Transcripts For BLOOMBERG Bloomberg Markets 20160523

Julie hyman has been tracking. The game we saw last week in changing perceptions about the fed and its Interest Rate increases, people bringing up the expectations for the fed to raise rates in june, but losing a little bit of steam in todays session as investors await a lot of Economic Data from durable goods to new home sales. Groups on the the move, materials l strongly but besides that, some materials at 1. 2 and energy as the biggest drag, even though if you look at the individual groups, the point or the percentage moves are not that significant, not many groups moving 1 except for that material group. Individually in terms of the biggest gains on the s p 500 index point wise, we have apple rising after report from a taiwanese newspaper that iphone seven orders to suppliers are higher than people were anticipating. Theo getting that details of its bid from bayer for 122 a share. Thisll also extending the gains that we saw for that stock last week. On the downside, weve got exxon mobil falling along with oil prices, microsoft a little bit lower as well as facebook. There was an interesting story bringing up the potential for perhaps microsoft and sale forced to seek some sort of deal, but that could still be a play. The focus on the bed, moving away from commodities, i would argue the are related. Is all interrelated, but the fed has come back to the foreground as the driving factor behind what is going on with stocks. Here, you see the twoyear yield and if you look at w. A. R. P on fed fundserg, that is futures and how they are crossing in the probability of a rate increase in june, up to 30 . You can see this is what happened last week after the replace of release of the fed minutes, the uptake in that probability type related at around 30 chance of an Interest Rate increase at the june meeting, we will be watching this this week. Julie hyman will be back with us, later. Lets check in on the first word news. Mark a baltimore officer has been acquitted of assault and other charges in the arrest of freddie gray who died after being injured in police custody. A judge found officer edward nero not guilty of misconduct in office and reckless endangerment. He was one of Six Baltimore Police officers charged in the case. Said to haveicers checked separate trials over the coming month. Has ended one of the last symbols of wartime animosity between that it states and north vietnam. He lifted the embargo on weapons sales to the country. The improvement is being driven by mutual concern over chinas in limits. The fbis investigation of Hillary Clintons use of a private private email server is nearing an end. Experts say the investigation will likely conclude in a sit down with the democratic president ial frontrunner. The fbi Standard Practice is to save questioning the person at the center of an investigation for last. In austria, a far right party has conceded the in the race for president. Mailin votes give the victory to Alexander Vanderbilt one, an independent act by the green party. Freedom Party Candidate had tried to capitalize on public unhappiness with immigration. To the story back dominant in, one that julie was telling us about, the fed timetable for raising Interest Rates. Policy makers are promoting the idea of a june rate hike as a market slows. On sunday, he said officials continued talk up fed hike. A number of key that members have been speaking out about the prospect of raising rates, possibly starting next month. I think it certainly could be a meeting in which action could be taken. Thehat we do depends on how economy is going to evolve. Not wageowth has growth star picking up, but we are seeing some signs that wages are starting to pick up. Factor in a definite favor of the fomcs view that you can have a gradual normalization. Slowly or gradually, meeting Interest Rates over the next two like twoadual meaning or three Interest Rates Interest Rate hikes this year. I view the current level as too low for todays economic condition. Thing on wall street and the Financial Futures expecting it most one increase over the course of this year, that would be consistent with an economy that was the week. My own view is that the underlying strength of the economy is stronger than that, but the fundamentals are Strong Enough that we are likely going to be removing accommodation little bit more quickly than as currently anticipated in financial markets. My assumption is two or three are possible. I think two or three a spot is probable given the job growth we are seeing, the patient data. If we came in with data that the long lines are expecting. Unconvinced by forecast is on track. I think the case should be strong for raising rates in june. Junejuly the timeline is a reasonable expectation. It is like a Communications Blitz and we have more, coming up. Markets, we have to get what we want to hear. Global head of rate strategy at tb security, you are still looking for one rate hike this year. We have seen a 20 rally in the 1 ,year yield, almost at what is your call . We are thinking that the front end is not fairly priced. I think what the that realize is that in order for them to be able to hike, they have to market the price, but if they were talking sort of without bringing up june, essentially the market was keeping june at hero, it is hard for the market to price the sort of reasonable chance of a september hike with june at zero, so they have to come in and say that june is likely and at junes price for about 30 , it allows september to be 90 . By june, they will not have the conditions and there is no urgency for them to hike. You have the brexit boat right after and yelp ellen said her target for inflation is 3 . We are not at the fed target, so there is no real urgency, but it continues to take that down, the market will not allow them to hike, so they are trying to build option analogy, bring up the fact that we could hike in a oink, and that is why we were kind of meeting short of the front end, we have taken most of these positions off and the front end is fairly priced at , rates tond is a by decline even as the fed hikes because of the whole tightening of financial conditions. To prove the point about the odds of a rate increase, take a look at right now, the odds of a rate increase are 30 are july 27 54 by september, you get to 63 and you can track that before the minutes came out and we were looking at 4 odds of a rating reis in june and 20 nothing past 50 , until december at the earliest. Haso you think the fed taught the market up enough to go in september . I think with that september . I think they can