Transcripts For BLOOMBERG Bloomberg Surveillance 20161018 :

overview on what we are expecting. the main asset class that are moving. he stoxx 600 gaining 1%. we're seeing bond investments from saudi arabia. stocks rallying and commodities rallying. this has to do with speculation that that the fed will remain acome tavet. let me bring over to my bloomberg terminal. this is the picture for the terminal. let me get rid of my messages. this is the picture for the c.p.i. harmonize. data comes out in half an hour. this is what mccartney will look at to see what he can or can't do in terms of cutting interest rates. it has an impact on our prices and the blue sideline prices. input prices significantly rising more than inflation so far. let's get straight to the first word news. >> barclays says investors should buy european equities regardless whether the federal reserve raises borrowing costs in the next three months. given the support from central banks from around the globe, the overall picture is very supportive of stock markets. australia's central banks says prospects for maintaining growth are reasonable. one of the key challenges is to generate inflation in an economy beset by muted wage growth. however the r.b.a. chief underscored the flexibility available. >> we have never thought of that job as keeping inflation between 2% and 3% all the time. given the uncertainties in the world, something more rescriptive is possible. >> donald trump's wife defended her husband blaming the media and the hillary clinton campaign for negative stories about him. she made a personal appeal to voteers to focus on issues other than the sexual misconduct allegations and sold cnn's anderson cooper. don't feel sorry for me. i can handle everything. jamie dimon said he expects hillary clinton to become the next president of the united states. he stopped short of an endorsement. it makes him one of the heads of a large bank to comment on an election. when asked what advice he would give a u.s. incoming leader, i hope next president, she reaches across the aisle. obal news powered by 126 journalists and analysts. francine: stanley fisher warned of risks to running a high pressured economy outlined by his boss janet yellen. he said he cease limits to how far the u.s. central bank can pursue strategy to push inflation lower. the nonexecutive director at the financial institution former and the managing director. john and jack, thank you so much for joining us. we have this important inflation report. we are getting more and more politicians saying what central banks are doing is crazy. what is the end game of what we're trying to do? >> the most important thing for central banks is to recover from the financial crisis which is now eight or nine years ago. their analysis was that the banking system was broken and solution to that was to mend the banking system and therefore to help the banking system to support the economy so that the economy could recover. their prescription to do that was lower interest rates. that helps the economy in the first place and they thought would help the banking system by making costs lower and improving markets generally. that was quantitative easing. it has gone on longer than any central bank thought when they started. i politicians are pointing to some of the unexpected consequences and undesirable consequences which is a long period of abnormally low interest rates has produced. it is not obvious there was any alternative when central banks started this policy. francine: asking for them to raise rates stragget away. it would make your world a little bit easier. >> basically central banks have created a monster. creating this huge amount of monetary base and the problem is how are they going control that monster going forward in interprets of its consequence and inflation. when the velocity of money starts increasing, when the banking system starts doing its job again then inflation will pick up and therefore interest rates will rise and the question is not so much what they should do but what they can do and what they can do is probably try to normalizeation but the challenge is going to be very hard because the monster is quite big. francine: the alternative would have been uglier than the monster we had to create. >> i'm not saying they had any other possibility but the monser is there. but the question is going to be in the coming couple of years. it is going to come quite soon how they will control the next stage of the monster. probably now we're looking towards progressive shift of the policy mix and actually you do hear now central bankers including stanley fisher the other day saying that economic policy, fiscal policy should stop picking up the button because they can't do much more with military policy but it will need to be companied by control of the interest rate by the central banks. otherwise you will get the bond market big correction that everyone would fear. so very difficult to get out of this creature once it is created. francine: why has the fed not raised rates yet? >> i think the fed has not raised rates because inflation has not yet proved sufficiently igh or volatile or beyond -- francine: wage inflation is what they are looking for. >> wage inflation is not always bad, if you're receiving the wages. much of the criticism is that wage inflation has been too low. general inflation has been too low. targets of 2% have been routinely missed on the downside. it takes some doing for a central bank to raise interest rates. when inflation is too low. when wage growth is too low. when economies are anemic, if you raise rates, it will put pressure on your curnspifment even the federal reservings possibly one of the more domesticically oriented banks in the world cannot ignore value of its currency. francine: is the fed not raising rates on concern that hiking, it would put too much pressure on the dollar? >> it has been expressed that a rise in the dollar would basically tighten the conditions. i agree with the fact that you know, it is a situation where inflation so far has been mostly due to -- and it is starting to come from the price. these are inflation elements which are bad for consumption. they take purchasing power away from the consumers. it is the kind of inflation that suggests the economy is getting better. it is more of threat for consumption. it is quite tricky to raise interest rates in that context. francine: thank you so much for now. stay with us. stay with "surveillance." plenty coming up including the ise of populism is gaining support around the world. we'll bring you to u.k. inflation data for september. how will this impact yaren's next move. we'll talk with the managing director of herrod's next hour. this is bloomberg. ♪ francine: welcome back to "surveillance." i'm francine lacqua here in london. let's get back to the bloomberg flash. nejra: ryanair has said earnings are likely to increase 7% rather than the 12% earlier estimated. they said the u.k. is expected to account for more than a quarter of rain air sales this year. has reported the slowest third quarter sales growth. they said revenue increased 2.1%. at the same time total sales fell for the first time in six quarters amid a slowdown in baby food. one of the company's fastest growing businesses. netflix surged 20% in extended trading after reporting its streaming service signed up 3.5 million subscribers in the third quarter. that helped quell investor concerns about slowing growth. reed hastings told shareholders that the company will become more profitable in the next year. i.b.m. has said profit margins shrank for the fourth quarter in a row missing analyst estimates. profit margin was 48%, down 2% interest the same period a year earlier. underscore the challenge to shifting to cloud services. mark schwartz will step down at the end of the year from goldman sachs. he has worked at the firm for 27 years and is based in beijing, will become a senior director. goldman sachs is set to release third quarter earnings today at 12:30 p.m. u.k. time. francine: thank you so much. let's turn back to our discussion on central banks as monetary policy seems to be reaching its limits. should governments be doing more to help boost grothse? our guest is a nonexecutive director. john, you agreed. we were talking about this piece that william hage wrote for the telegraph. we talk about it. he gos a step further. they must raise interest rates or face their doom. this is something you wholeheartedly agree with? >> i think there is a problem. i think the central banks have taken understandable measures when the economy was in crisis. if you go back to three, four, five, six years ago, the talking was about val central bankers buying time for the politicians to act. the politicians are finding it difficult to use that time. they have not acted. several bankers have needed to buy more time. this policy is beginning the benefit quantitative easing are expiring, less and less each time central banks act. undoubtblynsides are ming to forewhether your pension fund solvent. it is quite a challenge. francine: you'd agree that raising interest rates when we have sluggish growth would be a gamble. >> for my single country to raise interest rates would be worse than a gamble. you'd stand out. the world is so short of yield that the world would flock to your currency and your currency would risk appreciation and damage your economy. francine: what i was going to intimate ohn seems to some accord. all the powers of the world. that would mean china would come in and you would find a global solution. >> i think the paradigm is changing. it is all about central banks policies. trying to find an agreement, i think we're moving to something else. in a way, equity marks have been anticipating that for a while. it is the fact that the policy mix is going to have to change. the central bankers are recognizing that they are limits of the effects of monetary policy. it is starting to have a countereffect compared to what was expected in the beginning. therefore there will be a need for governments starting probably with japan followed by the u.s., maybe to some extent europe later on, certainly in the u.k. to try to start to shoulder part of the effort. in that case -- francine: but that is hard. >> everything is hard. but if you raise interest rates without having some effort on the government's side, all you're going to do is kill a growth as you said is still very anemic. what we're talking about is a solvent policy shift towards ast a bit more fiscal policy. just what is required from the entral banks to avoid this fiscal policy, i think we're going to have going forward more of a partnership between the government and the central banks to try to stir up economic growth. francine: we tried that in japan. first of all we had a lengthy conversation with governor kuroda. then there was a two-pronged attack. you look at the details, there is new fiscal funding. i don't know where the juncker plan is. i don't understand why it is so difficult to achieve, john. >> the problem is the governments have borrowed a lot of money. there is the overhank of debt. there is not unanimity as it were that more spending is -- if we had the crisis because of too much debt, why is the solution more debt? i think central banks cannot avoid being drawn into