Transcripts For BLOOMBERG Bloomberg Surveillance 20180227

London. These are the people that we are going to speak to shortly. Dalioversation with ray is coming up shortly from china. We will be talking to Standard Chartered chief finance officer after it they said that they want to give back to shareholders and focus on dividends. We were gaining a touch on the stoxx 600. At the moment is pretty much unchanged. A lot of the impetus on the stocks will be what we hear from from washington, d. C. The u. S. 10whether year yield will go above 3 . Now lets get straight to the bloomberg first word news. The European Union will tomorrow challenge theresa may when it publishes a dropped brexit treaty. According to a person familiar with the matter, the bloc is said to set out in legal detail how the terms of the transition period will go. U. S. White House Communications director is scheduled to be interviewed privately to date by the House Intelligence Committee, which is investigating russian interference in the 2016 election. According to house officials familiar with the matter, her appearance is scheduled for 10 00 a. M. Washington time. The panel expects to have hicks appear soon, but declined to specify a date. South korean prosecutors are seeking a 30 year jail term for the expresident. Was indicted in april of last year on 18 counts of corruption including bribery come abuse of power, and leaking state secrets. She stands accused of extorting million from big conglomerates in exchange for business favors. The bank of korea left its benchmark repurchase rate unchanged. That is as the Central Bank Ways risk to its Economic Outlook against the cost of raising for costs foreign costs for patients. Destinations nations. The deputy leader of the African National congress will become deputy president. China plans to reduce its annual budget deficit target to just under 3 of total economic output. The target will be set at 2. 9 . Was set at 3 ich in the past two years and has not been cut since 2012, is set for approval. Early data shows that chinas economy remains robust. Replacedbia has several top military commanders, including the chief of staff for the heads of ground and air forces. Given for the changes, which were announced in a series of latenight decrease s yesterday. Decrie global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you so much. Lets kick it off with the markets. The s p 500 has erased all of its losses from this month atnturn, but this morning markets are struggling to find direction of ahead of Jerome Powells first Public Comments as fed chair today. So what will he have to say about inflation and the rate at path . Heywood ed by tim haywood. What kind of direction can we expect Jerome Powell to give . Will he remain as dovish as janet yellen . I dont think that he would change much from the script that she left him. These testimonies can be trying to changers. At the margin i wonder if there is a sense that he will be slightly more dovish come up be more concerned about continuing the growth in the economy rather dovish, be more concerned with continuing the growth in the economy rather than inflation. Francine how many rate hikes you think there will be . Tim i think three. Francine talk to me about dollar dynamics. If it is a weaker dollar than this actually impacts how much they have to hike rates to kind of makeup for the weakness in the dollar. Tim i think they have been remarkably insensitive to the dollar. What is interesting is how the dollar has stabilized in the weeks since the short vix shock. You have currencies like the rand doing particularly well, which would not expect. The dollar since somewhat fragile seems somewhat fragile, but i dont think the fed pays much attention to the dollar. Francine what is the biggest risk to the u. K. U. S. Economy . If there is one thing that you really want to know about the u. S. Economy, is it true inflation or is it something more structural . Tim i think there are no major problems. The growth has been for years now rather centered around 2 . It has struggled to rise significantly above that. You have a huge bond issuance, not only in the treasuries, but also on the corporate side. You have awill there be a bond s strike . These are particularly attractive levels. Are equities better than bonds . Francine is it taking longer than you think, the rotation . What would be the trigger for the rotation . Tim it probably is taking longer. I dont think it has really happened in earnest. Theypulations get older need secure income and bonds would be a natural home. Francine do we need to kind of forget the conversation about whether inflation is coming in focus on whether the u. S. Is overheating . We have an overheated economy . And if we do what does that mean for the market . Tim focus on whether the u. S. n the availability of finance. It remains reasonably strong. I do not think it is overheating get, although certain parts of the country where there is virtually no unemployment, but for some reason it has not manifested into higher wages just yet. Inflation is rising, Interest Rates are going up, quantitative easing becomes quantitative tapering. Arguably the bigger problems are here in europe. Francine let me bring you to my chart. It is a simple 10 year yield. We are about to speak to ray dalio. We are sort of going up in yields gently and it is not really affecting other markets dramatically. Was onened how the rand of the strongest currencies. That is not what any person would have forecast based on previous correlations have you said there was going to be an equity shop the size that we saw equity shock the sites that we saw in february the size in february. Aw why would you bother with those other Asset Classes if you have achieved 3 , to put 5 in inasuries 3. 