actually hike. The market was already priced for the december hike and yet february. Net in what happens to the dollar, what happens to the cn why, what happens to equities or commodities, all of this is where the risk is going to come in, you and of the fed is dropping about two or three hikes, you can get the tightening and financial conditions and the market will stop rising and the economy cannot handle it. We are getting a rebound in secondquarter growth, but we are not getting a 4 or three to 3 gdp, so we are rebounding to a normal level and i think that is consistent with one hike, this year, oneto hikes next year 12 hikes x year. Next year. Take t to get your you mentioned there is a rally potential for the 10 year. This is the two to 10 year spread and as weve seen over the last few months, that curve is really flattening and this is called a bear flattening, a rally in twoyear and 10 year that is not keeping pace. Continue . Ect that to what we have had is a bit of a twisting curve. I think the front end is fairly stable, and i do not even care that there is a bear flattening, bull flattening in terms of price but where the long end comes in is the fact that the neutral rate is still fairly low, so what the market is not doing is saying that the that might hikes sooner but that they wont keep going too fast, so the endpoint of the hiking cycle, the market does not have a lot of faith that it will be 3 three and a half percent. Where do i get yield if i do not want to invest in negative rates . We started to see data that suggests that this crossflow has started to happen. Youre going to stick with us, but we have breaking news out of the of orting two people familiar with matter. They are being sent to look into the to bank banks Deutsche Bank. You are looking at u. S. Shares of Deutsche Bank and you can see they took a leg down on these headlines, now off about a third of 1 . Perhaps another legal nightmare for Deutsche Bank as it tries to figure out what it strategy is, Going Forward. Deutschenvestigating bank and as a result, massive losses run 2013. We will have more on this story, after this. With we are back the global head of rate strategy at gdc tb security and we are talking about this campaign rhetoric. What happens if the Federal Reserve is just crying wolf . What kind of people does that have along with the brexit vote coming up . This is all in the backdrop of failing growth failing global growth. I think they will lose some credibility as they dont explain what happened. In march, at least for us, it was clear that there is a mandate. I would argue that there is an unofficial current mandate for the fed and theyre looking at inflation and financial conditions. Financial conditions unless they tighten significantly, effectively comfortable with the easing of financial conditions. When they hike, conditions are going to tighten. Between now and september, if you get a significant tightening and that that is essentially crying wolf, we are not going to hike, i think you need to clarify that the tightening and financial conditions was enough of a threat, but as of today, if Growth Continues as expected, and the fed does not go, were not expect in the go in june, but we decided to stall this, does not mean we are not going in july, they could keep talking about july probability. Een july and december, if they did not go in june, with baby or two lower their dot plot . How do they have a hawkish lowering of the. . Lowering of the dot . July and sayo november or december, so there is still some gap and the key assumption would he that financial commissions conditions do not tighten. Dollarket new where the was so when they came in and height. , the expected financial conditions would be unchanged. In a mini version, in the second half of the year, can still go over to hikes in june, then come in and hike either july or september and see if conditions tighten that will essentially take out all hikes. To see it right now, we would have to see growth as weaker or financial conditions tighten. Financial conditions are notorious to predict. Just because we decided to play it safe, but there has been a fundamental shift in their reaction. We have on the terminal, the dots function which allows you to see where the that is projecting the fed funds target rate will be on the 162017, below 1 at about 0. 83 percent. You are looking at one Economic Data point, saying yes, june, no, june. I would say the next payroll report. The last report was disappointing and everything came in, weaker. Average earnings in a pickup as much and that should have happened, the actual numbers of jobs the actual number of jobs created fell. As long as financial conditions are where they are, i think of the principles continue to indicate a remain outcome, we could get one in june. Next friday is pretty important. Thank you so much. Still ahead on Bloomberg Markets, does big oil need to rethink its strategy in the face of a saudi aramco ipo . This is Bloomberg Markets. Lets turn to the oil markets and the implications of the proposed saudi aramco ipo. Could this make their Business Model obsolete . Our next guest says yes it could. Us the Old Oil Order and contract that with this new oil order, we have. If you think back to how things used to be, there was an acceptance that oil was finite, we were going to run out. Six or seven years ago, people were talking about the oil and the idea that demand would never run out, that it would just keep growing, there were all these chinese people, indian people, other emerging markets you wanted to buy cars, so if you had reserves in the ground, and fluctuations aside, it would always go in value, and saudi aramcos ipo is the clearest signal we have had that that thinking maybe obsolete. Make the transition to why that model does not really work anymore. We have a great chart that shows a percent of industry projects that were sanctioned between 2007 and 2010 came on time, on budget and met reduction targets. Era ofplies that the these longterm billions of dollars worth of projects where what youre worth is what is in the ground is kind of over. Ifit certainly is for now, you look at the presentation these companies are doing, all the emphasize is that they are cutting back on spending, protecting dividends. We all know that that would mean the production wont grow, even when they did all of that spending, the production was not growing, but i think part of the reason of why that might be changing is because we can no longer really rely on peak oil theories. Shale has kind of upended the idea that we are going to run out of oil and at the same time, we have