a political debate because what they are actually doing with their policys is intensely political. moving resources from savors to borrow s. it is moving people's fortunes around. that is politics. it is all very well for mark carney to say you set the policies, i'm just a technocrat. what is needed clearly is two forms of consensus. the first is between countries, consensus on whether it is coordinated to raise interest rates to boost the infrastructure spending, but also consensus within countries which means that the central bank working more closely with the political authorities. now that may be -- to those who say central banks -- is one of the great achievements but when a central bank is acting politically, it can no longer hide behind total independence. francine: thank you so much. i want to get d.j.'s take on the markets and where you should invest in this kind of environment. stay with us. up next, populism gaining attraction around the world. is it strong enough to help trump win the u.s. election? this is bloomberg. ♪ francine: this is bloomberg "surveillance." i'm francine lacqua. time for our morning must read. he writes populists of both kinds tend to enjoy limited success. he talked about trump for instance. includes ivey league students burdened with debt and blue collar workers suffering from deindustrializeation. let's see if our guests agree. john first. populism, will it win in america? >> i suspect not. i suspects that trump has left himself too much to do. but i think we should not draw comfort from that. the main message i take from the american election is not because of trump populism is having a chance, but despite populism is on the rise. and trump is a terrible candidate in many ways. he is a terribly flawed candidate yet he has gotten very close to the presidency. i don't myself think he will win, but he got very close. a better populist candidate will emerge and the message for america i think is that populism has got a hold. there are too many disaffected people. a better candidate will ride that populism to a more successful conclusion than i think trump will. so the message, even if trump loses, it is not good news for america. the real worry is that such a bad candidate got so close. francine: what does it mean for the markets. unclear, if he does win, i don't know if it is dollar positive or negative. no one knows. >> first thing, i would completely agree that the movement is much bigger. it is not just the u.s.. it is global. you have something quite similar in europe. it is much bigger than donald trump. i don't have a view on who'll win, but what he represents is basically the revenge of main street over wall street is a very powerful movement and that won't be ignored by the government which will come which will probably be hillary clinton's government. therefore as an investors, to position ourselfs in the vision at the this revenge is going to be a theme. that means that indeed the consumer, you know, is going to economic d by the policy. francine: fiscal spending. sell the banks? >> well, depends because what we talked about earlier is the fact that fiscal spending is going to need to be accompanied by monetary health as well. if you get a steepening over the yield curve, probably the banks are going to be reasonably protected but you should buy, continue to buy, which is the case six months seeing energy stocks, commodities, gold. francine: it is always a hedge. thank you so much. we're back in two. we have inflation in the u.k. ♪ francine: this is bloomberg "surveillance." francine lacqua in london. we are about to get some u.k. inflation data for the month of september. it is two days after the brexit. if you listen to what mark carney has been saying, he is ready to look through inflation and this is something we understand is also helped by treasury and at the time the chancellor george osborne. u.k. september inflation rates rising to 1%, more than expected. data,k. core inflation and i want to bring count up to see if it has an impact, 1.2262. a core inflation rises to high of 1.25% -- 1.5%. housing forludes the month of september, 0.2%. 0.1% higher than the initial estimate. let's continue the conversation with didier saint georges. john, i want to start with you because you are x boa. .- ex-boe how bad can inflation get before we need to worry? living ine feel poor london or nottingham. great problem has always been the falls and sterling do relate to cost pressures on the economy. this is a trading nation and we import quite a lot. it is how much that is pushed into wage pressures which determines how well the u.k. response to a fall in the currency. months ago people said it was too high. now we need to have the second part of that which is to retain the benefit by controlling the wage pressures. that is an unpopular thing to say because it does whether you are here or nottingham or wherever, it makes you feel poor. that is a natural consequence of a large fall in the currency. i think carney is right to say he will not resist it. after years of undershooting you must allow a little bit of overshooting. he cannot push too hard on this inflation. it risks upsetting the recovery. lot, the i hear this a weaker pound is good for exports and it attracts a lot of tourism. the problem is that it is brutal moves, and 18% move in two months. did it drop too fast to quickly? didier: i think the issue is worse than that. i think it is very much an issue of the need that the u.k. economy has to have incoming flows. the u.k. is running a current account deficit so you need to finance this deficit by inflows and if you do not get those, the currency has to adjust. i am afraid with the stance taken by the government and the fact that it is going to be very long before outside investors get a proper view of what is going to come out, that means foreign inflows into the u.k. are going to slow down. currency account deficit the currency will remain under pressure. this is not a big choice, it is inevitable that the currency will move under pressure just like it is inevitable that the bond yields will remain under pressure as well, simply because of external money. they are losing confidence in the u.k. economy. francine: we have seen a huge move in pound. will we see a similar move in gilt? to see an started increase in their yells and that is natural. if you have inflation it hurts bondholders. guilty yields were unnatural -- gilt yields were unnaturally low. about howlked monetary policy has pushed the return on all assets to low and it seems a certain number of critics of central banks, once interest rates are too low, once they start to correct i do not know that you can say central banks are right, but there is not a lot they can do when investors look at gilt and say inflation is coming, i need more yield. about thedo you worry rhetoric we heard from theresa may and people close to her that it looks like they will put come whatn first and may for the single market and passporting. if that is true and that is how you interpret it, what kind of country will we see in two years if inflation is up and growth goes down. john: what a prime minister says to her own conference has to be read through a political lens. she basically has a challenge of this united -- a disunited party, and she has to prove that she has control over it. i also think that one has to listen to what the europeans are saying. they are part of the negotiation. the europeans are also saying that it is really challenging to see a maintenance of current access to market. francine: it is more than challenging, they said no way. john: there is never no way. add, letsjust want to her member going back a couple of years ago about the negotiations concerning greece. point is these were negotiations, a lot of it were in the public domain. you have governments negotiating in the public space they have to take postures. it is absolutely essential. they have to demonstrate that they have a very strong posture and they will not give in easily . i would not worry too much about all this posturing, both sides, the european side and the u.k. side because it is part of a long-term negotiating process. andcine: if you are a ceo have 3000 people in the u.k. you need to make a decision and cannot really wait. you have to preempt. didier: you can wait a bit. he do not have to make a decision right now. you have to be prepared. it is like in asset management. there is a difference in being prepared and pressing the button. you have to have a plan b in case the negotiation gets into crisis. when we had the negotiation on greece you had to be prepared for plan b. as it turned out both alexis tsipras and -- came to an agreement but you do not want to jump ship to early because it is the normal part of a negotiation. francine: if you want to decide whether you put $2 million extra in this country the value of pound they help you a bit, but you may think again for your investments. john: i would agree with that. i think i agree that you are prepared and have your plans, but it would be premature to act immediately because we are at the early negotiations with the e.u. both sides are taking extreme postures. and i expect will be the result is that new initiatives are difficult for a company to do. changing what they currently have, the u.k. is still a member of the e.u. for at least another two years and a member with a very depreciating currency. verdasco years the economy will benefit from a weaker currency and the e.u. membership a full access. it will be a strange decision for a ceo to say, i am off today. didier: inflows would be -- francine: put under pressure. thank you so much. let's get straight to some corporate stories, the bloomberg first word news. nejra: barclays says investors should buy european equities regardless of whether the federal reserve raises borrowing cost. according to the head of european strategy in london, given the support from central banks around the globe the picture is very supportive of the stock market. has --ia's central bank says problems of maintaining -- that is according to central-bank minutes from philip lowe's first meeting in charge. one challenge is to generate inflation in an economy set by muted wage growth however he underscored the flexibility. >> we have never thought about rate ofhe year -- the inflation between 2% and 3%. andthing prescriptive mechanical is neither possible nor desirable. nejra: donald's wife defended her husband, blaming the media and negative campaign for stories about him. she made a personal appeal to voters to focus on issues other than the sexual misconduct allegations. she told anderson cooper "don't feel sorry for may, i can handle everything." jamie dimon signals he expects hillary clinton to be the next president of the usa predictive andy short of endorsement but it makes him one of the head of public banks to weigh in publicly. he was asked what advice he would give an incoming u.s. hope thed he said, i next president, she reaches across the aisle. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. francine: stay with "surveillance," plenty coming up . good news from britain's luxury center. how hot is to what? fisher cautions against the high-pressure economy. will goldman sachs continue the streak of bank beats? the wall street titan reports, those month -- numbers and analysis. ♪ francine: this is bloomberg "surveillance." francine lacqua in london. let's look at burberry. this is the british luxury maker that makes trenchcoats. reportedly climbs in its asian unexpected figures from its wholesale unit offset the effect in britain. or people have been coming to the u.k. and buying goods of burberry in the u.k. thanks to brexit, however it is still concerning. get a little bit more luxury into our lives. has fallen around 18% against the dollar since the u.k. voted to leave the e.u. it has fueled an uptick in spending on luxury items. largest one of the luxury departments stores, joining us as michael ward, managing partner at harris. people think of london and they think of harrods. has brexit helped? michael: it has. the first is the decline in french business and all of that as come to the u.k. security fears in france have driven significant amounts of volume over. we have obviously seen growth in the chinese visitor. it is still relatively small. all of these markets are much bigger than the u.k. even germany is 1.8 times the u.k. have experienced a 30% decline and everyone talks about the decline of luxury. we have only taken 13% of what the total decline of europe has been in the u.k. francine: how many chinese buyers do you have? how many come from the middle east and every time i come inherits there is a million people -- inherits there is a million -- in harrods there is a million people. michael: we have seen the movement in of the chinese, but that is very small in terms of market. number of small -- we had a number of small number of people who are shopping. if you shop in country you by 75% of that country. if i go to milan i will buy italian. it is important to all the british brands that get the visitor to the u.k. francine: 18% fall from june 24. let's say i want a louis vuitton . i say, i'm going to london because it is going to be cheaper and france. dca reversed psychology? michael: idea, but most of the brands have started to move their prices. francine: how much? michael: 10% and we are about to see another brand of a further 10% in. they want equalization prices. francine: they want to hold off on margin. michael: what they want is their luxury purchase not to seem to be bought on price. we will see a stabilization of prices and there will be an advantage to the consumer. francine: do you know how many things you sell are made outside the u.k.? michael: it is a huge proportion. francine: are you concerned about importing inflation? michael: we already are importing inflation. if chanel had worldwide pricing then we will put the price onto that bag, or we will put it and we will follow it. it is important to recognize this is a temporary glitch so we have to make sure we are ready and open to business, and that is about service and the unique proposition. francine: parties begin to your supply chains or do you ignore anything out of your control and focus -- michael: we have to do both because normally we are buying six months ahead. we are buying now for delivery for autumn winter which will hit in january. we saw this massive surge in business so we have to find the stock. paris wasy, this year suffering so we were able to take the stock and sell it in the u.k. and that is why planning next year is very important. what do we think the underlying growth of the market is and where do we think it will be? certainty from the government is hugely important because otherwise we are planning in a vacuum. francine: do you worry about brexit and what london will become? michael: i think we have in london this amazing proposition. it is one of the few international capitals of the world. francine: can we lose that? michael: i think we can. we are getting off the cough that off-the-cuff comments by ministers that i think are not helpful. in the summer the majority of britain,id we prefer it is a more lovely place to be in the summer. we have the best restaurants, theater. that soft power that britain has is hugely important. if we start to become a closed society then we will start to lose that. francine: michael ward, managing director at harrods. netflix sold in premarket trading after the company added 3.6 million subscribers in the third quarter. we will take a look at netflix and today's other market moves. this is bloomberg. ♪ francine: this is bloomberg "surveillance." i am francine lacqua in london. a burberry display featuring the fairytale of two children. customizations of british luxury cars. itrods can do it all, aching and international -- making it an international shopping destination. michael ward still with us. you are kind of the name that people talk about for being able to do everything. what is the most outrageous thing you have had to do? michael: we did a vietnamese potbelly piglet wants -- once. francine: in-store? michael: we bought it and send it to their shop. we are there to service the requirements. we have hand-delivered diamonds do fiances so they can propose in exotic places. francine: people come to you from all walks of the world. his expansion something you are noused on to make sure matter what happens? michael: we are really focused on customer service. or is only one harrods. we have to make that a magical experience. francine: the building, the service? michael: everything. it is that interaction with the customer where you feel they are not selling you something but giving you advice. you see the most amazing range of products you will not find anywhere else. that is the environment we create. we continue to invest tens of millions of pounds per year to make sure when you walk in, that is just beautiful. francine: how much does it cost to run harrods? michael: it is an ever increasing amount. francine: that is because you want the wow factor. are you ever concerned you are a tourist attraction instead of selling things? michael: who defines that. i was in fine jewelry yesterday and there was a man walking around in jeans and a t-shirt. he is one of the richest men in the middle east. they behave totally differently. we have got to service everybody in the same way. francine: do you serve your asian customers differently to your middle eastern customers differently to your american customers? michael: people come to harrods because it is british and we serve them in a quintessential british way. they have not come to see mock chinese dragons. francine: what is the british way? michael: understated way of communicating and making sure that people so comfortable. francine: i guess there is much more personalization and five to 10 years ago. vault, i do not know if we are allowed to talk about it. michael: i would say the deposit boxes are unique. they were built before the store was built. there was an old shipyard that built this cast-iron fault which is below the building -- fault vault which is below the building. francine: tell us something surprising about harrods. that mostomething customers would not know? michael: it is the fact that we have our own artesian wells that we draw the water from. francine: underneath harrods? sohael: we employ 147 chefs that everything in the food halls is fresh every day. it is that absolute drive for perfection of everything we do that stops is taking all of the easy routes. it is difficult to have 147 chefs but we do it because we want able to have the most exquisite fresh product. francine: time we do the show in harrods. thank you so much, michael ward. bloomberg "surveillance" continues the next hour, tom keene joining me from new york. withckoff the conversation anand and goldman sachs. the luxury sector, we just spoke to harrods, burberry down 7% because of trouble in asia. ♪ cold, the fedsnd fisher warns there are risks to operating a high risk economy. cpi surges to the highest in two years. three major u.s. banks so far have topped estimates, will the trend continue? this is bloomberg "surveillance." francine lacqua in london, tom keene in new york. i am sad you missed the harrods interview but we talked about a lot of things. all of that wrapped into this nice fed chat. to wonder how many empty suitcases are going to come through heathrow to fill up if we see sterling go below 1.20. it is amazing the impact. francine: he did say there are two luxury brands that increased their prices by 10% since then vote to leave the e.u. let's get to the bloomberg first word news. in iraq the offensive aimed at retaking the city of most all may lead to a humanitarian crisis. troops aref iraqi advancing and the u.n. says that could lead up to 700,000 residents to flee. their camp's could help most of the refugees but iraqi officials say staying put may be safer. investors weighing the possibility that russia could face more economic sanctions due to their role in serious civil war. uk, and germany are considering more penalties against the russian and syrian governments. urgingtrump's wife is voters to focus on issues rather than allegations of sexual misconduct. she broke her silence for an interview on cnn and was asked about that taped conversation. >> i was surprised because that is not the man i know. i wonder if they even knew that the microphone was on, because there were kind of boy talk. like egg ond on, from the host to say dirty and bad stuff. taylor: nbc has parted ways with ellie bush. he joined the today show several months ago and the interview caused an uproar. an orbital rocket has burned into space carrying supplies for the international space station, the first time they have had a up severale one blew years ago. it is the six mission under a contract with nasa. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i and taylor riggs. this is -- i and taylor riggs. -- i am taylor riggs. this is bloomberg. tom: stanford bernstein lowering their oil out book -- outlook. there is the data with futures up 11, euro backup. it is a quiet day for data. i want to focus on the bloomberg here as well. stronger, that is clearly the polling data from secretary clinton versus mr. trump. francine, as you brilliantly had yesterday, renminbi weaker again today fractionally. francine: especially as we has -- have that third-quarter gdp data out of china tomorrow. this is my cross asset check. dollar weakening, speculation about federal reserve. i will show you the new zealand dollar, called the kiwi. tom: let's go to the bloomberg. we are going to talk about stan fisher's exceptionally important speech yesterday at the economic club of new york about low rates. the white line is core inflation, the yellow line is subdued inflation. let me bring that up right now. the idea of subdued inflation, will this rise up? this is where we are in the service sector, here is where we are in the goods inflation. here is the two inflation levels right now and the whole debate is simply, do we want to get up longer and get out here? do we want to see this move up as well? we will have to see what happens. francine: we also have to see what happens with inflation. i want to show you inflation data and this is the white line, u.k. inflation, highest in almost those go years. we heard from governor carney that he will look through it but inflation in white against input. this is a concern for a lot of these retailers that you are importing inflation because of the weaker pound and you