5 treasuries. He is already offering a Reasonable Risk free rate. We have been short duration for some time now, but we have covered that. We are now neutral on duration. Francine thank you so much. Ywood stays with us. The Uae Central Bank governor and we will also bring you as a special interview with billionaire investor ray dalio. Does he think we are on track for the biggest bond bear market since 1980s . This is bloomberg. Economics, markets, finance, politics, this is bloomberg surveillance. Lets get straight to the Bloomberg Business flash. Comcast has made a cash bid for sky. Premium of 16 to the current proposal by Rupert Murdochs 21st century fox. Comcast said it is confident in receiving all Regulatory Approvals in a timely manner. Wealth fundereign delivered. Fund, which owns on average 1. 4 of the world listed stocks is in the process of raising the share of stocks in its portfolio to improve returns. Standard chartered has restored its dividend after a twoyear suspension and came close to analyst forecasts revenue and profit. They will pay a for your dividend of . 11 per share and plans to increase the payouts overtime as the groups performance improves. The bank is gaining ground on getting back on track. Standard chartereds cfo joins us later. Basf has signaled the boom. In basic chemical earnings in basic chemical earnings has passed. It reports its sales for the Fourth Quarter that meant analyst estimates. Apple is said to be preparing a trio of new smartphones later this year. That will include the biggest iphone ever and a less expensive model with some of the flagship phones key features. Apple wants to appeal to the growing number of consumers that crave multitasking and also want to make a more affordable version of the iphone sent. That is your Bloomberg Business flash. Francine the eu will set out in detail how it expects britain to leave the bloc tomorrow. Somereaty will also ignore of theresa mays most important demands, including her proposal to have a transition phase would work and a key promise on the irish border question. This comes ahead of a speech on friday where theresa may is expected to announce her vision for britains future trading relationship with the eu. Joining us now is bloombergs editor in brussels. What are the key points that are likely to upset theresa may . Particular in regards to they areition period, translating the agreement from december into a legal text here. It is not showing the kind of flexibility that theresa may was hoping for. The eu wants more details of the u. K. Position and they have not got that yet. The oversight of the European Court of justice is another problem here. The eu of course pushing for that and pushing forward much more strongly than the u. K. Would like. The eu ministers in brussels are discussing this as we speak at a meeting today. Michelle barnier, the eu chief negotiator, is going to be briefing the press in a couple of hours. We will listen closely to what he has to say. Francine how does the draft of the legal text actually handle the irish border question . Here,s is a big question because the irish border is one of those things that seems intractable. In the december agreement they left it kind of vague, in terms of exactly what they could do. They put in a fallback position. The fallback position is basically that the u. K. Rules would be in alignment with eu rules. This seems to be what they put in this legal text that they are going to publish tomorrow. This is not going to be very pleasant back in london, and already we are starting to see some pushback against that. Francine thank you so much. He will be on top of this story for us. Wood from g. A. M. Investment is still here. Do you plan for the worst and hope for the best . Tim so far we have heard a lot from british people about what they want. This is really the first time that we hear what europeans want. Political parties may not like what they hear. The u. K. Has moved from being top of the table in terms of shortterm growth towards the bottom. That is a concern. There are supplyside problems. People are not investing. We are slightly short duration in gilt markets and pretty neutral on the pound at the moment. The one thing that i have liked in the last few weeks is that people say this is actually not existential. Trade is important and trade with europe is important within that. Change in the currency can negate the effect of tariffs. Francine you think that the pound is going to move sideways . You can see the level on the cable chart. Particularly important for capital matters and eurosterling portrayed for traded matters trade matters. There has been a rally in the pound. We are not seeing any particular currency or country being undervalued. That is a rare situation. I will not make a big coleman cable. Big call on . Cine tim flatlining from here. Francine you say it is fairly valued. When you look at what Governor Carney can do, can he actually afforded to hike afforded to hike afford to hike . Think the npc members are gradually becoming more vocal about trying to restore some sort of symmetry before a next recession a next session. The ecb is miles behind and i look forward to 2019 when the ecb moves quite quickly to restore some sort of symmetry away from their excessive monetary emergency measures. Francine tim, thank you so much. Tim stays with us. This was the real euro pound chart that we wanted to look at. Last month bridgwater chief executive warned that the bond market has slipped into a bear phase, setting it on course for the biggest fixed income crisis in almost four years. That pushed the u. S. Treasury yield close to 2. 