas maduro. agreeing to settle a case that banks rate the libor. berkeley settled a similar claims tw's ago, other banks including jpmorgan, ubs and bank of america remain in the case. in the u.k., the country's most senior judge says there must be clarity on present brexit laws -- on process brexit laws. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg wearied a david? david: continuing on the brexit story, a story on the bloomberg right now tells about another industry, the media industry taking a hard look at whether they will need to move their headquarters out of london to make sure they still have access to the european market. companies such as walt disney, time warner, all could be affected weird we are joined now by founder of wgp. thank you. a lazy tuesday, that's why am on. david: you have a unique perspective. are you seeing -- >> if i look at it, our point of our top 10four of markets, germany, number four, france, number six, spain number 10, italy, number 9, 4 of our markets are european markets. important source of business. in germany they tend to be small , medium-sized agencies. .-basede the e.u competition is using what happened on exit as ammunition. it is important to increase our presence in those markets. likewise for disney, time warner, or discovery, whatever it happens to be. it is very important to maintain the same access appeared it is not sure what is meant by the licensing issue, but in any event, i think at the end of the day what we have to do is to make sure that in those five markets including the u.k., the key markets, that we have a very strong presence. the risk is we lose influence and not just competition saying the british don't want to be members of our club, ignore them. it goes beyond that. we have made acquisitions since brexit in france, germany, italy, and spain him and will continue to do so. the irony about the brexit vote is we have probably become more interested in the continental european markets after brexit, paradoxically. the other thing is, the prime minister has said while she was on holiday that they would restrict movement after march 2019. this is a question how long this transition will be and the nature of it. depends ons diversity, all forms of diversity. and that has to be an issue that is of significant. ironically, as we were saying before we came on air, new york from a banking point of view will benefit the most out of brexit. i'm not sure it's going to be referred, paris, madrid, or dublin. our industry's case, i think it will be more balanced. so, the story you're referring to is probably accurate in the sense that just like us, they will be placing more emphasis on those markets. where above and beyond someone is located in headquarters, what about disruption of trade? if there is a hard brexit, that must disrupt the lives of your clients, not just wpp? martin: it increases levels of uncertainty. i have always said i would like a soft brexit quickly, but it looks like it will be softer, but longer-term, which raises levels of uncertainty to levels -- you have seen what the bank of england has said, there is no doubt that investment has been affected, at the very least, postpone. brexit from an investment point of view is at best neutral, and at worst negative. david: only think about investments, we tend to think about plants. one of the most important things in a company is its brands. are you seeing companies holding off on it investing in their brand? martin: i think there is a strange disconnect between what we see going on in stock markets and in markets in which we deal. it is best summarized by the -- if you look at the s&p 500, where is the top line growth coming from, tech and the hmos? something we discussed at sun valley, if you look at package goods, volume growth is really under pressure. onbest you see 1, 2, 3% price, not volume. everybody knows once oh by them slips, you're in trouble. volumes are flat, up a little bit, or even down a bit. i think the answer to your question is, you have bb,hnological disruption, z in it might be a slack news today, but you have ill ackman -- bill aikman knocking on the door. brexit adds to that uncertainty, but the fundamental issue is that there is a very short-term focus. companies are returning to priceslders with share where they are, with buybacks and dividends -- they pay out more generally over the last five out of eight quarters. i think this is all just indicative of what is happening. on tech, we are seeing significant growth. on some of the hmos we are seeing growth that continues to be pretty vibrant, obviously conditioned by which drugs are approved by the fda. is limited and gdp growth is not strong. >> with all retail sales in july coming in a bit weaker. are joined by kit juckes from socgen. -- by socgen. terms, sterling has fell to the same level last year after the brexit vote as it fell in 2008 as it fell in 19 92 when the u.k. left the exchange rate mechanism here it is really cheap, really know, and london is packed full of americans enjoying that fact. it can't find anything to give goesreason to bounce, it up a little bit when the euro goes up against the dollar, but not much. alix: if we talk about reasons to bounce, we have to talk about the euro. import-export data from germany, also manufacturing data wasn't great. kit, what is holding up the euro? what is going to lead it? going upything is faster than everybody thought, faster than interest rate differentials would justify. i think it is going to break higher when people who are looking to buy at a 117, 116, 1 15 -- when they get panic at buying at 118.5, then we will make the jump to 120. the risk is it can use to do that because the tide has turned on european policy, the tide has turned on european politics, and on the balance of payments in its favor no longer exporting as much capital. is that really good for wpp? translation stearns, yes, but not in real life. we only need 12% of revenues and profits come from the u.k. the rest comes from outside. a week pound is not all bad news, because valuation of the company is in sterling. quote reflects that sterling. from a valuation point of view you get some pickup from that. sir martin sorrell will be staying with us. thank you kit juckes for being with us today. live from new york, this is bloomberg. ♪ ♪ this is,, coming up later bob iger speaks to david westin. that is at 5:30 p.m. eastern time. this is bloomberg. it is not just the retail industry that amazon is taking over, last week we learned that british viewers of tennis would have to tune in to watch andy murray play. how far could amazon go in disrupting media? is sir martin sorrell of wpp. amazon is really encouraging -- martin: i think the had the audio rights. they certainly looked at the italian league -- they have the twitter feed on thursday night -- david: football, that's exactly right. julian: in content -- theyn: in content rights, will be major bidders. not just them, google will applesly develop content, loves suggestions about what apple may or may not do in terms of content, we have seen content already with amazon prime and a series of development of complex rivaling netflix. ,hey are paying more per hour $10 million. david: in part because the business model is so different . they don't have to make it back in advertising. here can -- how can traditional companies compete? martin: we saw coming out of the white house, i think it was, from bannon's mouth something about facebook and google being utilities and therefire they should be regulated like utilities. there was an article in "the times" london talking about market capitalizations for companies that amazon had touched or attacked, very significant changes in market cap. they are going to be a force in content, of course in searches. 55% of u.s. product searches are in this amazon, and last, but not least are on advertising. it might be small now, i think morgan stanley estimated it was $2.5 billion, which i think it is where it is now, which pales in significance to facebook and google, but it is the beginning. so, they are building a significant advertising platform. david: what did that due to your business? if you take the google and facebook, they are dominating -- martin: you see it in the patent of our media investment on behalf of our clients. our portfolio is about 75 billion dollars and the biggest investment is in google, which last week reached just under $6 billion. facebook, $2 billion, facebook will become the second biggest investment this year and they will total well over six in one case and in the other coming up to 2.2.5 2.5. david: you are not preparing ad campaigns? martin: 40% of our revenues -- may not be expensive as you put ads.2nd, 67 tv 40% of our revenues come from digital activities, whether advertising, in media, in data, and public relations -- david: does that squeeze your margins? martin: if you look at history, no. the first question is if you go abroad, are your margins lower, no. the same thing applies to -- and data,d ada, and digital. at margins are resistant and it becomes more labor intensive. have actually been quite strong. the third force of that a lot of people talk about, which is the counter to google and dominance of google and facebook could come from amazon. it could come from snap, the company we invested in app nex us. it