may .eel poorer to your consumer your goods that you are exporting are also more expensive. it is an uneasy economic filter for the u.k. economy. inflation, we are with paras anand with the nellis -- fidelity. give me a sense of what we should be looking at for the fed. it seems that december is very likely and then after that markets are pricing in a 50% chance of another increase next year. is that all people care about? paras: i think what becomes very interesting is looking how the movement and currency starts to influence their thinking because if you think about, just take the cable rate and look at the repricing of dollar versus sterling and the dollar on the trade weighted basis more generally, that is a form of tightening. i think a lot of it really relates to the degree to which the fed worries about being behind the curve on inflation, how far behind the curve they choose to be. i would argue that maybe one of the things that is happening in markets more generally is there is an over degree of focus on the direction of travel of the fed. as soon as they begin an interest rate tightening cycle, that is something people expect. the more interesting question is what happens elsewhere in the world. do we see the u.k. start to shift its view on the short rate policy? could we see a change toward quantitative easing in europe? i think that will be much more interesting. tom: i thought the fisher speech yesterday was arguably the most important i have heard of the economic club of new york. he gave a lecture on the i.s. curve. on ais professor fisher high pressure economy. >> there is a point at which if you kept cutting the interest rate you would get a perverse effect because as you cut the interest rate, you are essentially telling people the rate of return, you are being charged for the privilege of lending to the government. the more you are charged, the less income you have left. tom: vice chairman fisher yesterday. i was thunderstruck by the detail you went into about the i.s. curve, which is the real economy. link what institutions like the fed and the bank of england are doing and how it. over to the real economy. the thingsink one of that is interesting about looking at monetary policy is that the question of, at what point do you get to a situation working, and that you start to actually undermine confidence in the economy. if we look back at the economic history, we have sort of been through this journey when we look at things like the laffer curve, the point beyond which go down.pts start to i wonder if something similar could be applied to a monetary policy. by the time you cut rates so far you undermine confidence in the economy and the stock of the money goes up but the velocity collapses. i think there is a more general conversation and that is the position we are in at the moment. tom: i spoke at length yesterday to carl riccadonna a bloomberg economics and he pointed out the idea that this is a fed that is beginning to trade -- train the public on lower for longer. are you managing for equities for the stock market, assuming lower for longer in our new economy? paras: i think there are some dangers in terms of trying to based onuity strategy a perspective of interest rate policy. let me try and explain that in a different way. let's say you assumed that you are in a lower for longer environment. one of the conclusions you could draw is that maybe the equity market is undervalued. so the logic would go that the equity risk premium based on historic averages is particularly high at the moment and therefore if you normalize that, then you could see markets making progress. my problem with that argument is that it really only looks at one component of the challenge, i think if they equity risk premium is high it might be high for a good reason. that might be because the degree of technological disruption and evil lucian in the corporate sector could be so substantial that that could be a much greater -- evolution in the corporate sector could be so extensional that that could be a much greater factor. tom: the key phrase i heard from mr. fisher was complex mosaic. it was an extraordinary speech. thrilled to have paras anand with us with fidelity international. will continuewe this conversation with someone who believes in owning stocks, and yes, weof gamco will speak on apple. this is bloomberg. ♪ francine: i'm francine lacqua in london, tom keene in new york. this is bloomberg "surveillance." we have to look at the burberry share price. they came out with figures today. makeritish luxury reporting declines in its asian unit and worse than expected results and its wholesale unit. that is basically offsetting the boost we had in the u.k. a weak pound means they have been selling more goods in the u.k. that was not enough to offset the troubles in asia because of the crackdown on corruption in china, for example, where a lot of gifting was clamped down on. burberry is down 8.8%. it does not seem to be impacting a lot of their rivals. peak and 35% from the more on that when we open up in the united states. to me it is just fashion mix. ,t is about china, i get that it is about sterling, but isn't it about also stuff you want to buy? francine: that is a fair point. we saw gadfly copy on this and they said, they had a ceo and director, christopher bit -- christopher bailey, and he will step down. let's get back with paras anand. luxury, is it a problem for certain companies not having the right products or is this more a problem with asian demand? paras: i think there is multiple factors at play here. first of all, you have to look at the fact that the boom that we saw in asian demand going back a few years allowed a lot almostanies to grow and repositioning their propositions. we saw companies, arguably every is one, that went through a pretty profound restructuring, repositioning of the company. that is a very different story rmes where the products have a certain longevity and are not bought on a fashion decision, but on a much longer term decision. when people get more selective about their spending they tend to revert to brands they know will basically hold their value or fashion proposition overtime. francine: gucci was not doing great years ago and they brought in someone new and now it is turned around. away from fashion, away from luxury, let's turn to banks. three major u.s. banks have topped estimates. will the trend continue? a bloombergd by gadfly columnist lionel laurent. they have been making money in the trading unit, will we be seeing the same from goldman sachs? rising.the bar is i think goldman is a trading powerhouse so if we see the other trends -- the trends as the other bank, we should see a strong beat. tom: lionel, or they the best run bank in the world? they are not a bank, they are not giving out toasters and it is not a fair comparison, but is goldman sachs the best run bank? lionel: from where i sit which is looking at european banks i see that basically the u.s. banks are pretty honest about profiting from a european bank pullback. i think a lot of these banks are thinking deutsche bank and benefiting from picking up marsh #it shares. i know the year -- picking up market shares. francine: when is the last time you opened a bank account? i do not think they give away toasters anymore. maybe that is the next frontier. continue please. tom: bring up this chart. i am doing this real quick. we can do that on the bloomberg. this is goldman sachs, morgan stanley, and jpmorgan. goldman sachs is in the middle of the pack. here is the excellence in jpmorgan that we all know about. the lacquered down here is the issue. when you talk about need for merging, do you just assume the underperformance, deutsche bank, morgan stanley, they have got to find partners in the next coming years? lionel: pretty much. a lot depends on the banks individual abilities to cut cost . goldman is proving that banks are having to ask for the deepest cost cuts in years so i do not think we should just .ocus on the mergers i think the banks need to clean themselves up first but it is reports of hearing potential cross-border approaches especially in europe. hopefully the regulators will get behind them. francine: it is amazing, the difference between a u.s. bank, largely investment, compared to europe. paras: we have quite a heterogeneous banking sector in europe. there are much more traditional retail banks and obviously the banks that you referenced to in the u.s., investment banking is an area where europe is doing much less well. opportunityerm becomes very interesting when you look through the lens of valuation. evaluation of european banks in banks in the u.k. is that quite a discount to the u.s., so there are certain issues which are kind of idiosyncratic specifics of the bank but others for the sector more generally. .he outlook for regulations if you can get yourself quite comfortable with those factors, the banks in europe could be more positive than people realize. tom: let me do a data check. i'm going to call it a quiet churn within the market, clearly looking for news. the vix does better over the last number of hours, sterling with a left. dollar-pay so stronger. this is bloomberg -- dollar-peso stronger. ♪ francine: i am francine lacqua in london, tom keene is in new york. it is time for our morning must-read. i picked out something that has gotten quite a lot of traction in the u.k. william hague writes a blistering essay saying central the whole point of their independence, that they could be brave enough to help people face reality that they are blowing up a bubble of make-believe money to avoid immediate pain, except for penalizing the poor and the prudent. there is huge public debt and more and more public anger. we are here with paris an end. -- paras anand. days dammed if they do and and if they don't, the matter what they do. if you speak to way central banker they will say if i have not done something it would be much worse. paras: i have lots of sympathy from that perspective. at the beginning of a solvency crisis, the idea of giving yourself extra liquidity i think makes a lot of sense. by the time you started to confuse that with thinking you are using low rates in and of themselves to fuel economic i do have some stuff, maybe not with the strength of language but with the sentiments expressed by mr. hague. you do end up causing more distortions in asset markets which have very real, unintended consequences on the real economy. the hague essay, and i remember foreign secretary haig sitting in dubai when i spoke to larry summers. the key sense for me is the idea of to avoid the pain. all in all, the crisis is a new calculus to delay and delay and delay. where would we get -- where did we get that idea? paras: i think that one thing that you could argue is that perhaps central bankers became too sensitive to the response of , such as the equity and bond markets. that marketn see reactions often precede statements from central bankers which are sort of supportive. before,i have said this to me there is a central paradox between the idea that on the one hand the ecb says we have run the stress test and we feel the banking sector is robust in a quite macro -- difficult macro situation, and you have week data out of china and they have to move on that. tom: paras anand with us. bloomberg technology today, we'll talk lyft. ♪ "surveillance," it is time to get medicated. we are going to talk about heathrow airport. this is a huge deal worldwide. francine: i need medication. london.ncine lacqua in i think it is a lot better than it used to be. taylor: hillary clinton's desperateas been traditionally republican state of arizona and it sites, adding $2 million to its ad budget. one of her most important surrogates, michelle obama, will visit on thursday. says hisump's wife boasting of unwanted sexual advances were nothing more than way talk. she spoke with -- boy talk. she spoke with cnn and said the allegations were concocted by the media and clinton campaign. >> everything was organized, every friday something comes out so they play, they play. it was hour after hour. hourched tv hour after bashing him because they want to influence the american people how to vote. says voters should focus on the issues rather than allegations against her husband. a record number of central american families fleeing violence have crossed into united states. the number of children was aanied by relatives 23% increase. ecuador has cut off internet access for julian assange according to wiki leaks. he has been holed up in the ecuadorian embassy in london under diplomatic immunity and is trying to avoid extradition to sweden for an allegedly sexual offense. the u.s. has accused russia of providing wikileaks with stolen e-mails to undermine the u.s. election. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. ryanair has cut its full-year today. let's get more from john strickland. us this paras anand. this would probably be very painful for michael o'leary because he had campaigned for the u.k. to stay within the new and he has held off trying to not cut profit guidance. fares andound ways on has an impact on yield. john: pound sterling is such an important currency with about one third of their revenues being earned in gdp -- gbp. they are indicating they are going to work against it in terms of pressuring cost reductions by driving volumes, and they have a stunning performance filling their seats. would have tothey remit sterling into euros is a fundamental problem. francine: could they hedge? john: they could have already. francine: could they had to now? john: there's so much volatility we cannot tell how things will play out. francine: it is a currency play. john: absolutely. ryanair is the strongest of a lot. they are the ones who had until today to maintain their guidance and we have seen other players issue profit warnings. i'm sure is with -- i'm sure it is with great reluctance that ryanair did so. francine: this is a play on pound and currency further non-airlines but a commodity play in oil. a lot of them were hedged wrongly. can they recover? i think it comes back to looking at the attributes, and ryanair has a cost advantage versus a lot of their peers. they are also expanding the routes that they fly and i do not think brexit changes people's appetite for traveling abroad. as john was saying, you have to take a step back to king at the short-term volatility and try to look at the longer-term attributes of the business models. iag.this is british air, the circle is brexit and down we go. that is an ugly chart. is this the mother of all buying opportunities, the excellence of what british air has done at terminal five and worldwide. then down we go. or is it the mother of all heathrow buying opportunities? is still the most strong performer and they have issued a profit warning. heathrow is certainly their powerhouse. brexite also touched by but have a diverse exposure to global markets. if you want to come to the u.k. and you are a business traveler, heathrow is the airport you will come into. it is already's -- already constrained. tom: i literally says this the evening after brexit when london was no. is it the first order condition for any prime minister to say, we are open for business, we are building heathrow? imperative,k it is a clear signal that we want to be a global player of increasing stature. if we are going to move away from the focus of e.u. market we want to develop trade relationships and we have to have a gateway where airlines can get in. we have seen them struggling to get into london or if they have , it seems that they have. tom: does heathrow make money for people of the united kingdom? john: it is a massive contributor to the economy because it facilitates trade and tourism. it is one of the biggest sources of cargo and trade. it is not just freight aircraft that fly target -- cargo around, it is these aircraft at heathrow. francine: this has been hugely controversial because a lot of the environmentalists were against it. people living underneath this flight path which is one quarter of london have been arguing against it. understand,t really i understand it is a great message to say that we are open for business. the government seems to say we do not mind losing passporting but we will give you heathrow to make it a little better. it does not match up. >> when you talk about infrastructure, these are very long-term investments. companies and economies reap the benefits of investments in infrastructure over decades so i think this is as much a strong long-term political message about the role of the u.k. in the global economy. what it touches on is the fact that we could be in an environment where the investment in infrastructure more broadly actually starts to move in a more positive direction. francine: does the city not need passport? cityeed to protect the before building a new runway to make sure people feel good about the fact that we have international business access. john: the two go together. we need to be able to access key financial markets in europe and around the globe, and all of of the business sectors -- all of the business sectors. are deciding not to come to the u.k. because of lack of access to heathrow. --: i have a killer question why did they move the champagne and salmon bar that was right outside terminal five, british air? help me. you are starving, you get to the airport. prep kind ofm a girl. tom: they moved the bar. john: that is a question you have to put to british airways directly. francine: champagne and salmon question, known as the pressing question. how do these terminals get dealt? -- built? john: in an airport like heathrow they can literally have pop-up shops. to have such a diverse clientele there is an element that the retailer and beverage has to vary almost by the hour. that can be done in a sophisticated way, what outbound japanese travelers might buy good be different from what a holiday brigade to the metro cop -- to the mediterranean might buy. champagne.almon and tom: john, do something about jfk. john strickland, thank you so much. the difference between heathrow and jfk is absolutely shocking. we are going to continue with paris and on from -- paras anand from fidelity. -- williamke and mccann -- this is bloomberg "surveillance." ♪ tom: good morning, everyone. ," i amrg "surveillance tom keene in new york. francine lacqua in london. let's go to abu dhabi with tracy alloway. cyborg, a thing called it is becoming elevated. what does short-term paper say about the banks of the middle east? tracy: nothing good, tom. is at abouth cybor 2.36% as of monday. it is unchanged today that the trend has been up. i know you like to say that slope matters. the slope is definitely going that way. the problem is that saudi banks are under a lot of liquidity stress and it is showing up in the intra-bank borrowing rate. the most pressing concern is the eventhat it is going up though we have had some action from the saudi arabia and monetary authority to try to bring it down. we have seen them object about $5.3 billion worth of liquidity and it has not had much of an effect. there are some analysts who say that saudi banks could actually benefit a little bit from the rise in interbank borrowing. maybe that lifts up that interest margins generally. most people are worried. of: let's look at the chart go, there is the lead up. how limited are they because they do not have currency flexibility? there is an excellent question. the saudi reality is pegged to the u.s. dollar -- saudi rail is pegged to the u.s. dollar. prices, theyer oil start running out of dollar-denominated assets. i would say this does not get enough attention in your neck of the woods or francine's. ais is the retreat of significant amount of petro that were once circulating in the economy and are now being brought back home to support that tag. g. pe u.s.ssue is how many denominated assets to saudi arabia still have? we have seen a decline. day,ine: the story of the saudi arabia had their first international bond sale today. what can we expect? tracy: this is the talk of golf capital markets and we have been talking about it all week. expect more and more. there is talk we could get pricing today or early tomorrow. first saudi international bond sale in over a decade and a lot of investors are not familiar with the paper. we are not exactly sure of the timing, but the roadshow in new york wraps up today and if we do get pricing tomorrow, that is essentially a moment of truth for saudi arabia that will show the degree to which it should be able to tap international markets to plug its budget hole. tom was excited about the pricing guidance we spoke about yesterday. 130 overill looking at the lowest end of guidance. for the 30 year trench, the higher end of guidance is 330. it will be an exciting time for capital markets. expecting frome the articles i'm reading, is quite strong demand. question.t is the remember that traditionally the buyers for saudi bonds were actually the saudi banks. now with the liquidity stresses on their portfolio, the need to increase provisions for bad loans, they might not actually be there to the degree that they once were. hence saudi arabia heading to the international markets. there are some big investors in places like asia who might be enthusiastic. it all depends on the pricing, the premium. we do not know how juicy the liquidity premium at saudi arabia will offer investors will be. they are raising between $10 billion and $15 billion so there might be a liquidity concession. tom: tracy alloway from all the dobby this morning. -- abu dhabi this morning. coming up in the 7:00 hour, daybreak, we will speak on oil. from new york and from london, this is bloomberg. ♪ "surveillance," thrilled you are with us. howard ward with us in the next hour and we will look at apple among other worthy equities. right now with the worthy business flash, here is taylor riggs. a finalvolkswagen wants sign off on its 14.7 billion dollar settlement. a still do not have regulators to do all the fixes. that may lead the w-2 one option, buying back the cars. shares of netflix are surging. they signed up 3.6 million subscribers in the third quarter. they have put aside investor concerns about slowing growth and they plan to spend six billion dollars on programming next year. brexit did not help burglary enough to make up for their problems in asia. -- burberry enough to make up for their problems in asia. sales in hong kong fell more than 10% in six months. a boost in tourist spending in the u.k. after the brexit vote. burberry shares dropped as much as 10%. francine: thank you so much. , down 7.8% onry the back of disappointing figures in asia. we have the queen of charts, hillary clark, who made me this chart looking at inflation in the u.k. for handbags and accessories. blue is the european inflation data for handbags and accessories and you have that for the u.k.. we are back with paras anand. how much of this chart is a pure inflation play and how much does it have to do with purchasing power, or pricing power? paras: i think what the chart is a good illustration of is if you were to look at the top line, revenue growth of the luxury goods sector going back to the early part of the decade you can see that pricing was an important part of that revenue growth picture so the total revenue growth for be a combination of price inflation and volume growth. what you can clearly see is the price component has gone out of it. you have been issues of demand from asia which hit volume, but you can see on your your k-european chart -- u.k.