seen things like the paris agreement, things like elements in electric vehicles, it is just possible that oil demand could peter a lot sooner than we used inc. This is a huge paradigm shift and certainly has its causes, but what opportunities would it create for exxon or bp . They may be able to capitalize on the fact that they are not the only ones who are hurting. You can only look to cut you only have to look at countries like venezuela, desperately in need of investment. Their own production is flat or going down and they could probably use an injection of capital. The Sticking Point has always been that the Oil Companies want reserves and that goes against the nationalist politics that you see in a lot of these countries. It is nogiven that longer a sure thing that reserves will simply grow in value, it may be in big oils interest to no longer really whether they booked reserves, but just try to get longterm contracts and cash low so that they can pay their dividends. At is a great point and you had a great chart showing what areas have low operating cost and the areas where you really want to be in our areas that are qatar and like iraq, the lowerlevel lefthand side of the screen, so they have a lower operating costs, lower break evens, but you say it is not about going in there in doing with reserves, they can pair up in different ways. If you look at exxon, it has a worldclass chemical company. It would one of be one of the Biggest Chemical Companies in the world on its own, and they can definitely help countries like saudi arabia turned that crude oil into other products. One of the things the saudis like to do is get away from relying on exporting raw barrels, so as far as his companies can use their expertise in other areas, that create an open that could create an opening to partner up. Thank you so much. For more fast commentary, search for us on the web. Coming up, our mystery stock. Shares may get all dressed up. Scarlet live from bloomberg World Headquarters in new york, i am alix steel. Scarlet i am scarlet fu. This is Bloomberg Markets. Lets head to the Bloomberg Markets desk were julie hyman has to big reveal on the ysteryry stock m stock. Julie i will say the phrase, and you will know when it is. You are going to like the way you look, i guarantee it. Alix o oh founder wasber, the attemptnd made some to take the company back over. Inc magazine reveals that he exists going is exploring trying to do it again. It is hard to see if it is working again. You can see how the shares have performed since his ouster, not well. They are rising a little today on this interview, although it is unclear if he will get a bid together and if it makes sense to do it at this time. Of course, mens wearhouse and. A bank have been suffering. If you do not sell suits three for one, you dont get as many people in the door. They deal with a traffic issue. Lending club,at which is rising after a new steak in the company. Stake. They must be pushing for changes. Talksdvisor raising at today. Scarlet thank you so much. Lets go now to the headlines. Mark crumpton has more from the newsroom. Mark c. thank you. Clinic inenthood sarasota, florida has been evacuated because of an unknown substance. People have been taken to a local hospital for an investigation and others are being decontaminated on the scene. Students are safe. The Supreme Court has ruled in favor of a death row inmate from georgia who claimed prosecutors improperly kept africanamericans off the jury. Timothy foster was convicted of killing a white woman in 1996. They say prosecutors were motivated by race. They could give foster a new trial. Republicans are following the present election a lot more closely than democrats. Nearly half of republicans, 47 , say they are following election news very closely. Only 39 of democrats answered the same way. Egypt is sending a remotecontrolled summary to search for the missing jet. Alreadyjoin others searching the many training and see will try to locate the voice and data recorder which could be almost 10,000 feet below the surface. French investigators say moments before the disappearance, it generated automated messages about smoke in the cabin. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. I am mark crumpton. Back to you. Alix thank you so much. Has offered, bayer 62 billion to buy monsanto. Earlier on bloomberg surveillance, bayer ceo tried to calm concerns that the company is stretching finances. Year afterirst closing the transaction already, we see double digit earnings per share. With that, the ability to pay higher dividends to shareholders. Starting from the second year, this will be a doubledigit increase about roughly what this will be over and above this current the current standard. It will not way into the 20 20th. 20 past. It is a fairly rapidly value creating proposition that we have. Tom what i would like to know 42ow do you hold on the billion of debt euros of debt. You have the gift of free money. What happens to your company and this transaction if Interest Rates go up . Look at theall, we financing structure and our ability to generate free cash flows and the ability to deliver. That is something that is a core element of prudent financial policy. You may have seen a statement about the financial structure Balance Sheet looking forward. We are pleased because it is an indication that we will have a very solid Investment Grade rating Going Forward and the chance to obtain an excellent profile for rating purposes. If monsanto rejects the officer, are you ready, rejects the offer, are you ready or prepared to increase the value . We are totally convinced about the attractiveness of our offer. It is a strong testimony to the Value Proposition for value shareholders. It is also in line with some of the transactions or attempted transactions in the past. Beer convinced it is a highly attractive offer for monsanto and the shareholders to consider. Tom are you going to name the company baysanto . It is too early to speculate what the name of the company will be. Let me tell you that bayers name and reputation stand for science, innovation, and a responsibility for societal needs. That is what we will leverage on Going Forward. Francine have you discussed the deal with any major regulators that have already given you the implicit green light . The private given corrector of the discussions until now, we have done over internally with the internal and external expertise we have at the table. We have not gone so far at this point in time to involve the external regulators. That will be one of the next steps Going Forward. Scarlet another potential deal inhave been