will probably go to ipo at some point in the future. everybody is looking for balance here, amazon made proved to be the third horse. interestings a very conversation. thank you so much. martin: thank you. alix: had to bloomberg terminal, check out tv . look at our charts and graphics, interact with us. just go to tv on your terminal. this is bloomberg. ♪ ♪ opec talks continue, meeting in abu dhabi monday. a talk with united arab emirates, kazakhstan, and malaysia, and yesterday we moved to cutopec's production has misfired. >> i think has really misfired. they took too long to implement it and the count was not big enough. i think it would need better to a deeper cut over a shorter window of time. is chrisning us now kettenmann, good to see you. chris: good to see you. of a is this all part better optics of compliance on opec's part? chris: i think focusing on the near term compliance is a little too short term for us here to the biggest overhang is the saudi's trying to manage market share in asia, and trying to ipo the aramco deal for 2018. we are focused on compliance, clearly, they have a goal to keep a bid on the front piece of the futures curve. growth out we expect of the u.s. lower 48 production to continue into next year. in the face of the aramco deal, there are challenges that are not going away. alix: fair point. i want to talk about the curve, taking a look at they bloomberg, it shows the tightness we begin to see. the white line is the price now, versus the price in two months. the price in december is in blue versus the price in december of 2008. the closer you get to the white line, the closer you are to real tightening. this macrofeel like picture is being reflected in the oil price? chris: i think it is. the spread we like to look at is the deepwater mars sours differential. alix: that is some serious nerdiness. chris: we try. it is sour crude out of the gulf of mexico getting pumped into the refinery system. back in 2012-2013 when there was a widespread, refiners were able to buy at discount and create a sour cocktail that backed out mars imports. right now it is trading around a -$.50 differential. i think it is seasonal. i do not think it is showing a longer-term structural tightening in the market. we will see going into the fall. followct refineries to into september and remain cautious. producerss us to u.s. , as long as they pump, they are not going to see that reduction in the market. those are the pure shale plays in the u.s., what did you learn? chris: when you look at a transcript or listen to the conference calls, there are several messages. one, i think the broad message remains efficiency israel, capital efficiency are continuing output while lowering capex. you had a couple of hiccups, .ioneer resources it has checked a little bit of the growth story. as a sure you know, when you get a re-rating of rate of change in in an the growth story -- equity growth story, but the remains the same. technology deployed into the field, real-time data analytics is disruptive technology lowering the breaking. alix: when you had andy hall closing last week, that is capitulation in the market. and equities are showing capitulation. there were quarters not terrible, and stock continues to show coach -- capitulation, do share that view? chris: since april, the equities have been aggressively short. we remain very cautious on the sector. in a $45 to $50 world, the credits can work, but the equity -- thattory and investors are holding onto, a deal theyroken made in june. the deal they did in january was $117 here it in my errands when you go through these phases of -- in a commodity environment where the relationship between the biggest consumer and producer, saudi arabia, fractures whether through technology, there is a lot of smoke and mirrors here it emp managements, opec -- but at the end of the day, the growth story remains challenged. alix: good stuff. chris kettenmann, thank you. coming up, we will talk more about the fed. this is bloomberg. ♪ we check our phones 85 times a day. so it only made sense to create a network that keeps up. introducing xfinity mobile. it combines america's largest, most reliable 4g lte with the most wifi hotspots nationwide. saving you money wherever you check your phone. yeah, even there. see how much you can save when you choose by the gig or unlimited. call, or go to xfinitymobile.com. xfinity mobile. it's a new kind of network designed to save you money. alix: see you in september, two head dubs talk about a balance sheet announcement for next month despite warnings for low inflation. be cautious before it's too late. this adjoins the investors warning on risky assets, and the jacob zuma faces the biggest threat to his eight-year presidency at a parliament secret vote. a very warm welcome to this a look what -- this "bloomberg daybreak." this is where we stand, s&p $3.0.s off about tons of supply this week, yields moving higher and rude flat. you love aluminum. time now for your morning brief. a jobs openings data is, then at 1:00, the u.s. treasury three-yearn off notes. disney reports third quarter results after the close today, 21st century fox comes up tomorrow. has hit 35 record highs this year already. is it all too good to be true? many investors are playing the warning signs. toi do not say it is time get out, i don't say anything about getting out. i say it is a time for caution. buying low and selling high, you're buying high and crossing your angers aired -- crossing your fingers. >> there are warning signs getting darker. it's got a way to go and will affect the outcome significantly. >> at this point i would be moving toward the less risky. >> the terms are going to be lower. >> if we have more the same for the next year, the markets will be lower. >> quite a bit means what? >> 15%. this is not the time that you can buy anything without the risk of it, the time to do that was 18 months ago. positions ing those assets. joining us for more is chief economist krishna memani, cio at oppenheimer funds. are they right? krishna: if the point they are making is valuations are not extraordinarily attractive, i think that has been true or a significant period of time. nextey are saying in the six month, i'm not so sure. the fact that inflation and a policy remain subdued, as long is the case, that's what we're predicting, i don't think that is likely. i think this will be the longest 's nests cycle and the longest the credit cycle any of us has experienced and it doesn't end in 2017, and i don't think it ends in 2018, either. alix: to play devil's advocate, you had a german import -- export a little weaker than purported. how confident are you in that global synchronize recovery? way to go.it has a all of these numbers are noisy. the fundamentals are good and this globalized signalized onufacturing is still first its legs, but that doesn't mean that everything is wonderful. coming back to the u.s. position specifically, i am concerned about markets super complacent about the head. -- about the said. -- about the fed. i'm really nervous what might happen over the fall and winter when we may see a relaxation and wages, which will raise questions about sustainability's of origins and where earnings go next year. david: ian, is that what could deter this synchronize recovery? accelerating wages or something else? it comes to a stop what will bring it to a stop? ian: it is hard to say. i have to say i am expecting growth in china to slow the second half of the year and that will raise questions for manufacturers by the end of the current year or early next year, but nothing like a meltdown year to i think the problem will be a gradual building of adverse factors. it will be higher rates than the growthects, faster wage then markets expect, a bit of a slowdown in china next year, all of those things adding together with a starting point of high valuations in the first place here to that looks toxic to me on a six to 12 month horizon. won't fall term, it apart. i don't think it will be a big correction in the next three to six months, but six to 12 months is the. period i'm worried about. david: does the danger when it does turnaround grow, because spreads get narrower. people are loaning money more and more, maybe under risky situations? when it turns around does it hurt us more? i think valuations themselves don't kill a market, what kills the market is the imbalances in the economy itself your i think in the current environment things to fall apart what you have to see is a credit growth trend that is substantially higher than where it is right now. credit is going, that is good, because that is how economies grow, but not growing at a pace that is extraordinary high. until that happens, the fact that spreads are tight doesn't lead to an unwind. the key thing to remember is the fact that emerging markets away from china are getting in the groove. for the longest time, the driver was chinain the world and what china did with respect to policy initiatives, things that they dumped in the market from a credit growth standpoint, things like that. that is not the case anymore. china slows down, there is enough momentum in other parts of the markets to support it. i think today in the world, you are not dependent on china and the u.s. to drive growth. you are looking at emerging markets away from china and decent