-european chart, the lack of inflation. hike, the u.s.ed elections, the brexit, what would you invest in? paras: i would come back to a point that tom raised that the idea of a strong consensus opinion that we are going to be lower for longer on interest rate perspective. despite all the background noise on inflation, people are still accommodativee an stance from central banks. i think that represents a potential risk to some portfolios if we look at the leadership of the market. i think one of the things i would suggest is that actually what investors should be doing is entertaining more the possibility that inflation continues to surprise on the upside and the perception around rates moves quite quickly over the next three to six months. tom: help me here with what i heard from vice chairman fisher yesterday, the idea of lower rates, we may have to get used to it. help me with an actuarial assumption that is out there right now for investment. do you presume it will drive to worker, needing longer and longer and putting more money aside? paras: i think we sort of touched on this earlier. it is that translation of looking at that discount rate and looking at it in an actuarial context might be somewhat misleading. if you look at it in a cost of capital type framework what we might be seeing is the cost of capital remaining quite high. this low policy rate actually is not the discount rate should be using to value equity. to think about things like actuarial valuations kind of disguises what actually may be going on in the underlying economy. tom: it is an incredibly important insight. you are telling me everybody watching this worldwide is going to work on a 6% actuarial assumption and not a 4% assumption? paras: one of the challenges we are facing is an increasingly complex economy, means that the conventional way we have been trying to measure economic activity i think is proving very proximate. and so a lot of the perception that we are seeing or the decisions we are seeing around monetary policy for example, and actually 6% band relies on traditional ways of measuring economic activity. i think that is one area where we could be slightly aiming off. hence the true underlying growth of the economy, the true economic activity and the true discount rate we should be using might be higher than people are assuming. tom: this is really, really important. paras anand from fidelity. about, stay with us. ♪ tom: professor fisher gives a lecture on the i.s. curve. carneyrever. forever. we consider free cash flow or the lack thereof. howard moore joins us on the apple/netflix distinction. will or will not clinton and/or trump discuss policy? this is "bloomberg surveillance ," live from new york. this is tuesday, october 18 diane tom keene per it. with me, francine lacqua. professor stanley fischer with a great speech yesterday. it went to the challenges that mr. carney has with less inflation. francine: again, this is the kind of market we are in, so the vice chair speaks, stocks rallying around the world. the dollar is sinking. howard will talk with more about that. let's get to "first word news." taylor: in iraq, the offense at ataking mosul may lead to humanitarian crisis. thousands of iraqi troops are advancing on mosul. the u.n. says that could lead up -- that could lead up to 700,000 residents to flee. iraqi officials say that staying put could be safer for people living there. russia has announced a temporary suspension of the bombing of aleppo, calling for civilians and rebels to leave the besieged city. hasrussian defense minister said that the air force needs to stop strikes on the city where 250,000 residents are trapped in rebel held eastern neighborhoods. discussing efforts to resolve a war in eastern ukraine. donald trump's wife is urging voters to focus on issues rather than on allegations of sexual misconduct third melania trump broke her silence in an interview on cnn. she was asked about her conversation with billy bush. melania: i was surprised. i wonder if they even knew that the mic was on because it was was of boy talk, and he sort of egged on from the host to say dirty and that stuff. taylor: meanwhile, nbc has parted ways with billy bush. the talk caused an uproar among staffers. time thehe first international space -- an earlier model glue up two years ago. an unmanned spacecraft was launched from an island off the state of virginia. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. the datas get to quickly. i want to get to the bloomberg and then to howard ward. euro stronger, oil churning. let's go to the next screen. currency dynamics -- sterling stronger, getting your attention. the renminbi weaker. this is an and -- this is important -- the dollar-renminbi -- the dollar-peso. this is what i am looking at. reallyf all, burberry disappointed in terms of sales in asia. there is a translation effect. it was not big enough to offset the trouble they have in wholesale and in asia. burberry is one of the biggest losers, down 8%. -- marklation rate carney said he will look through it, but it is impacting the pound. i want to show you commodities and stocks. tom: the stan fischer speech yesterday was incredibly -- was exceptionally important. it was brilliant, a lecture on where we are and where we are going and what it means for everybody watching and listening to "bloomberg surveillance." here is service sector inflation, and everybody is bent out of shape about the move up in service sector inflation. here is goods, deflation down here. here are two inflation indicators. headline cpi in blue, core in red. in the middle of his speech, vice chairman fisher made it clear that the unemployment rate is almost where we wanted, and the inflation rate is almost where we want it. you have to move on to a new lower rate regime. it was a brilliant speech. francine: it was a brilliant speech, and certainly it is where the markets are getting their impetus or non-impetus from. -- id a significant mention inflation, the rate surging to the highest level in two years. i wanted to show you this very important chart. expect to be talking about this for a long time. prices..k. in put we went to the managing director of herod's about amount hour -- of harrods about an hour ago. importing has become more expensive. it is kind of a vicious circle, and i am not sure what the end game of all this is. tom: we are thrilled to bring you howard ward, who has been right, right, right on higher equity prices. down, buy cash and theh equity stocks, world would go on. why do you watch the fed right now, and what are you watching when you try to observe our howard: the fed is clearly setting the stage to raise rates before the end of the year. they seem inclined to want to do that. stanley fischer's talk yesterday -- he seems concerned that you can overstay your welcome on the downside, you get inflation out of the bottle, and you can contain it. tom: let me interrupt that. here is stanley fischer right now on letting it out of the bottle. howard ward nails this, on a high-pressure economy. stanley fischer: there is a point where if you kept cutting interest rate, you would get a point -- as you cut the interest rate, you are telling people the rate of return -- you are being charged for the privilege of anding to the government, the more you are charged, the less income you have left. there is stan fischer on a high-pressure economy. is it good for you? howard: i am concerned that the fed may be raising rates right into the teeth of a weakening economy. some of the inflation data that you have just shown -- some of that is a lagging indicator. periodsee next year is a of continued tightening of -- or lowering of profit margins, so i think we are going to be looking at earnings estimate reductions, very low nominal gdp growth, and the likelihood that growth next year will be weaker. tom: this is absolutely critical, and this goes to the work you have done at jan: for years. here is the real growth economy, here is inflation. if we get a better feel, the real economy will come back down with more inflation. howard: we have gone from sub-4% growth to sub-3% growth, and now we are looking at potentially years of sub-2% growth. that makes the economy more fragile to unexpected bumps in the middle of the night. i would be concerned the fed would be tightening at precisely the wrong time. rates have risen, oil prices have risen. monthly payroll numbers have declined. business confidence has declined. i think maybe this is the wrong time. and of course we have this election. the election itself is not a game changer, but there has been an increase in protectionist sentiment. the biggest factor in global gdp is world trade. anything we do to slow it further is going to be bad news for global economic growth. francine: what you are saying is almost a vicious circle. we have an important essay written by william hagan, who telegraphed this morning. -- in telegraph this morning. because of politics, and it goes back to trade and the fact that there is populism, do central banks simply need to stop doing what they are doing? talk every day in the office about how this is all going to end in terms of the central bankers. we are not sure when that is going to be, but it seems to me that they are between a rock and a hard place. legitimate reasons, feel it is necessary to move toward normalizing rates, and yet the act of doing that is likely to further slow economic growth and get them -- it is very hard for them to see where the progress will be. how do they normalize rates, how do they let their balance sheets normalize yeah cap this is going to be a long-term -- how do they let their balance sheets normalize? this is going to be a long-term project. the rates of return, the assumed assumptions -- 7% -- i heard comments about 6% assumptions on returns, though those may be high. as far as stocks, it is nominal gdp. is 2% or 3% and dividends are 2%, you are at 5%. tom: to an observation carl riccadonna made yesterday -- are the fed officials beginning to train us for the howard ward economy and new lower nominal gdp economy? is that what stan fischer was doing yesterday? howard: that has to be part of what is happening here. laying the groundwork for lower expectations. as far as the stock market is concerned, the key thing is going to be the trajectory of earnings. we have had a