watching is publishing. The bid was made for the l. A. Times and chicago tribune. We spoke with the head about why they rejected the offer at the time. It was not a true share price. They didand why it. Last tuesday, he reportedly said he would make a bid on gannett leading many to wonder if his antigannett. Trategy was more showbiz what is the reality of the tie up here . Getting busto be and less likely as the days go by. The most recent element here is that tribune has sold almost 13 of its outstanding shares to a who is aes billionaire minority owner in the los angeles lakers, but more well known for his different pursuits in biotech. He is a real person, a wealthy individual. And stature to this. T dilutes oaktree they have come up publicly and said, we want the two sides to talk. In many ways, you have to wonder, of the shareholders who want a deal done, what this latest move seems to indicate is the company itself does not really want a deal to get done. They are indicating that they do if you wanteal, so, to make us do something here, they are probably going to have to ban together. That is the story over the next few weeks here. What to the tribune shareholders do . Are they able to collectively come together, put out a statement . Do they threaten legal action . Scarlet who needs to bulk up more . Good question. I would say they both need to out. Up bulk it is a skill game for newspapers. They could both be bigger. They have a bunch of smaller markets that are smaller assets. It is possible that gannett could move in another direction and buy from other companies if the tribune deal does not get done. Scarlet did you perceive another bid from gannett . When they are making it so itfficult to make a deal is possible, i think they are considering it at this point. Michael farrell bought shares at 8. 50 just back in february. Shares atne has sold 15 per share. That is exactly the same as what is. Etts bid what is tribune saying . They are calling the bid grossly inadequate, yet, they arent selling they are shares at 15. It seems to be mixed messages about what the company is worth. To me, it seems like the shareholders for tribune, they have reason to be angry here. Alix we were talking to michael farrell, and he was hellbent that tribune was worth much more. It was valued on the bid when they were having issues that did not count. He is trying to expand internationally when others are scarlet what can you tell us about him. What tricks does he have up his sleeve . No idea. He is a pharmaceutical individual. There may be a connection with the lakers that he was put together by a content standpoint. It is not clear at all what he brings to the table other than inventive thinking. There is nothing concrete. It will be on the board as well. He is not an executive. He will not run the company from an operational standpoint. Very curious. Of course, the story continues. We will check in with more updates as they come. We will be right back with more Bloomberg Markets. Scarlet you are watching bloomberg. I am scarlet fu. Alix i am alix steel. This is your Global Business report. General electric is helping saudi arabia transform its economy. The company will invest in areas other than oil. Scarlet repairing relations. Pope francis and a top sunni leader meet at the vatican. Monsanto is bid for making people worried, while others think it is the perfect deal. Will take partc in investment saudi arabia that has nothing to do with oil. It is all part of the plan to diversify economy. Ge will invest in water, aviation, digital, and other products. It will double the workforce to 4000 people. Scarlet at the vatican, a major step in repairing relations as of pope embraced the leader islams oldest university. They met privately for 25 minutes. It comes five years after talks were exposed about the vatican. It is a shakeup manchester galle afterired dan two seasons. Bayer is proposing a block esther deal that would create farmargest supplier of chemicals and genetically modified seeds. They want to buy monsanto for 62 billion dollars in cash. It would be the largest takeover ever for a german company. They talked about the attractiveness of this deal. After the third deal and not 20s, we would be earning a cost of premium afterward. It is a fairly rapidly value creating proposition that we have. That is why we are so convinced about this. Alix it is time now for the weomberg quick take in which provide information on topics of interest. Wideninge gap has been. There are questions about and the effectlf on prosperity. The income gap narrowed in the u. S. Between the Great Depression and the 1970s. Since then, it has widened. 48 . Se the top 1 of earners to call 95 of gains in the first three years of the recovery from the 2000 eight recession. By comparison, chinas income gap has grown wider even as hundreds of millions of people poverty. Ed out of norway, also changes since 2005. Rich companies exporting manufacturing jobs to poor ones can widen income inequality at both ends. In the u. S. , the growing cost of higher education, falling tax rates for the wealthy, and reduced fees on Capital Gains may also play roles. Here is the argument. Toquality co can be reduced investment. Others say it acts as an event to take risks. Businessour global report. For more stories, visit bloomberg. Com. Scarlet coming up on Bloomberg Markets, a high tension drama against other cbs players. We will tell you about it. The most recent saga, next. Alix this is Bloomberg Markets. I am alix steel. Scarlet im scarlet fu. Lets go now to abigail doolittle, live at the nasdaq. Abigail we do have the nasdaq trying to hold onto its small gains. Really holding the nasdaq act today, the biggest drag, microsoft. And such, the worst starts in the years since 2008. Like so many down days for microsoft recently, it is not clear what is behind the weakness. It could be a continuation of the downed trend. Something that has done some technical damage to the chart. A technician says that with the stock down recently, it is critical that shares hold the buying support of recent lows since february for this to not turn into a top. We will have to Pay Attention to see if the support can hold. Alix microsoft is the biggest drag. What is helping the index . Abigail the shares of viacom, up 3. 