recovery in europe or support of global growth far more than u.s. and china? alix: how much risk do you take on and where? very goodhat is a question. the valuations are not attractive enough to you to take a lot of risk, but they are not -- the markets are not going to turn tomorrow for you not to take enough risk. nowe we are focused right is really in emerging markets and international equities. we think valuations in those places are not as attractive anymore as they were the beginning of the year, but still attractive relative to the u.s. and the momentum -- the economic momentum is highly supportive of this. we like emerging-market debt primarily because we don't think the dollar is going to strengthen, so higher yields you have overseas you have a shot of turning them into real yields in dollar terms here it those of the two areas we are focused on. david: where does it make sense to take risk? where do you think you're getting paid for the risk right now? ian: this makes me nervous, because if i'm right, we're going to see over the next 3, 6, 12 months reevaluation of what the fed is going to do. right, if rates rise significantly next year, the rates rise,is when money leaves emerging markets the matter what. depending oneave political situations in the various other factors, but broadly when the fed is raising rates faster than expected, money leaves the market. that seems to say that what looks like super attractive yields actually looks like capital losses later on. the comes a point in most investment cycles where you have to start thinking the return on capital is less important. becomes moreything important. over the last year or so with that has been an unfashionable notion. anybody with that mindset has lost money or underperformed, but there will come a time if i am right where you have to think where him by going to lose the least money. that tends to be true more so at home than abroad. if the fed raises rates i hundred 50 basis points, the market today doesn't expect anything like that -- i think it is the most likely outcome and a gulfts a goulf -- between what i am looking at at the moment. david: both of your staying with us. coming up next week some important guest will be here, jeff three of goldman sachs, libby cantrell of pimco, and more. live from new york and london, this is bloomberg. ♪ ♪ this is bloomberg. i'm david westin. address isoves, both softening inflation data yesterday. >> we were telling a story that inflation was gradually going to return to target, and on this measure you can see the gradual return to target. it seemed to be going according to plan until we got to this year and this year this number has fallen way off, at least on the scale that you have here. this number has fallen quite a ways off. upinflation has been coming short, relative to our 2% target. that actually matters. you think 1.5 is not a big deal, it actually matters that investors believe the fed can achieve its goals. david: still with us are and shepardson and krishna memani here in the studio in new york. i want to talk about you are concerned about the fed moving fast in the markets but that it might have negative effects. did the soft and laois and data give you -- soft inflation data give you some solace? ian: in the short-term, yes. there is no question that the inflation numbers are killing talk of a september rate hike and the next new move will be in december. the between now and then i think we will see strong labor reports . i think that continues. i think the unemployment rate continues to fall and by december we could be looking at a sub or percent -- sub 4% rate. no one on the fed believes that's sustainable. at will push them to raise rates again. from a hawkish perspective it is giving them leaving room, from the dove is perspective, perhaps cause for alarm. nobody expected inflation to be weakening. -- in heren has been point of view that it is bigorary, but it is quite and has lasted a while. i think it gives the fed a chance to look at the next run of numbers, make sure the trend flattens again and may be picks up a little bit. and on the back of the labor market may be raising rates again, but there is no question that three to four to five months ago, nobody expected to be dealing with this. the labor market is doing the work, inflation picking up, and now we have uncertainty. that is a new thing. key point.at is the cree i agree with ian. if labor accelerates, and the fed is more aggressive, we will have problems of the market. how much problems, we can debate. but the market will not be at the same level of -- having said that, the surprise has been that the inflation has not picked up. even janet yellen categorizing it as temporary has kind of changed her tune a little bit in her later testimonies. i think the proof point of all of this happens to be the dollar. we have a market metric. if this market is going to be in trouble, we have to see a dollar appreciating and appreciating meaningfully. we don't see any evidence of that and i hope from a worker's right and wean is do see wage inflation going up and solving longer-term problems rather than the market problems. but today, how things look over the next six months, that doesn't seem likely. reducing exposure ahead just with that expectation has been a bad trade for the last six month, nine months, a year. alix: i want to illustrate what you're talking about. difference in expectations, the green line is the fed and the white line is expectation. ian is the gap that talking about. when you take a look at this chart, how much repricing can the market handle? can we get to 150? where does it get dicey for you? krishna: i think if the fed is right, the markets will have trouble. alix: maybe half right? krishna: if valuations are rich enough for that to be at the case, but the fed has been wrong, the markets have been right. that is the difference in this cycle than has been in the past. last question. in determining which of these paths we end up on, you were describing what was happening in the fall, you said a lot of people would get higher, you did not mention wage pressure. if we are firing a lot of people, but there isn't wage pressure, what will the fed do? the profile for next year probably looks flatter. at the time we get to december, or march, the next potential hike date, i think we will see growth. we can see a real tightening in cycle highs for their hiring intentions and difficulties their reporting and finding new people. seems to be correlating with future wage growth. i think we are approaching a tipping point a long time coming, but nothing gets the fed hiking faster than an acceleration and wage growth. market perceptions will change quickly and today's valuations will look challenged. that is a big threat. -- botht comments asian of you are sticking with us. coming up tomorrow, kathleen hays will interview james bullard. a spoiler, he is dovish. this is bloomberg. ♪ ♪ your i'm emma chandra with business flash. cvs beat estimates, the company said its -- were drug orders. drugsriced specialty helped cbs a boost sales. american the medical response acquired at $2.4 billion in cash. it will be combined with air magical group. gundlach once to keep his funds at 100 $10 are now billion. he says he has been turning money away. that attitude is out of step with an industry that prioritizes asset growth. alix: thank you so much. i found that interesting, david. you hear a lot about scaling up, he said i would rather own 10 $15 billion funds. david: you look at vanguard, blackrock, they have the opposite approach. alix: exactly. the story, reading you think that guy is a so smart. it is a better strategy? just strategyiven and investing and mortgages, you run out of space. he is being there to his shareholders -- being very fair to his shareholders. david: if you don't watch out, you end up making bad deals. let's turn to president donald trump. while he is on working vacation in new jersey, he left behind council director gary cohn. he will continue working on the tax plan promised for early in the fall. a bloomberg report overnight will haveption corporate tax cuts that are permanent lawmaking individual tax cuts temporary so they can comply with complex reconciliation roles. joining us are chris kettenmann and krishna memani. if at all, do, you take into account a tax cut package coming out of this administration? ian: i have long assumed they would do something. but how quickly you would do it have diminished over the course of the year as you might imagine given that chaos in congress. i'm assuming there will be something next year, but may be a quarter percent of gdp or if you look at trump's pre-election plans, the first year of his administration he hoped to cut taxes by 2% of gdp, that would be crazy given the strength of the economy, but just to illustrate the gap between what he said he will do and what is likely to happen is very big. gdp taxt .25 percent cut i'm expecting, we know how fractured congress is and how difficult it is to tie together the left in the right and senate. it is highly possible in six months from now, nothing will have happened. isid: if he's right and it .25% rather than 2%, are we better off with a smaller tax cut we can afford then a bigger one we have to borrow money for? krishna: are you trying to solve the economy problem