year of no earnings growth. if the expectations of next year -- i think the numbers are too high, and they will have to come down. which costs, -- wage costs, declining revenue growth will squeeze markets. -- will squeeze margins. i do not see how we get a lot of growth. tom: we are getting to see how signs outside of stores in manhattan, dean maki at 72% economics yesterday -- he was in -- -- at point72 that goes to the crux of the situation. we will have plenty more on that. next, howard ward of gamco stays with us. bloomberg tv will have live coverage of an event at 11:40 a.m. in new york, 4:40 p.m. in london. this is bloomberg. ♪ tom: it has been extraordinary. for those of you worldwide, it is unparalleled in the nation's history. maybe you go back to 1802, but has been extraordinary politics of this nation. joining us now, he has seen this before. marty schencker. good morning. wonderful to have you with us. let's get the debate out of the way. the candidates going to show up at the debate, or is even that under question? marty: they will both be there. they are both preparing in different ways. hillary clinton is having no public appearances as she gets ready for tomorrow night. donald trump is on the campaign trail, but he is always prepared. tom: i am prepared to read "foreign affairs magazine" cover to cover to help me understand what is going on in marty schencker's world. bring up the fareed zakaria quote. this is extraordinary. this is a terrific issue about populism, about what we are living now. populism means different things to different groups. tom: marty, he goes right to culture, is what this election is about. do you agree? marty: i agree populism is an important theme, but it is not just for this election. what we really are speaking about is what happens to those people who believe they are being patriotic. if hillary clinton does win, where do those people go? that is the real question for this political system and others around the world. think the factu that donald trump, even if he does not become president, has gone this far, will change the political system in the u.s.? he is a very flawed candidate, but it seems there is an appetite for a populist candidate. i do not know if it changes the political system. if you are referring to the two party system. but it will have 2 -- both parties are going to have to address -- how do you deal with a large section of the population who are suspicious of government and feel they are not part of the process? those people have to be appealed to in some way. francine: why are the emails from wikileaks not as damaging for hillary clinton? marty: because, as you can tell, donald trump seems to ratchet up the controversial comments at a media ise -- in the following those things and not following wikileaks. i do think postelection, if hillary clinton does win, those wikileaks revelations will come back to haunt her. tom: marty schencker, thank you so much. our coverage tomorrow through the day and tomorrow night on the debate. howard ward is with us from gamco. this is separate and removed from your world, but it is not, is it? howard: it is a lack of a robust economy that has given rise to the economic discontent. tom: stan fischer with emotion said, "growth, growth, growth." lifebloodowth is the of a good economy and your citizens being happy. tom: does a candidate matter? howard: a candidate does matter, tom. i'm sorry to say that, but it does matter. in this case, it is not a pretty picture. francine: how do you position yourself ahead of november 8? howard: i do not believe this election is going to be a game changer. i believe the end result will be sotinued divided government, there will be no dramatic changes in policy. i am not focused on that in terms of the portfolio, but i am tamping down the beta on the portfolio, in expectation of earnings season that gives rise to some very disappointing guidance for next year. myself a bitcheck from what i think is going to be some unwanted downside volatility in stocks over the next couple of months, and i think the data over the course of the next several months will give further credence to this view that global economic momentum is slowing. tom: howard ward with us from gamma oh. i want to talk with howard ward amongamazon and apple, others. tomorrow, our coverage of this debate. do you think we would be here after the first or the second debate? mark halperin and john heilemann with wisdom, 8:30 tomorrow night. an extraordinary time for the nation. ♪ tom: good morning, everyone. "bloomberg surveillance." futures are doing better. 67 as well.up francine? thecine: let's get to "morning must-read." do you have something on netflix? tom: i do. let me get to this right now. this is absolutely brilliant. this will be must-read by all on global wall street. feel the next foot -- feel the next flicks -- feel the netflix burn. tom: i thought it was a brilliant piece by ovide. francine: their spending a lot market shareet internationally. if you look at the number of subscribers, it is better than expected but still going down. if you have a product that people want to watch, you regain market share. you regain subscribers over the longer term. tom: absolutely. howard ward -- do you own netflix? howard: i do not. i simply cannot defend it. tom: let's bring up something we understand. bring up amazon right now. this is an extraordinary chart. amazon, the juggernaut, with a 15-year regression. here is what you will not believe. we are on trend. right now you are buying the end of next year's trend. you extrapolate it out. it is not all that rich, howard, is it? howard: it is 18 times next year's ebitda. that is very defensible. from 2016company that to 2018 is expected to post earnings growth at 17%. tom: take the trend, extrapolate it out to where we are right now, right there. all you need to know is you are buying the end of next year's earnings, and this juggernaut is growing so fast. francine? francine: the problem with amazon is that they are growing, but at the expense of margins. their prime subversion makes it difficult for markets to make money. our technology stocks overvalued? howard: it is hard to make a general statement like that, francine. what we have seen in the last three months is really the stocks.ce of the fang those with the exception of netflix. facebook is at 26 times forward 12 month earnings, growing at 40%. google is at 20 times next year's earnings, growing close to 20%. we have talked about amazon. netflix is its own thing. i do not think those stocks are overvalued, so i think that those stocks have much further to go. on: howard ward with us amazon as well. coming up, john zimmer -- look for that later today. ♪ tom: "bloomberg surveillance." let's get to "first word news." taylor: hillary clinton's campaign has the state of arizona in its sights. it is adding $2 million to its advertising budget for the state. clinton -- one of her most mostt -- one of her successful surrogates will visit, michelle obama. donald trump housewife says his boasting of unwanted sexual advances were nothing more than boy talk. milan melania trump said the allegations were concocted by the media and the clinton campaign. every friday something comes out, so they play, they play, they play. it was hour after hour. hour.hed tv hour after they want to influence the american people how to vote. taylor: melania trump says issuesshould vote on the rather than the allegations against her husband. according to the government, the number of children accompanied by relatives coming into america across the mexican border was also the highest. there was a 23% increase in migrants last year. ecuador has cut off internet access for wikileaks founder julian assange, according to wikileaks. ecuadoreen holed up in since 20 -- in the ecuadorian embassy in london since 2012 in order to avoid extradition. the u.s. has accused russia of attending to undermine the presidential election. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. francine, breaking news with blackrock? tom: i have it over here, taylor. let's go to black rock with a pretty good report. operating margins are expanding out as well. there is the summary. we will have much more on that through the morning. francine? had earnings from burberry. people are focusing on the fact that brexit meant the pound was falling. getting a boost to other sales here. now you can see investors are focusing on the troubles at burberry. wholesale, and you can see the stock price under significant pressure. wasbritish trenchcoat maker saying basically the asian couples for larger than the brexit good news with a pound falling. to a retailraight reporter for many years. howard ward is also with us in new york. great to have you on the program. we were discussing it with tom. they had trouble in asia. , but is thereale a trouble with the product? >> that is exactly the problem. -- what theypact -- there were some really encouraging signs today that they are doing that. they said the most fashionable garments sold better. they had a new bag, a bridal bag, and that was the best-selling item. where they are doing the product invasion, they need to do more of that. there waiting for the new person to come in in mid-2017. the share price is down by 8%. how much does it have to do with the fact that analysts were maybe expecting too much. andrea: i think they were expecting a little bit too much. they were missing out with the pound falling. there was a big run-up before today. house, is a story of one and i will be blunt, that watching burberry the other day, nothing fresh and nothing is new. howard ward is with us from gamco. you like luxury. there is this whole concept of a conglomerate of many different houses, and just lvmh -- bring up the chart here. lvmh your wallet is what means in english. it is real simple here. this is the death of luxury. howard, luxury is terrible. howard: it has been a great place to be. not so good a place to be in the last two years. that goes to europe, china, and japan to a lesser extent. my while it gets lightened up. what is this? howard: some of these numbers are starting to turn up. going back to burberry -- burberry is primarily an apparel luxury. fashion is really tricky, hard to get that right consistently. i would not want to go into an up. personally. i would much rather prefer lvmh. ,rancine: let's take it back to a lot of investors invest in lvmh. i know tom knows these because he is a bit of a fashion guru. the product, right? this goes back to what andrea was saying. gucci do very well. this is why the stock price goes up. how much of that is in burberry's control? howard: personally, i use burberry here and i have a burberry raincoat. the problem is it is 30 years old, maybe 35 years old. again, it is fashion. is it current? is burberry as global a brand? does it sell as well in asia? gucci? sell as well as a i am guessing probably not. tom: i look here at luxury. is there too much product out there, andrea? theea: not if you have right put out. if you have the right out, you have as much as you like. i was counting the girls with their lvmh around the pool and the beach. those bags are so popular. burberrysell, where just does not have the bags that is going to make younger people particularly go out and spend. tom: andrea, thank