4 . According to paul sweeney, this could reflect two separate things. The first could be a possible sale. , someoned speculation may be replaced. The shares of viacom could trade higher up to 25 from current levels. So much. Thank you as abigail was telling us, the tables have turned once again in the empire. Get back onng to redstones trust after being abruptly dismissed on friday. What was the catalyst for this . Why were they suddenly hooted off the board booted off the board . Lettercatalyst was a sent last week. The first came on tuesday or wednesday. If pose questions that they had about viacom and selling the states. Meeting the next day. This was not unusual. On friday, the same lawyer sent a leader to George Abrams saying that they had then removed from the trust. This did not sit well. Scarlet i should clarify, trust, not forward. Aat is interesting is he made declaration saying that he was not competent. Now, he is arguing that redstone isnt. Is that correct . As of last fall, they said they were engaged and attentive. They sort of insinuate that he said what he needed to six weeks ago to help his friend prevail with anlawsuit exgirlfriend. That being said, it is tough to make the argument that he has been fine all this time and all of a sudden he is not. Scarlet obviously they were very close at one point. What caused the following out . Do we simply point the finger to his daughter . It would appear that she has inserted herself into the situation. It also may be the decision to sell the stakes in paramount. He used to show up at a lot of paramount events and was famous for his public site with tom cruise. Maybe he took some actions without involving him as much as he would have wanted. Clearly this is a distraction for him and the rest of the management over at fire, not to mention cbs. Think unless they can prove that he is not of sound mind, they will have a hard time going against this. He is ultimately in charge of his affairs and has the ability to make the changes that he once. Either way, this is a dramatic rupture in the relationship between those who have been in lockstep for 30 years or so. Scarlet thank you very much. Is the u. S. Prepared for recession . It is a question that we will answer later on at 2 00. It is 1 00 p. M. In new york. 6 00 Prime Minister in london hong kong. M. In markets. O bloomberg from bloomberg World Headquarters in new york heres at this e watching hour. Global stocks start the week without a ton of direction. Investors seeking clarity in the outlook for inflation. Republicans back donald trump, paul ryan is lonely. To look a bit and did you know that Goldman Sachs is now at a time when firms are downsizing their commodities. O first we want to head to the markets. Market milestone even as alexander mentioned were kind just drifting. Yes, its the one year anniversary, it was the 21. At e i want to look market today but then i want to look at context as to what has happened since that record. Looking a little bit better right now. Still you could call it little change. Be the aq continues to leader today as we see some Big Cap Technology out perform. Look at the s p 500. Were still blow where that closed. There have been several attempts over the past year. If you look at other streaks that weve had for the s p this is inew record, fact one of the longest that tying itn back in 1995 for 253 trading days without a streak. That is almost as 272 back in 1984 and then there was one back that was even longer. If you look at the best and orst performers, look at the bloomberg here. This is by looking at the member ranked returns for the s p 500. In videos the performer last than doubled. Re amazon. Com has done very well. Energy has really under performed. Hey have limited the performance of the s p 500 over the past year. With a downnly ones side are coffee. Go figure. There you go. Down today. But its not a huge move at this relative to ort of some of the movement that weve seen recently. Down 1 . Supply in canada is coming back online. A big today, not seeing move there. Down about a quarter of 1 . Looking to the u. S. Dollar for direction on luck ities, not a lot of there either. The trend recently has of course stronger with this changing outlook for the fed raising rates. All right. Julie. Ou so much, now, lets check into first word news. More. Has alex, scarlet, thank you. A baltimore officer has been other ed of assault and charges in the april 2015 arrest in the death of freddie gray who died after being injured in police custody. Edward found officer nero not guilty of misconduct in endangerme ckless endangerment. The other officers are set to have separate trials over the the fall into president obama has ended ne of the last symbols of animosity between and the United States. This removes a lingering vestige f the cold war and underscores the commitment of the United States to a fully normalize elationship with vietnam including Strong Defense ties with vietnam and this region for term. Ong the improvement in relations between the United States and being given by mutual influence r chinas register. Recording of a phone conversation is adding to pressure on brazils acting president. The recording made public today eveals one of his closest advisors telling a Company President earlier this year that the president would stall the way to construction probe. Global news. 24 hours a day. Our 2,400 journalists world. The the sec, according to people matter, is h the deutch be investigating crisis out of the crisis. Matt, what with is behind this here. What was the issue . Questions being aised now by the sec and also internally about the bank and u. S. Nds backed by the government. Deutsche. But the questions are now going on about whether the bank recorded losses that may have happened around 2013. Deutsche and whether it may have delayed any of these losses. So it would have made it look better. Question definitely a being asked. Do i have its a very complicated business. Lot of questions being asked right now about how they theseo the evaluations of onds and whether subsequent ed its ay have impact harder to trade and harder to value. Why now . Been, like, eight years. These trades are positions the were developed after crisis crisis, 2011, 12, 13. So well see over the course of the investigation in the weeks months ahead what might come out of this. 2012 Deutsche Bank for et aside 14 billion any fees and losses it has. Losses really the starred to pile up in 2015. Mean for Deutsche Bank . For certainly distraction effort easy to get the bank back on track. Thats what he said. Whether the bank gets behind this probe and is cooperating fully and tries to accelerate the pace they can put be nd it, i think it will better for the bank. Lets take a look at the equity here. Very n see Something Interesting that happened here. Right when the news broke, you fall to tock actually its lowest level of the day. That was a little after 12. But ever since then, its been a