or the marke problem? ian is right, right now when we came in here we were thinking big tax cuts. the trump administration came out with the puzzles that were unrealistic and expecting anything of that magnitude was like that was going to happen. i think right now, it is modest, it doesn't change the trajectory of the economy for it to change the trajectory of the economy we would need deficit widening cuts for infrastructure spending. alix: when you talk to strategist who are bullish on strategies they say profit margins are great, demand is trucking along. you agree with that characterization of the u.s. economy? in the short-term, yes. the tax cuts will make a difference if they come through on that scale i am expecting. it is guys are right, about earnings momentum rather than tax cuts more recently. a tax cutsblem with is at all as janet yellen pointed out in december before she became more circumspect. not need fiscal stimulus at this point. the danger is if we get tax cuts, more than .2 5% than i'm looking for, then the fed response will be higher interest rates were quickly. it could become a self-defeating exercise at the same time businesses suffer margin compression from faster wage growth. at the moment the sky looks clear blue, but i think we have to lift our eyes from the current page and look ahead a few pages, where are we going to be six to nine months from now if we have wage acceleration and the fed being more aggressive? alix: grace of god. thank you -- great stuff guys, thank you. next, julian emanuel. this is bloomberg. ♪ alix: this is bloomberg daybreak. i am alix steel. here is where we are stacked up. equity futures modestly lower, down by three points despite the fact that all business optimism index really killed it, coming in strong. euro stoxx taking it lower down by 2/10 of 1%. not a lot of action in the treasury market. tons of supply coming on this week so how will they fare in light of that? in other asset classes, i am watching oil but aluminum is catching my eye, the highest level in three years. you have the dollar moderately weaker across the board with the exception of the dollar rand. that is downright -- down by 4/10 of 1%. somewhat of a rally as we had a vote under way. a no-confidence vote for president zuma. now let's get an update on headlights outside the business world. emma chandra is here. >> on capitol hill, republicans are discussing a compromise when it comes to overhauling the tax list him. -- system. they are talking about permanent revisions or temporary rate cuts to individuals and businesses. they are trying to change the tax code. aesident trump plans to wait week before going ahead with the trade investigation of china. according to officials, that is because china supported those united nations security council sessions on north korea. is concernedse about possible chinese violations of international test of intellectual property laws. in south africa, that parliament votes on a session of no confidence on president jacob zuma. oppositiona's main filed for the no-confidence motion. global news 24 hours a day powered by more than 2700 and analysts in more than 120 countries. i am emma chandra. this is bloomberg. alix: for more on that south african vote, we are joined by -- in our bureau. what is this boat about? >> into the boat, opposition members are arguing or debating the course for south africa's leadership. the motion of no-confidence in the president entails, basically, the opposition leadership saying the president is not a legitimate one and does not deserve to be in power so essentially, they believe the corruption he has left in his 10 has led to tenure south africa being in a precarious situation, that is with certainus agencies. we are in a recession as well what south africa not seeing positive moves with where guard to the president's tenure. south africa is not currently being led by a leader that the opposition leaders believe is the right person for the country. so the motion is hoping to get him out and get him knew leadership for the country. survived sixe has votes. this is different because it is secret but still, 50 people of his own party would have to vote against him. what is the probability of those numbers happening? >> we have seen quite a number of members of parliament coming out and becoming quite vocal in staging the clear need to vote with your conscience on this satellite theo to future of south africa's economy. the likelihood, we are not sure. the numbers can be crunched, the assumptions can be put forward, but what really happens behind that ballot paper is one that will only rest between that member of parliament and that ballot paper, itself. there are not any official numbers or official polls that we can put forth but there is one that will be closely watched. it is scheduled to last a total of 85 minutes. david: we talked about what happens if he loses the no-confidence vote, the rent will shoot up. what happens if he wins? will it be more of the same or is it likely that he will undertake some reforms and changes in his government? >> it is unlikely to have any sort of changes. the status quo is expected to be maintained. if he does see a few of his members vote in favor of the motion of no-confidence, one might speculate that we may see a few changes with regards to the cabinet and who the ministers are but of course, you won't know who those members are that voted in favor of that motion of no-confidence, outside of those who have become quite vocal as well. as you said, the rand may comess, and if this does forward and the vote goes in favor of ousting the president, but whether that really is the case is one that nobody really can tell. at present, they are debating that point. it does seem high that a lot of mps just before the motion was put in parliament right now, that we have a meeting should tell the party line. it is interesting to find out what happens. alix: thank you so much. in johannesburg. low for the, awful session. definitely some of that. krishna memani of oppenheimer funds still with us. you laid out your thesis for investing in south africa, is south africa in it? >> south africa and turkey were the disappointing markets over the last two years. everything was bottoming out. even turkey has turned. i am hoping this is south africa's turn and hopefully if they can get this political issue behind them and change from a policy standpoint, i think of south africa as some really nice company that you would love to buy. alix: part of the for emerging markets is that as inflation is in check, central banks will have the room to cut and that will have the rate higher for emerging markets. what emerging markets still have that capability? >> it is across the board so you have places like india and indonesia, all sorts of places in brazil, i think the key thing is emerging-market policy went haywire in the early part of the recovery. we bottomed out in the last few years and we are in the growth phase. we are across the tipping point and emerging-market growth looks better, accelerating even without china. that is the key for emerging-market equities. alix: joining us from london is kevin daly, senior invest in -- investment manager. if wes the downside risk do get a vote against president zuma? >> if we get a vote against zuma, you are talking about the rand going to a significant rally so in one way we would see rand crushing through 13th and maybe approaching 12. if the vote does not pass, we will see modest weakening. on the back of the announcement yesterday, it would be a secret ballot. alix: what is the longer term weighing on the short-term vote? what are the fundamental issues that even a new president might have problems dealing with? the moody's review theuse that could downgrade currency rating and put it one notch away from losing its world government bond indices standing and that would be negative for rates. if you look at the bigger picture in south africa, you still have a lack of growth, , ae very persistent deficit country where debt levels are creeping higher and it is already losing its investment grade rating on an external debt and to lose it on its local debt rating, that could have significant financing issues for the government given the loss of the index status. clearly, a new president -- which is not going to happen now for another year and change -- still has a lot of issues to address. short-term, we are still looking at a lot of headwind. jonathan: speaking more broadly about emerging markets, there was a time where you distinguished between commodity-based emerging markets and non-. is that still relevant thinking about investments? >> it is to some extent but the commodity stories for emerging markets going to be relevant and the fact that commodities are -- as strong as they were earlier -- remains an issue that the market has to deal with. having said that, domestic demand in a lot of these emerging markets is improving and the reason to invest in emerging markets because of that rather than their exports >>. i am glad you raised that question. in venezuela, we see the revelation -- the relationship between politics upending and commodities erupting. venezuela's government debt is trading at 40% on the dollar. in 2035, that blue line is trading just above $.40 on the dollar. complete destruction on the bond