65 . It is now some 20 basis points higher. Should investors have cause for concern . Lets get over to Tom Mackenzie in beijing, who is with mr. Ray dalio. Tom . It i am very pleased to say i am joined by the chairman and founder of bridgewater associates, ray dalio, who has been in china. He is giving a speech and he is talking about his book. You spent a lot of time in china. What are you sing in terms of the opportunity now, given the changes that have been underway in the economy here in china . Ay there is terrific opening up of the Capital Markets and a lot more liquidity. Generally speaking these are the second largest markets in the world. Theyre opening up for investment. I am very excited about that. It is particularly exciting to me, because as you mentioned i and id coming in 1984, can tell you that i have watched and been part of the evolution. In 1989i remember an organization that was put 1989 i remember an organization that was put together to develop the first stock market in china. It was in a dingy hotel room. These seven people put together the First Development of the stock market. I have watched the development of their skills, their , financialns institutions, and it has been a pleasure, because it has developed in much the same way as the entire economy has developed. There is an energy and monetization here that is terrific. What about those who flag the concerns around, and point to the fact that in terms of reform the taken a step back . How do you square that with other advances that are taking place in china . How do you read that . Ray i think people put too much emphasis on the shortterm problem. Ever since i was here there was always reasons to not believe that success. When i was here i remember it being a guest in 1984 in a 16 Story Office Building i would look outside and there were little neighborhoods. There is going to be Capital Markets coming in, and buildings, and everything. There is just too much emphasis on that. What you are probably referring to is the leveraging process. Maybe that is the issue. When i look at the state owned enterprises, it used to be five or six banks would lend money to state owned enterprises. There was no small or mediumsized enterprise Capital Markets. About one third of the lending is coming from a new Capital Markets. There is access to capital. If i look at the links, the hong kong direct, and i look at the free economic zones, and all that development, the ,evelopment of bond markets there has been wonderful development. I think it is important not to view it in this westernized perspective of some of these things. It has been a very effective. If we are talking about Something Like the issue of the deleveraging. I have watched many countries go through this and manage that. [indiscernible] ray the most important issue is whether the countries have the in their ownted currency or if they have the debt denominated in a foreign currency. The debt ratios here are not as bad as there debt ratios are less than our debt ratios. It is also denominated in their local currency. Now you have to go to the segments of the debt. There are certain parts of the system in which there is issues to be done with. There is a for brightness and looking at that for right when four looking at this. Isnt this admirable by comparison to what we experienced in the 2008 financial crisis . You did not get a heads up from the government that said that now we are going to manage the deleveraging. 10 years ago you had a financial crisis in which they went into it, and they are in a reactive mode. This is a proactive mode of something that becomes manageable. The worst kind of debt crisis comes and goes. The 2008 financial crisis was with certain monetary and fiscal changes. These things come and go. They are shortterm things. You have to look at the innovation. You have to look at the capabilities. They are unleashing an economy that has innovation. It has entrepreneurship that exists here that never did exist here. The vitality is in a terrific place. Look at the capabilities of the people. Are thethat those things that matter most, in terms of picking a good place. Other opportunities for the Fund Management industry in china given the changes are there opportunities for Fund Management the Fund Management industry in china given the changes . Willmy sense is that there be a broad opening up, because they also want to bring in the skill sets. One of the great developments in china is to bring in the best worldclass standards. If you want to build an automobile industry, you bring in the best Automobile Companies to help bring about worldclass standards. Because financial reform is such a big thing it will be part of a process to bring in the best of the world and the best practices. How do you view the climate in europe . Are you concerned about Political Risk in the region . Whether it is italian elections or the ecbs unwinding of Balance Sheets. Ray i think that there is today, and there is what it used to be. The ecb and mario draghi should be congratulated and thanked for taking us through the crisis. Do you print money . The germans argue with the italians, and so on. Now look at it. We have been through the worst debt crisis. We have had a beautiful deleveraging. The debt crisis is now behind us. We are now in a situation where growth is improving. Of course it could always be better. You could have more Structural Reforms, but there have been quite a bit of Structural Reforms. We are in a situation in which growth is positive, the debt es are not as difficult as they were. We are having on inflation problem. Struggle. To 2 is a that is not a big problem. The issue still has to do with keeping this expansion going. There is the challenge between the haves and the havenots. This is a worldwide challenge. Slidest not have economic back, because that is where the real political problems are. That is where the challenges are. I am not worried about too much inflation in europe. I think we are on a good because it is too low, or too high . Isnt that a funny question. Because there is a lot of concern that it was too low. Should we be concerned that it is too high . I do not think we should be concerned it is too high. We are still struggling to get it to 2 . If you get to 2. 5 inflation, is that a problem . I do not think we will hit 2. 