steady climb higher and now sort of reaching towards the highs of the session which we saw earlier. So sort of investors panicky but little bit in stride it would seem. What extent is this perhaps the work of one man. Here, troy dixon who was running Deutsche Bank. Was he acting on his own . The important thing to keep in mind is that according to the bank these were realized or hasnt been realized already. Question may not be a question thats being reviewed at the moment. Think, something that investors may be reacting to when they read down deeper into it. Fixed it. Y its over. That may be accurate. Yeah. But there still may be fines associated with it. Found, is a case to be think thats what everyone will e watching very closely as these developments unfold. All right, matt scully, thank joining us. You of course broke the story on Deutsche Bank crisis said to be headed by the sec ryans decision not to endorse donald trump is leaving isolated. Singly will he soon board the trump train well discuss. It is time for the bloomberg flash. S a federal Appeals Court has reversed a jurys finding that of america was liable for thed for its actions before committee collapsed in 2008. 1. 2 billion d a imposed after trial. General electric takes part to 3 billion of investments in saudi arabia. Part of the saudi plan to diversify the committee. By 2020 the company will double its saudi workforce to 4,000 people. Is your Bloomberg Business flash. Ets head over to our markets desk with julie. Were looking at deals that re either not happening or may not happen. Thats sort of the theme here. Cigna, its reported theyre squabbling over their upcoming deal. They made the agreement back in according to the journal, theyre accusing each of violating if agreement. Scrutiny en a lot of generally. Some of the analysts are saying it could still happen. Than not. Likely but both stocks are falling into todays session. Been en weve also watching a big fertilizer deal thats not now happening. Agreed to buy ad oci of the netherlands for 5. 4 billion. That is not happening now. The companies had been exploring to get this done, alternative structures to try to with tax whole issue inversions. Coked not figure it out. Saying were not going it anymore. About six and a half . Later on. To more paul ryan has won praise for speaker sive style as house. About howk to us here much paul ryan can call out. Started to him have rally around donald trump. What are you hearing . Thats correct. Fact, hes a lone holdout republicans. Ouse his four top lieutenants have all either backed or said they so far. R trump senator mcconnell has backed trump. What we have is speaker paul rye yoon kind of out on uhhuh to nd and whether you want ay no man is an island or hes his own man. Everyone is behind trump but a lot of them are. About does it say recently . Ans job well, he came into the job saying he was his own man. That he was asked to take the job. Didnt pursue it. He repeated that adds recently commencement t a address telling students he was asked to do the job. To portray he likes himself as somebody who, well, i took the job. Job. Dnt fight for the unlike john boehner. We have the comment from the paul ryan if we could show that now. This was of course his remarks speech. E commencement john told me, if you dont like the job, change it. Keep your weekends at home. On policy. Make it work. Turn it around. So i took advice, i soon realized that i could do this. Actually like the job. Now i feel like the dog that caught the car who was never in the first place. So he claims to like the job right now, billy. Of course paul ryans rise to the speakership differed from john boehner. He doesnt have that built in support that john boehner once did. Thats absolutely correct. Built know boehner relationships through his rise through the House Republican leadership. Certainly has friends and reaches out to members across the board. But he doesnt have a cadre of clique of visors, a people who will tell him maybe you should do this or that. And in the end, that may or may not serve him well but paul ryan is his own brand and whether his selfprotection of his own brand policy in the end or bad, i guess well see it play out. And is it just trump that paul ryan is struggling with in terms of his party. Absolutely not. S you can see, he promised a budget is that still has not presented or voted on the floor approach. Rt of looser purr toe rico bill was is own promised conservative agenda that he hopes rank and file republicans can run on is unveiled. E if youre going to run a bottom up enterprise and let everyone a voice, thats going to slow the process down. I think theyre coming to terms as how that might work opposed to dictating from above. All right. Much, billy. Still ahead, pressure points. Colas weighs the good, bad, and ugly in Global Market action. This is Bloomberg Markets. The vix is climbing today as could they be if u. S. To build up. Ues lex and scarlet, thank you so much. We welcome everybody on bloomberg tv. We have to talk about the fed. The topic we all like to talk about. So do fed officials. Hey seem to like to talk about it. Do you think theyre out talking too much . Feels that ainly way. Theres this push and pull in all these ve between s. D official market has hy the totally the feds true starts to affect allocations that historically affected. Have been so bonds might look a lot more attractive because the yields are so low. Just a general approach to balance. In such a long low Interest Rate environment. Yeah, its tough. This one hand, you have picking up of the growth in the u. S. With some Inflation Fears the feds responding to that. But at the same time, you have negative Interest Rates in germany and japan. Bigger narrative and i think equities are a safer bonds. Terms of if you look at fed funds and thing. S, they say one if you look at the bonds you see story. Erent first of all, we look at what the fed is actually saying. Narrative is very clear about june and july and youtipping point is whether post. To go pre or seems market fed rate increase are taking up a little bit higher equities are t seriously. Aking it the focus that we have, you betterment and wealth which have done so well making his business grow and competitors like schwab. Tweaking need some with this new environment . Yeah. Its a great point. Single most the Disruptive Technology in our the theyre growing extremely quickly on their own. Models right now are very equity based. If you become a customer for the first time away, even at my age youll get a very high equity allocation. O be prepared for a lot of equities. When we talked to other