market. aberdeen had owned sovereign debt in 2010. you do own some bonds. what is the trade inventor -- trade in venezuela now? >> you are investing in low dollar bonds on the expectation that they are going to continue to service their debt. whether it takes to service their debt. if they are no longer able to service your debt expectations are that you could have a potential recovery value in venezuela bonds which is higher than where the existing prices are. that couldcenarios play out in terms of how long it could take for a restructure and take place in venezuela. the bottom line is, we don't have a lot of exposure. it is very small. going forward, there is a lot of uncertainty. hard to say how it is going to play out. for: what is your base cage u.s. sanctions? we could get more of the big questions that come up and prohibit oil imports in venezuela in the u.s. what do you think? >> the big issue is if they play sanctions on venezuela or enforced into the u.s. it could potentially trigger a default on their debt and that is going to create a number of problems for venezuela. number one is they depend on the revenues from oil exports and venezuela imports everything so without having access to the hard currency, the economy will collapse. this could accelerate the political prices that is -- crisis that is unfolding as we speak. it is not going to be a pretty sight and it would not be an positive for the administration but it is hard to say the u.s. will do that because there is already implications for u.s. gasoline prices as well so it is a difficult call. we don't know what will happen. david: kevin daly of aberdeen and krishnament memani are going to be with us today. later today i will sit down with bob iger, walt disney chairman and the io. live from new york, this is bloomberg. ♪ >> this is bloomberg daybreak. i'm emma chandra in this is the hewlett-packard enterprise greenroom. tomorrow, facebook coo sheryl sandberg joined stephanie chang for an exclusive interview. now, to your bloomberg business flash. say the fight with adp will convert the company from running his business. ackman has taken a stake in adp and once steeds -- seats on the board. >> i would say that i have seen the best of activism and the worst of activism for the same firms. i look at activism as an individual situation, one at a time. the growing skepticism, the maturing optimism and the euphoria. i see little signs of euphoria. the individual is not heavily participating in the market. >> he said investors have to be patient. steelrld's largest producer is keeping at home. chinese exports frank, and selling domestically seems to be benefiting. steel mills took booming demand. david: when president trump took office he promised a dramatic overhaul of u.s. trade relations but now, 200 days into his term, some companies are expressing frustration with the pace of change according to a report of this morning in the washington post. wetell us where we stand, turn to kevin cirilli, chief washington for respondent desk correspondent. in the section 301 action, it was threatened against china involving intellectual property. now it doesn't seem to be happening. what is going on? kevin: there is such disagreement on how they plan to move forward. wilbur ross had hoped that he would be able to do this by the end of last month. but since then, he has since walked forward and he will wait until president trump makes a decision. they continuously push this down the line. david: there was also the 232 action involving steel, not just from china but including china. china is exporting somewhat less . that has been sitting on the president's desk for some time. kevin: same situation with that. it hasn't started to produce their steel which of course, has some people concerned in various different industries. when you take a broader step back, the administration is on foreignse china policy and i spoke with some sources last week who said that a cardally think this is president trump wants to be able to hold onto, should he be able heplay it at a time in which might need to impose new tariffs on china should the relationship it tested. david: what is reminded is health care is more complicated than he realized. maybe trade is too. alix: on trade and u.s. versus china, this is the percentage of steel imports we get from china. just around 2%. think of it when it was 25% in 2008. joining us for more is krishna memani of oppenheimer funds and kevin daly of asset managements. when you want to get leadership wantd.c., is this what you talking about steel imports from china? krishna memani: i think if the trump administration was going to be more aggressive on the trade front, i think that will create a problem for the markets overall. they went back from the initial position that they have carved out during the election and after the election, i think is one of the reasons the markets are doing as well as they are. global trade and growth in global trade is an important thing for the global economy to continue to grow the way it is. any dangerous moves on the trade front, i think, would be bad for markets. alix: what is your base case now, kevin? after the election it was about selling the peso and freaking out about china because of the potential trade war. has that changed? kevin daly: the base case hasn't changed because the u.s. government clearly is in negotiations on nafta with mexico and that will take time. there has been no initial surprises in the initial proposal that was made so that is good news. as far as china goes, i agree with what has been said earlier, that trump is likely to use this as a foreign-policy tool in terms of cracking down on chinese trade and, realistically, this is low hanging fruit to impose tariffs on chinese steel imports. this point, it is a foreign-policy tool they are waiting to use or waiting to play out and see how china responds to the ongoing threats happening from north korea. we really don't have any clarity on that so it is hard to come up with a base case on that. the market reaction clearly would be negative, initially, if there was trade sanctions on china. you would see asia fx weaken against the dollar and also em fx because it would be a knee-jerk reaction. from a market standpoint, it would be negative but at this point, you could say the markets -- the bark has been worse than the bite. david: kevin daly, i wonder if there is possibility the president is actually being clever, saying to talk really boldly, maybe change some patterns that maybe should be changed without actually disrupting trade. you saw a version of that with the currency manipulation. -- he one, he declared said he was going to declare china a currency manipulator but it never happened but it might have an effect without changing the rules. kevin daly: going back to his initial campaign pledge to brand china a currency manipulator, that didn't happen. imposegoing to significant tariffs on imports from mexico, china, and that hasn't happened. we are looking at a different situation where negotiating being done in closed doors and we don't have any clarity on that. as an investor, you would hope it invests -- hope for the best and wait for the worst and the worst would obviously be a change in asset negotiations where there is more stringent restrictions placed on imports from mexico which would then have an impact on the mexican peso. if you look at the performance of the peso, it is a surprise to everyone's expectations in terms of how well it was done. you can see markets continue to .odels -- to muddle through we are not expecting any sharp changes in policy but it could happen at some point down the road someone has to be nimble. alix: krishna armani -- krishna youni, kevin daly, thank very much. if you have a terminal, click on our charts and graphics and interact with us directly. go to tv on your terminal, click on the side and rewatch any segment you might have missed. this is bloomberg. ♪ david: this is bloomberg. of ae right in the middle big week for media earnings with cbs reporting last night, disney coming up today and 21st century fox reporting tomorrow but much of the news has been taken up with that notorious memorandum written by a google employee questioning the company's efforts to include more women in the company. google repudiated a memo and late yesterday, we learned the author had been fired. he says he is considering legal action. joining us is paul sweeney, our legal expert from bloomberg intelligence. so what do you make of this? is this unique to google? paul: across silicon valley, all the companies will tell you the same thing. one of the biggest problems they had is attracting engineering talent. they scour the globe looking for the right engineering talent and that drives these companies. by and large across the valley, they have embraced diversity for a variety of reasons, not the least of which is it is good business. david: but how can it be that having scoured the world, 80% of their talent are male and 20% -- in the world, the proportions don't break down that way. >> on the engineering side of the business, they tend to skew male and we have heard from the facebook's of the world and the googles and the microsoft's over the past 20 years, the challenge for them to find a more diverse engineering workforce, that has been a challenge. they