you so much. andrea felsted this morning on luxury. we are going to look at caterpillar. let's be blunt. the ceo was shown the door. it is an interesting time in global commodities. ann will beest -- joining us from j.p. morgan. this is bloomberg. ♪ francine: this is "bloomberg surveillance." straight to the bloomberg business flash with taylor riggs. taylor: in the u.k., there's more evidence that tesla ceo dave lewis has the country's -- tesco's ceo, dave lewis, has the country's largest grocery chain back on track. it was the only one of the u.k.'s top for grocers to increase shares -- increase sales. now, investor concern has been for slowing growth in netflix. "bloomberg business flash." tom: what we have seen over the last couple of days, howard ward is with us from game cope. and christine harper joins us, who essentially invented modern financial reporting at bloomberg. christine, thrilled to have you with us today. let's start with a rhetorical view. bank?ldman sachs christine: it is becoming one. it is considered a bank and they take deposits, and most of that has historically been done through its wealth management business. that theyave open up have opened up an online bank. they are becoming much more like a traditional bank. they do not have branches around the country, but a lot of people say the future of banking is not having branches. tom: do they have the pressure to outperform? young hot see us yesterday asked questions of -- christine: one area of popular haveure this quarter, you seen j.p. morgan, citigroup, bank of america all beat expectations. that is the real wheelhouse. at least expectations -- tom: let's look at two outstanding bank of america yesterday. brian moynihan, get it going. morgan, back to 2009, the lehman low. goldman sachs own or just get back on the j.p. morgan juggernaut? we do own some j.p. morgan in the global fund that i manage. sachs, you can make more of a valuation argument for it because i believe the share price's trading right about in line with tangible book value. paying basically tangible book for the stock. if they can grow their book overtime, which you would expect them to be able to do, you would think that would be a moneymaker. j.p. morgan has the cash flows that are more dependable. it has the deposit base, which is better for funding. it is a less risky investment with a big fat near 3% dividend yield on it. the more conservative investor would probably be better off with j.p. morgan. for a longer-term investor who can live with more volatility, goldman sachs at tangible book value is probably not a bad place to be. is atine: volatility hallmark of the goldman sachs stock price. francine: is there a danger that goldman sachs -- that we are expecting too much? looking at some of the bloomberg intelligence reports, they were saying the 2016 earnings consensus rose last month. this may be a sign that it is frumpy or that analysts are pushing up and it cannot keep up. christine: people have been pushing it up because they have seen cost cuts at goldman sachs, is strong fixed income results at competitor banks. goldman sachs tends to outperform the market on fixed income. the expectation now is very positive for goldman. there could be disappointment there, but everybody is looking for a strong number. francine: aside from the obvious, what are you looking out for when these numbers cross the bloomberg terminal? is it client sentiment? is it trading outlook? howard: when it comes to come is like goldman sachs, earnings estimates for these companies looking out more than a quarter to takeemely difficult with more than a giant grain of salt. no one really knows what these companies will earn because the businesses are too volatile and the -- the expectation risk is too great. tom: what is the line of succession at goldman sachs? mr. by find has been quite sick. christine: that is a really good question. what we hear from goldman sachs lloyd blankfein's illness has been treated. it seems to be ok. he is actually doing quite well now. i do not know if there is any kind of emergency that he will have to step down anytime soon. but he has been the ceo for 10 years, a long time, so there are a lot of questions about which direction they will go in with the next ceo. i think mark swartz -- he became a partner the same year as lloyd blankfein. he is of that era. china was sort of his baby, so it was interesting that he retired and they did not replace him in that role. they have been scaling back in asia. the story is more about there may be slightly reduced expectations for the asia business, maybe less that he did not think he was a successor. tom: this is a good time to drop in the caterpillar news. do you believe in a separate chairman-ceo capability, or you can -- or can you combine the two positions? howard: i think you can combine the two positions, but every situation is unique. a lot of ceo's probably should not be chairman. where do you weigh in with all your experience? obviously you have people like jamie dimon, who are so popular with all of these groups, that he win support for doing both roles. it was interesting that wells fargo just accepted when they named the new ceo that they would have a second chairmanship. stay with us will for the next break. j&j just came out with increase earnings. they increased guidance. they sold a lot of band-aids. that is the headline howard ward needs to know and you need to know as well. j&j boosts their forecast. some earnings coming out -- howard ward almost happy on our set this morning. the sterling stronger, from 1.21, nicely up to 1.23. the mexican peso showing the clinton lead in the polls. stay with us. worldwide, "bloomberg surveillance." ♪ tom: good morning, everyone. "bloomberg surveillance." let me get the foreign exchange. the mexican peso is stronger into the debate tomorrow. it is a big deal to see the peso come down 18.7, certainly with mrs. clinton doing better in the polls. the renminbi is weaker over the 6.74.ew days, just now joining us, associated with real estate but really more than anything associated with an entrepreneurial spirit in one barbara corcoran, always delivering a certain sharp approval of what small business does. tell us about your new venture right now, the seal of approval. barbara: you said it very well. i love small business and i care about small business and the development of seeing them get ahead. i have teamed up with on deck, the largest lender to small businesses in america, to have a special contest. it is simply this -- you tell us what you use a $10,000 prize for to push her business ahead, and you get the $10,000 and a personal consultation with me. the second part is the best part. tom: the personal consultation i will go with. what is the biggest mistake undercapitalized entrepreneurs do? spend the money on the wrong things come on things that get them close to making deals or sales rather than the actual physical -- part me, i'm still waking up. i know you are used to it. let me do that again. they spend their money on things that get them warmed up to making a sale, like a public relations company, like joining some kind of a conference where they are going to learn more. versus getting industry, on the curb, and making a sales call. most small businesses will do anything to avoid making a sales call, and that is the definite for all businesses. francine: we would not be winning your prize because we probably would be spending it on salad and champagne. talk to us about real estate in new york. are you going to win from brexit? barbara: i do not believe so at all. what has happened as a result of that is we totally lost all of our buyers from england. totally. we do not see any more buyers at all. it was a real black eye for us in the new york city market. fortunately, we have so many viable groups coming into buy right now. but losing that audience was a real surprise that happened almost entirely overnight. francine: i imagine it is because the pound is weaker, so things are much more expensive. talk to me about the chinese buyers. chinese buyers are a different kettle of fish. chinese buyers are coming in droves, spending their money on just about any kind of real estate, not just restricted to big cities like new york. there are probably more wine estates being sold in california to the chinese than anyone else in america. but the chinese are spending as money that are spending money as well. they are printing it. we just love them. tom: barbara, new york city looks like dubai 10 years ago. looked, there are eight or 10 cranes in the air. noes new york city risk a overbuilding of apartment units? happens every so many years. every development job takes two to four years to build. there is no stopping it once it is committed to by the banks. so we of course build tremendous inventory. every once in a while, it shakes out. the real million-dollar question is figuring out when it shakes out. will it shake out soon? i do not think so because the demand is so large. but you never know. i was never able to predict accurately. tom: barbara corcoran with her new venture, seal of approval. barbara: do not forget to get your entrepreneurs on deck and get their applications in. we greatly appreciated. howard ward of camp to. you said that of gamco. -- howard ward of gamco. howard: johnson & johnson is one of the most dependable defensive growth stocks in the market. pristine balance sheet, diversified business. it is almost like a health care mutual fund itself, with barely a 3% dividend yield. that is exactly the kind of stock i would be buying because of its defensive characteristics. it is very unlikely to disappoint. over time you will get the benefit of building earnings, growing capital. tom: let me go to you in london right now, francine. i look at the debate coming up tomorrow. translate for us the interest in tomorrow's debate in london. is interestedyone in donald trump. there is one person people care about. it is really the u.s. president. you are the leader of the free world. if your world is less free, it is going to impact the u.k., the e.u., and it has huge implications for trade worldwide. thanks so much. howard ward, thank you so much. we greatly appreciate it. alan ruskin will join us tomorrow. we are really looking forward to catching up with alan ruskin of deutsche bank as well. futures are up this morning, as well. futures up 10, dow futures up 69. if there is one thing on the screen, the stronger sterling, a stronger sterling hopes us out as well. from london, and from new york, this is bloomberg. ♪ jonathan: good morning and a very warm welcome to "bloomberg downeak" as we count you to the open of the markets. futures are positive. the dow is positive 10 points. the fx market looks a little something like this. the pound is stronger. onget an upside surprise u.k. inflation. david: here are the three stories you need to know about. goldman sachs will reveal earnings 30 minutes from now. and the question is, can be trading house keep up with jpmorgan who has already reported a big increase in fixed income businesses? we did get inflation numbers out of the u.k.. core inflation grew. from bothe now heard janet yellen and her vice chair, stanley fischer, both talk about running the economy hot.

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