financial instrument firms, this we hear a lot of. Theyre a little bit dismissive meaning interested theyre freaked out and scared. The underlying narrative of robo advisors is a systemic you well over a long period of time as an investor. You also im looking at some notes that you sent over. Seem to be s broaching for the next market downturn. Base that on the narrative that theyre putting out to their customers and prospects. Be prepared. Dont get freaked out. Articularly since millennials its a Younger Generation theyre often dealing with. Theyre coming into this market for the first time. For this. At lesson we also know that they saw when that happened. Even though theyre millennials, theyre, in fact, plowing money into this thing when the market takes a dip. Right. Olutely put another way, downturn of marketing is a great opportunity its probably the one cohort from market n away meltdown but embrace and and keep buying. Do you just see more of kind market moves that weve seen so far already minus the volatility . In a range i guess is what im asking . It does feel that way. Caveat is what is the dollar going to do and then what do ong rates do because this flattening of the curve does clients. Y of our they worry about recession. They do worry about recession. Were certainly hearing talk of it more. Nick, thank you so much. Thank you. Colas joining us with 1130 studio. Ahead, goldmans makes a big bet on natural gas. The ts become one of in north ayers america. Youre watching Bloomberg Markets. Headlines with the on one of the first word news. Scarlet, alex, hazardous aterial teams have found and emoved unidentified chemicals insi inside cleaning closets at hood in florida. Pick ight help democrats up a seat in couldnt press reinstate eeking to an earlier map drawn by the state legislature. Making it urt also easier for federal workers to discrimination lawsuits after quitting their obs over intolerable conditions. Workers who bring constructive 45 days claims have from resigning they can start. Vladimir putin is offering reassurances to his syrian ma charr al assad. Offered condolences after a series of coordinated exemployeeses today that killed more than 80 people and wounded some 200 others. Global news 24 hours a day our 2,400 journalists around the world. Alex, back to you. Thanks so much, mark. A dman is obviously known as major manslaughter in fendt but it also became one of the natural gas merchants in north america. Incredible. Now from washington. S a former Senior Analyst unit. Federal energy j. Aaron it bought back in 1981 executives now head up the fund no matter who it is. Well, jay aaron has been in natural gas business for as far back as 2008. Been interesting is that their business seems to be rowing despite all the things that you hear about Financial Companies leaving the physical markets. As so that was rather surprising. Yeah. Point. A great morgan, Morgan Stanley basically giving it over to goldman. Years theres been a lack of volatility especially in the physical natural gas markets. Most people, lets say the of the or j aarons world, they dont really do well in those type of markets. Volatility is increasing and they are stepping say. Ou might and also for new entrants likecy itadel who want to learn the natural gas business come into the market. Im not totally sure about that. Ct the fact that j. Aaron and itadel j. Aaron is growing the business, citadel is entering the market. Good for the customer customers. See a role for the j. Aarons and the citadel of the world in this marketplace. Who are their customers . It tie in with other services that goldman can offer as a complete Investment Bank . Well, goldmans customers can generators to r coops. Natural gas utilities. Anybody who is looking to buy physical natural gas. Molecules. And its looking for a reliable supplier. Also be panies may looking to hedge their risks. Perhaps j. Aaron can provide those types of services as well. Of course the other part of goldmans is the financial part their commodities business. Physical and financial arm talk to each other . Thats true. And anybody who owns physical will l gas assets certainly use Energy Futures and that is swaps to mitigate risk, both the and time tion risk risk and in other words try to assets. Those the one thing from my experience energy for competitive markets. It benefits the financial side of the market. Right. So a question that a lot of have in reading and learning about this is, is the rolling eserve bank this in any way . The can borrow cheaply from federal rep serve. Regulator f regulate involvement in there . The dont know not on financial side of the equation. Future Commodity Trading commission is. An answer for e you. All right, thank you so much, tom, russo from washington. Hedge funds , momentum ack into stocks. This is Bloomberg Markets. Bloomberg r the business flash. A look at the biggest business stories in news right now. Appeals court has antitrust case. Citi group ica and. Re among them in europes Biggest Discount carrier says net income will increase about 13 . A 43 surge the previous fiscal year. Buyers market for big business jets. Plane makers are cutting out put chopping their list prices and competing with a glut of the market. And thats the Bloomberg Business flash. One. We can get used jet. Discounted price. Yeah. Sure. To have. Lem im looking at some analyst calls. First of all, square is a stock were watching. It was upgraded over at clsa. Saying this is not lending club. Ou cant put all sort of Lending Companies together. Square shares are up by about 2 . Upgraded the shares here. Y sold any shares. Taples is another stock were watching. Upgrading by 2 notches to buy do with valuation and Earnings Growth after the company as the company refocuses on its core strengths according o this analyst and potentially downsizing of its retail footprint. Upgraded to buy from neutral. Getting that much of a lift. Up about nine tenths of 1 . And finally the steel makers are getting upgraded. Talking alcoa as well as allegheny. Companies are diversifying away from problem areas. Of alcoa, hedge funds piling back into the same zapped their return this year. For added momentum stocks a fifth straight quarter. Danny, i feel like this was of the to be the year value name so its interesting that hedge funds are sticking to those momentum stocks. Absolutely. Especially when you look at the momentum return at the beginning this year. The first four months this trade as the best ed stock in the past 12 months. Fell by 6 . A lot of people are surprised this that, that didnt them. Them. Re i think what they really like is of large a