put programs in place to bring in different types of engineers into the companies but it has remained a challenge across the industry. not just for google. on the one hand, you have the battle for diversity and you also have the right of people to speak and say what they want to think. alix: that brings up whether he should have been fired and if the lawsuit should go through. look, would aay, conservative be welcome in your company? your culture does not work for a large portion of the country. how big of an issue is that for silicon valley? paul: it is an issue at silicon valley in that they are progressive in their views and so oftentimes, that can be a challenge in the workplace. here is a perfect example, the free speech issue. david: but that is where you get tricky. free speech is against the government and not the company. the fact is, there is no law saying the company has to be tolerant. alix: but you could also argue you could have some hr training or some intervention before you resort to something so extreme. if it was more of a leftist view, we be thinking, can you imagine he got fired? go out to these companies and it is all about employee morale and it is a challenging issue for them. david: that is for sure. paul sweeney of bloomberg intelligence, he will be back with us next hour to talk about earnings. later today, we talked to bob iger, walt disney chairman and ceo. that is that 5:30. this is bloomberg. ♪ alix: see you in september. greend doves top off the light for balance sheets next month despite warning of low inflation's. double lines jeffrey gun lock says be cautious before it is too late. joining a growing chorus of investors warning on risky assets and lights, camera, earnings. cbs advertising slump busted after college basketball. the spotlight turns to the mouse house as disney reports after the flow. david: the mouse house? the walt disney company? oh my. alix: welcome to bloomberg daybreak on this tuesday. i am alix steel alongside david westin. jonathan ferro is off today. 30 minutes until the opening bell. s&p futures flat across the board. the weaker dollar persists, up by 2/10 of 1%. treasury markets not going anywhere, a lot of supply in the next three days. crude is softer while aluminum take the spotlight in a three-year high. now over to julie hyman for the stoxx and then write ahead of the u.s. open. >> about the mouse house, i wasn't sure how i felt about lights, camera, earnings. >> [laughter] >> i can't write that funny. >> i enjoyed all of that. let's look at what is going on with auto rental companies. we had avis out with its company, hertz is out tomorrow. both of these companies have been feeling pain as a result of uber and lyft. member, they sell some of their fleet, that is one of their sources of revenue. has mentioned, hertz the third highest short interest in the russell 3000 so we are not seeing high at dictations but shares are higher this is taking aavis hit, starting down considerably this year. speaking of which, the hospitals . tennessee is the latest the come out with disappointing numbers. they have uniformly come out of below estimates. they also trailing assets for revenue. sales,g $19.4 billion in analysts were looking for $19.8 billion. admissions are down 1.4%. cash flow is down 31% at tenet healthcare and what happens with health care legislation, if anything, could have an effect on this possible chain in the others depend on how much they get a reimbursement. that is doingtock quite well on earnings this morning and that is michael cores. the company has been picking up .tores -- fixing up stores over discounts have been an issue in this industry. they added stores, planning to shut more than a thousand locations and analysts have been estimating even worse, a drop of 8.9%. michael kors also raising its forecast, those shares up 16 and a half percent and it is pulling up its competitors. alix: thanks so much. nine straight record closes for the dow. 35 total in 2017. investment grade yields, the vix is low, and is all this too good to be true? many investors are starting to believe so. it is time toy get out, i don't say anything about getting out. it is a time for caution. >> instead of buying low and selling high, you are buying high and crossing your fingers. >> there are some warning signs that are getting darker. >> we have a bond market bubble which is in the process of deflating. we just got a way to go and it is going to affect the outlook significantly. at this point, i would be moving towards the less risky. >> if we have more of the same for the next year, the markets are going to be lower. >> if they will be quite a bit lower. >> 15%. david: joining their ranks, jeff gunlock who says this is the time of year you can buy anything without worrying about the risk of it. the time to do that was 15 months ago. julian us now is emanuel. you say you have the lowest forecast for the s&p. do you agree with the warnings? >> you have to think about this in terms of timeframe. measure your investment returns in weeks or months, we think it is a time to be cautious. volatility is very low. we have gotten here based on earnings growth which we have had, which we think is reasonably well discounted. low discount rates are going to ,hange over the course of time and of course, the belief that there is going to be some form of policy boost to the economy and the market. so we are waiting for that. simply put, whether you measure risk in terms of the daily moves which is a the vix very common indicator, or the 10 year treasury market, this risk perception is very low and there are a lot of reasons to think the market might be disrupted come the fall. alix: if you look at the s&p ten-day volatility, it shows the lack of volatility that you have seen that the issue is, ok, say you want to get cautious. how do you offload risky assets? which one do you do when you are looking at weaker returns? how do you justify going into lower yield assets? >> this is the year where what we have seen, even though the money continues to move, is passive investing. what we see is this took many people by surprise. active managers have actually outperformed so this is a time to look at your portfolio, think about what you thought was going to happen to your names, your sectors, and stress test your beliefs. being derivative strategists as well as equities strategists, it is a very good time to think about protecting in terms of using options, either replacing your stock with call options or put options. if you are thinking long-term, the thing to do is to just sit and wait it out and be prepared to buy then. david: what in your dashboard is telling you it is time to be very cautious, not just cautious but really worried? what is the canary in the mine shaft? >> the canary in the mine shaft is the economy. the coal mine. the police. they weren't in the mouse house. david: call mine is actually a shaft. that is how you get the coal out of the mine. >> exactly. to us, it is really all about the economy and earnings. if you look back over the last 30 years or so, there has never been a bull market top that hasn't had a recession start within 12 months of that top. and when we look out over this year and into 2018, we don't see that. so to expect more volatility given that chart, around 2% or is reasonable and more volatility tends to equate with stocks falling back but again, the long-term picture is undisturbed. david: so you look at the volatility as one of the indicators. >> absolutely. when you are thinking about the economy in the short term, you want to look at the isn report, the jobless claims on the weekly none of which are signaling red lights at all. jonathan: we actually talked to aishna memani and he had similar view. the question becomes when does the cycle and? this is what he had to say. krishna memani: we are going to have a correctional for the next three to six months? i am not so sure. the driver of the markets is the inflation, and therefore policy, remains subdued. as long as that is the case, the likelihood that we see the end of the cycle which is what they are predicting, i don't think that is likely. this is going to be the longest business cycle and therefore the longest credit cycle any of us have ever experienced and it does not end in 2017 and i don't think it ends in 2018. alix: when do you think it ends? >> if you think about what he said and you think about the fact that the fed and the rest of the world's central banks have kept interest rates as low as they have for a very long period of time, even though they are rising, it makes sense that that prolonged. of monetary stimulus would cause a prolonged period of expansion at a less vigorous pace than we are accustomed to. alix: is it going to be fed tightening more than market expectation in the ecb? is that the trigger that you have to buy that? >> look back over 60 or 70 years worth of market history in the fed tightening excessively tends to end most markets. you look back in the 2004, 2006 cycle. 17 executive tightening. it took a year and a half what you had it there. at some point, we will get to that what it doesn't look like 18 is the year. we will just have to see how the economy evolves next year to think about whether 19 is the year. david: julian emanuel will be staying with us. coming up, a big line of guests. jeff terry of goldman sachs, stephen hawks of federated investors and libby cantrell of simcoe. this is bloomberg. ♪ david: this is bloomberg. i am david westin. the deflation gauge does not seem to be there. we heard from two fed president's yesterday, james bullard in -- and neel kashkari in minneapolis. they said inflation is a problem. >> we were telling a story and inflation was going to gradually return to target and especially in this measure, you can he be gradual return to target. it seemed to be going according to plan until we got to this year and this year, this number has fallen way off. at least on the scale you've got here. >> inflation has been coming up short, a little low relative to our 2% target. that matters. you think 1.5 is not a big deal but it actually matters that investors believe the fed can achieve its goals. david: still with us is julian emanuel of ubs. we are hearing from fed presidents, these two dubs, that we don't have the inflation data. go back to before the break. you were saying what could turn things around is that the fed moves too quickly. does that mean week inflation is encouraging to you? julian emanuel: i wouldn't put it that way. seeink what you want to is over the next month, how this course develops. you put out the doves yesterday and we probably want the jacks in the whole, but then, the fed meats in september and there is this push and pull between the whole idea of normalizing rates, whether you do that really just to return to a path or gather more ammunition for the next downturn. is atct of the matter this point, the market doesn't believe that the fed is going to hike again this year. therein lies the potential difference that we saw in march when the fed boosted people's expectations in a matter of hours. we really have to see how the discourse goes. david: is there an irony here that is more deep and broad? we have central banks at the beginning of this, back in 2009, if you asked, they would say they could affect inflation. i'm not sure they could affect employment. the united in states, it looks like they can affect employment but they are not having any particular effect on inflation. how troubling is that? julian emanuel: this is the part of the 21st-century economy that i think continues to be a mystery. how is it that technological progress and things that we have son with retail so on and forth, all of these things are leading into a bit of the unknown in a world where we are still recovering from the debt binge before the financial crisis. these are issues that i think are not going to go away and we will be talking about them 10 years from now. alix: when i have a hard time understanding is you have the doves say balance sheet in september but they are still about inflation. you have balance sheet reductions on growth. i don't get it. >> i think you have come to the point where the fed believes that it can reduce the balance sheet gradually, call it in the background. they have actually use that phrase. metronome. .- metronomically there is this discomfort with exposure in the view is there is something that can happen without disturbing the rest of the economy. alix: but i don't buy it. take a look at the terminal. this is euro-dollar. that is the blue line. the yellow line is spread for the 10 year in the white line is ust spread for the two-year. the idea is, when you have the dollar on the short end, more exposed to rates, versus the long end, that is not true. much morend is correlated with the actual currency news, meaning any kind of balance sheet reduction could be instructive for the currency. >> that is possible. i would say when you think about this, the euro is a bit of a different story. it is very much dependent on this notion that the economy has surprised the upside to a much greater degree than has the u.s.. if you have -- if you ask people if the gdp of the eurozone and the u.s. were close to parity with each other, i think people would have thought that not likely and that is why we are seeing the type of strength we are. david: walk me through what alix is talking about because it does seem to me that the fed is regarding the balance sheets as separate from rates. if they pull back on the balance sheet, that means there are fewer people buying. that means the price of those goes down. sorry, the price goes up, and the yield goes down. what does that have on the economy? what does that do to inflation? julian emanuel: again, because we are in an environment where, if you look at the last year and part of the reason that volatility has sunk the way it has, we made a global low in yields at the end of last year and we were range trading as opposed to going towards 3%, it is not entirely clear exactly how that effect is going to be. what does happen is if we get --icy stimulus that is not itt expands the deficit, as seems is more likely, that is the type of effect that really causes yields to move up. paradoxically, that is also the type of effect that may cause inflation expectations arise as well. we think there is going to be tax reform. alix: reform? julian emanuel: you may get elements of both. we heard today that they were talking about elements of both. if you get tax reform, confidence has been so strong we saw it again this morning that even if we don't get tax reform in the 15-20% corporate rates that has been talked about, you still have the potential for tax reform that continues to boost confidence and therefore allows multiple -- alix: julian emanuel of ubs, great stuff. tomorrow, bloomberg's kathleen hays will interview st. louis fed president james bullard. he is dovish but you want to hear what he has to say on the mutual interest rate as well as balance sheet reduction. this is bloomberg. ♪ >> it is the story we all know. record highs in equities, record lows in all of the gauges of volatility. wall street is two points shy of its all-time low. look at the bloomberg. we are very much below the average. you have that orange line where we are now, the blue line the average from 1990 to 2016. we are well below the average and we tend to see the pickup in july through the end of october. will we see that this time? joining us for more is julian emanuel of ubs. julian emanuel: we think we will. we have. if you look at the last several months, we have had a series of one-day wonders, where back in , theyou had the fix up 50% fbi director was let go, it came back. we think when you look at it, the catalysts are threefold. you've got to deal with the budget, you got to deal with the debt ceiling and then there is the fed. as we said earlier, that will develop in terms of discourse. a lot of the potentials here is if the fed does insist on hiking and ubs time in 2017 believes that is the case, the markets may not be prepared. alix: when people talk about why they like u.s. equities, they talk about the underlying micro fundamentals that when you talk about volatility, it is the mac wrote but the macro is not leading the micro or individual stocks. why is that going on the downside or upside? julian emanuel: you are at a point where, if we were at 17 or 16 times failing earnings as opposed to 20 times failing earnings, almost 19 times forward, or at a volatility level more consistent -- not even necessarily the average calling 16, 17, 18 -- if we were at 11 or 12 or 13, we might be less concerned but this is a time of year, traditionally, where september tends to have a pickup in volatility. september, in fact, is statistically, the weakest month of the year. the only negative return month since world war ii. we think that for the most part, investors have done a very good job of discounting politics completely from their calculations over the last several months in the markets are showing it but that sort of calculation has overshot and you do have politics staring straight in front of you over the next several months. alix: what happens to correlation and dispersion? what happened there? julian emanuel: that is another very interesting story. correlation really is at an all-time low but interestingly enough, it has happened more so because the sectors have moved separately because passive investing has gone largely into etf's. that having been said, there will still be dispersion of a kind where even if correlations pickup from the close, which happens when the markets become more volatile, they are still going to be able to add alpha. david: let's assume there is a debt crisis or a problem funding the government, a geopolitical issue that could disrupt. could that affect correlation in the stock market? julian emanuel: very much so, particularly to the event we have seen treasury bill yields creep up over the course of the where theand around government funding may run out. the answer is yes, because if you are in a stressed environment for rates, you could see the same stressed in interest rate sector that is sensitive to utilities the way you might in technology. alix: good stuff, julian emanuel. you will be sticking with us getting deeper into earnings. the opening bell is four minutes away on this sleepy monday. here is where we are stacked up. futures off by three points, the dow jones off by 16. european stocks off by 3/10 of 1%. the 10 year yield is up by one basis point. they will do a heavy issuance of the 10 and 30 year. that is weighing on the treasuries. coming up. options in other asset classes, a softer dollar, particularly watching dollar-south african rand, down by 2/10 of 1%. the vote of no-confidence underway in parliament is a secret. will president zuma keep his job? 1% butown by a tenths of aluminum takes the spotlight, three-year high. this is bloomberg. ♪ is this a phone? or a little internet machine? 