lot Technology Names like amazon really amazon stocks. Its a great opportunity for us add more bets in there a city in goldman had their out talking about what hedge funds were essentially doing. Talking about google was at the top followed by charter communications, facebook, and time warner cable. So its doing well if youre in it. Lot of analysts who say historically popular funds names do well but on the other side of that, you change a zebras stripes. Change it if theyre getting paid well for it . Asset about other managers like mutual funds . How do they stack up . Pretty interesting because while hedge funds added to momentum and took away from institutions did the opposite. Pared back their momentum exposure and added to their value. To do with a as ot of these mutual funds are benchmarked so theyre compared s p earnings. Really dependent on a few top stocks to really make making the point that 68 of their long equity in their tenvested larger positions. Given mutual funds theyre so key on those couple of names. Yes. When we discuss crowded trades here, is there a too poplar . Ts its had its moment . You know, you have goldman commenting on this as well as morgan. They say theyre actually short the momentum trade. The thing with momentum is a lot of times, you get this pattern where it starts to do really, really well. Gets very popular and crowded and then it starts to sell off. Little better. But like i said, the momentum definition is the stocks that the best over the past 12 months. So what those stocks are does what around depending on the market is doing. So, again, you get momentum in momentum ain off. It takes well be right back on the other side of this break. This is Bloomberg Markets. Odds aboutors are at whether the economy can handle Interest Rate increase. He u. S. Is ready for higher rates but Steve Rattner remains on the sidelines been growing weve quarter percent on average. This is nothing new. This happens every year. I honestly dont think the data matters at the moment. He real issue is will a tightening lead to a selloff by global rked financial conditions, china, and Everything Else going in. Thats it. Thats all that matters. Heres the follow up to that ecause we sat here in the middle of last year looking at the fed that was set to tighten okay, e narrative was, theyll keep on doing what theyre doing and the ecp is oing to join the party and there will be a handoff. Have we learned in the last five months that actually the fed is the number policy make maker. Worked very they aggressively to weaken currencies and i think that that came along the that contributed to angst in china and stopped the its tracks in september. I think the dollar is the focus. Chinese to of the take Monetary Policy decisions for the firstands time in 20 years and figure out and piggy ebt issues back the feds. Problem. If the fed didnt care at all economic financial conditions issue. All goals have been met. They won. It worked. We didnt. Why are we at 37. 5 basis points . Go ahead. Look, im not sure its quite that simple. Is theres fact still very modest wage growth and thats the key to all of to ensure continue wall economic recovery as well s the ultimate goal of any policy maker to have people be better off. I think the fed has been waiting recently, those conditions had not been met and really trying to i do think youre overstating and the extent to which china or any place in the is doing it. But i dont think its the the thinking. So youre not fully sure its going to happen. On where theingent s p is. The feds not knowing. Thats the other thing. I dont think the feds pay any attention to it. Of the real economy and where we are in the tradeoff between wage growth and inflation. Recently it has come down reasonably hard much i said urprise as earlier on the side of getting wages to go up. On i think its focused normalizati normalization. S p is very much a data point. Did the first months prove that you . Absolutely. We came into december with three rate hikes for 2016. Is it an investor the fed is worried about or corporate profits . The s p is in many ways a to look at tatistic the conditions the fed is looking at. Equity ormation in the prices is very important to the fed in their decision making. Theres a subtle difference here between i think what steve and i are saying. I think that the International Financial conditions, this tightening that can come from a the dollar that happened last year, that happened at the beginning of this year, that happened with merging markets is something of. The fed is very fearful stagnation where it unnaturally low interest a low growth ain o that 37 basis points dont drop so far. Steve rattner speaking on go. Mberg the third mandate is a tightening of financialing conditions. That as welltching as well as inflation and unemployment. And of course when you look at whats going on in the markets. One asset class theyre aying a lot of attention to is the dollar. This is dxy, the dollar index. That since late november the dollar has fallen 93. Ut 7. 6 to under this is again dxy. Rallied up about 3 since may 2nd. Hits been nd the picking up. This didnt help us in august. Didnt help us in the beginning of the year when you saw it sell off. That did have implications for the world. Does that mean what china does and what the emerging markets have to deal with. Today were going to be talking about venezuela which is really interesting story in the margin market world especially related to commodities. We hear a lot about whats nigeria and their what oduction but look at happened to venezuela just in one year. How much worse is this production getting . It actually factored into the oil price. And when is that longer term for opec producer. Against anley is venezuela mattering. He said its like the egypt arab spring. The theyre going to keep producing no matter what with. Now theyre starting to pile up. Its a really interesting debate going to get deep into t and look at whats going on with venezuela. David its 2 p. M. In new york, 7 p. M. In london. Welcome to number of markets Bloomberg Markets. David from bloomberg hospital headquarters in new york, here is what we are watching this hour. The United States repairs. We discussed this with roger altman of ever core. We will hear their views on everything from rate hikes to the most effective types of fiscal stimulus. Buick for clues on Economic Data. Meanwhile, oil is retreating. David new polls show donald trump pulling even with hillary clinton. But trailing bernie sanders. Will this give a boost to the Sanders Campaign . Attend to the markets desk, where julie hyman has the latest. Julie ok