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[ laughing ] so all you pay for is data. see how much you can save. choose by the gig or unlimited. call or go to xfinitymobile.com introducing xfinity mobile. a new kind of network designed to save you money. >> this is bloomberg daybreak rated where moments away from the opening bell. you have futures down by 18 points. nasdaq down by the most. down 1/10 ofllar 1%. selling happening in the treasury market. all of that weighing in the market. crude down a 10th of 1%, but now the market officially open. was one of the weaknesses for stocks yesterday. newsve some earnings weighing so the dow ending its winning streak, at least for the moment. the s&p 500 also closed yesterday at a record high. all of them are pulling back, although not by much. disappointed earnings reports. cbs down. down and thaties appears to the the source of the stock this morning. 17% and they will beat its goal of paying down $5 million. and cyber jim, a $2 billion company. it is more effective than products and a 53% gain in the this morning. take a look at the bloomberg here. the recentt during burning season. we generally see the s&p rise during earnings season. been mored of sideways. strong aot seen as performance during the season -- despite the fact the company continues to beat at a high rate. earnings growth in the double digits for the second straight quarter. >> really interesting there. >> also come on and emmanuel. i find that interesting because we have not revised down any guidance. >> i think a lot of that is we rally prior to the start of earnings season which has not so iterribly typical really factors into a greater extent. if you look him of the sector that has been the strongest earnings for former, particularly this quarter, there have been what we think are , so thatidual jitters sort of explains the more did reaction. >> angela merkel came out and said -- it is so overcrowded. were earnings enough to stop selling? again, this is the near-term versus the long-term. we think the more volatility. tech is likely to be the epicenter because it continues to be a very popular place to the. longer-term, we do think it justifies our view. people thinkf there is a cyclical issue that may be good dues for industrials around the corner. >> that has been a large degree of the hope. the valuations are getting a bit problematic so we will have to see that investment cycle kick with the confidence we have seen. we believe if you get policy, that is likely to cause a little bit more investment. take a look at facebook. billionow at a $500 market cap. it is now the fourth biggest behind apple, alphabet, and microsoft. longer-term, how much more upside? report a couple of months ago that basically talks about technology is very much in the court with the market growth and if you think about the tens of thousands of percentage these stocksome of have returned overtime, i think what we have seen is that the law of large numbers is yet to the point where it is a long-term concern. >> it seems like the story is going to be the currency effect. >> what industry provides that upside? >> technology is one of the places that has certainly benefited from the weaker dollar. health care as well. sectors,again those but if you look at earnings overall, it is probably somewhere around 2% to 3% extra in earnings. >> we have not talked about media. >> cvs reported a second-quarter closed yesterday in it the earnings per share, help them are by revenue from its ncaa basketball tournament 21st century fox is reporting tomorrow. -- turner, big move so far. how much did they surprise the market? think yesterday's earnings were quite remarkable in that they demonstrated a shift from the company's. think may have made some remarkable strides of the last several years. is the lastseeing couple of years some investors have become concerned, but overall we still think it is one of the better positions to take advantage of these trends. showtime in cbs, some remarkable gains and now they get ready to launch some of those internationally. all in all, they have been tracking as planned. >> how much as opposed to over the top? -- beene majority has recognition revenues. that's also from some of the new emerging cvsorms is very -- they know their content has value. content haseir value. it is a relatively small revenue stream. >> turned to the walt disney company which is the reverse of cbs. the disneyave channel, things like that. what are we expecting out of bob iger later today? >> we think this quarter will be a cleanup quarter. the park segment is likely to have some major expense issues to a newated attraction in orlando and california. a few other issues think are going to weigh on the parks, looking ahead, we expect acceleration. looking they should be year. next fiscal we think the company is set up to continue the momentum we've franchisesms of the they are monetizing. the main question now is how long more? disney tradedor premium. >> finally, the question is going to be espn. what are they going to say? don't know. it is a tough story for them because espn in such a tremendous -- >> it is still a very profitable franchise. no question about that. will talk toer, i bob iger. we have equities on the back foot. >> down about 20%. you have health care materials in tech. telik the best in the bunch. you have a little bit selling in the treasury market. weaker across the prices hit aminum career-high. this is bloomberg. >> this is bloomberg daybreak. shares of avis dropping like a stone. on pace for biggest decline in yearly six months. julie and emmanuel, but was the worst part? declines in rental car pricing. then they get the double whammy because they are selling cars at bed prices so the depreciation cost to rental car companies. seemarket did not really iss coming in part of it hurts the siliga -- selling a bunch of cars. see this coming from a this and when they pulled is sorte shares -- that the ceo is indicating. is aand july, there continuation in august so he's here.ting a be bottom is he was also saying that may as stabilizes in terms of could see somee more stable pricing. larry did not mention hurts. hurts restructuring is having an impact on other players. >> what do we know about cars going on lease going forward? seeing is what we are the reason used car prices have you have thishat inflow of cars coming off lease. there are a lot of them. time, railcar companies had too many in their sleep and on top of that, hurts has a bunch of passenger cars. they -- they bought them chief and now they are coming back. ofryone is trying to get rid old vehicles that don't have a lot of miles on them. soon to see the effect from uber or list? >> you are seeing some of that. competitors.ct the rentalig part of car business. the leisure customers don't always have to rent a car. it is not killing the business, but it is affecting -- >> for your thoughts? whereanother place technology is having on all of life. something that is thanerating faster executives might perceive in terms of evaluation. we certainly would not be sellers here. are secular headwinds starting to accumulate. out the bell.g friday.n go they have raised money specifically to do that. this is a really bad second-quarter. shares really took a beating last week. we will see what they have to report. that is the reason for the selloff. >> if you have a bloomberg terminal, check out bloomberg go. click through and we watched something you may have missed. this is bloomberg. is a lot for retaileek earnings. ,e have macy's, nordstrom have we have the trough of the three domains? >> we think there are good buying opportunities. to say that you have hit the trough across the board may not be the right way to think about it. you have to look at the places that are more challenged than to these gathering secular headwinds. , malls, where's the value? >> again, there are likely pockets of each. really want to with all of the sectors one brush. >> with maybe some exceptions, isn't that digital? walmart moving digital. >> digital is a big part of the world going forward. i think in the world where millennials are looking for social engagement away from their phones and terminals, there could be the potential. there are malls around us in the suburbs where there are still plenty of activity, but again very selective. >> as my son has learned the summer, size 36 is not a size 36 everywhere in part of the experience is trying things on and getting the customer service experience. you are in isess going to be a bigger competitive weapon that we believe it is going to be at this point. >> great to see you for this hour. nearly 25 minutes into the session, let's get a check on where we are trading. >> euro stoxx off by about 1/10 of 1%. >> and other aspects, this story of the last few months is the weaker dollar. >> that does it for bloomberg daybreak. who knew that phones would start doing everything? 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