5 inflation for a core inflation rate, but is that a problem . Europe, is that a problem that there is too little inflation or too much, i dont know. I am not particularly concerned. What i am concerned, as we go into the later parts of these cycles, the challenge of Central Banks will be to get it perfectly. Right . Where are we in the cycle now . We areio in the u. S. , in the later part of the cycle. For the rest of the world, we are in the goldilocks part of the cycle, where it is not too hot and not too cold. Where we have growth and we do not have an inflation problem, that is the beautiful part of the cycle. That partmoving from of the cycle into the later part of the cycle, then there is that part in which the brakes start a differentn at differen races. We are a little bit ahead and we have faster rate increases and letting the Balance Sheets go off. In europe, we are a little bit behind that. As a result, you have the money none of quantitative easing and not as Much Movement on the Interest Rates. That is where we are in europe, where we are in the u. S. The issues i do not think are particularly pressing now. I think if we rolled the camera forward to two years from now and we are having more stimulation, particularly in the l, wewe have the tax bil are going to be in a part where the Central Banks have a problem getting it right, i think a year or two from now. The fed has scheduled three hikes this year and goldmans has said four. What is the right number . Ray i could not tell you what the right number is. Nothing is precise and as we start to pick up, we will figure out whether that is three or two or four, and get that right. I do know it has to be careful that its not much faster than is discounted in the curve. Right now it is between three and four, which is discounted in the curve. If they stick to that kind of phase, i do not think it will be particularly problematic. Are there punc Pension Funds for Many Companies that you have laid out . Ray there are a number of companies, i will not mention the names of them, that are now examining them, i should say. Tending to be more cutting edge, more silicon valleytype of companies. Tend to be more entrepreneurial type of companies. Well see how that happens. Reporter implementing that transparency will work for some companies, but not every company. The radical transparency. Ray well, lets stop and take a look at this. Nobody in their heads has all the right answers. Theres a range of thinking. And to be able to have a meritocracy in which people can be very straightforward with each other, and then together work on finding out what is true, understanding the art of thoughtful disagreement is very powerful because in order to be successful in the markets, or to be the vessel entrepreneur, you have to be an independent thinker because the consensus is built into the price in the market. You have to be an independent thinker and be right and that is true as an object for newer. You have to be as an entrepreneur. You have to be an independent thinker and be right. And you do not know if you are right. One of the greatest tragedies of man is People Holding in their heads wrong opinions they are confident about and they do not put out a stress test. What am i talking about . What is the problem with being radically truthful and transparent with each other. It might be uncomfortable for some people. I say, get used to it because it is effective. What is the problem with being radically truthful and independent . It improves the probabilities of being right. Reporter ray dalio, chairman digitalunder of precision. He is here in china, talking about the reform process going on in china, and giving us news on the european economy and what is happening in the u. S. , and the challenges for the fed. Francine thanks, tom. It was a great interview, mr. Ray dalio saying the challenges in europe is keeping the expansion going. Central banks could have trouble in a year or two. Tim, we were lucky enough to hear straight from the horses mouth about what he sees treasuries doing and i guess, the sticky points for Central Banks. He said its one or two years. Does he have a point . I think he has several points. One concern for us is the corporate debt in u. S. Dollars, the fact that the assets on shore are borrowed offshore from investors. What will the Asset Recovery process look like. This has happened in many country. But the amount of corporate debt in china is eeye watering. I would say this is a beautiful credit impulse. What has happened in europe at this rate of change lending is a concern now in brazil. Francine he says he is not worried about inflation. Tim it is a concern when bond yields are so low. 5 andave bond yields at inflation is moving from 1. 5 to 2. 5 , then who cares. But when we moved to negative bond yields, it does matter. Francine when we caught up in his main point is, do we care if inflation is at 1. 6 or 2. 4 , you could argue that the mandate is not at 2 , then maybe we do look too much into inflation. An yeah, i know you have interview with lehman later. I would like to ask you to work in a question. A we are seeing quite a lot of inflation coming through from germany. And is it appropriate in his mind that we have negative german bond yields for quite a long way out on the curve, even when we go beyond zero. Francine i am talking about u. S. Inflation. Do you care if its 1. 6 or 2. 3 . Is it that symptomatically the economy, given the fact we have been waiting for inflation fo r years. If it overshoots, maybe we should work through it. Tim i do nothing inflation excitations being unanchored at the moment, but we do see a change that will potentially crimp the margins in certain industries. Francine what is the one thing that you would say is concerning for german bonds. Do you see a very brutal repricing of german bunds, and is that the biggest risk in the market right now . Tim i do not see a brutal repricing. In 30 years we have never seen two economies, german and the u. S. , trade quite so similarly and have the bond yields be so far apart. Either the values will diverge. There could be slightly slower of a pace in germany, but they move together. But the yields are so different alltime wonder if we have bond price convergence or yields convergence. Francine which is it . Tim i believe they will be bond yield convergence. We just need somewhat, somewhat higher yields. Francine tim heywood stays with us. Coming up next, the sky is the limit. Comcast offers 22 billion shares for the british broadcaster. That is next. This is bloomberg. Francine good morning, everyone. This is bloomberg surveillance and i am Francine Lacqua in l ondon. Reporter the European Union will tomorrow challenge theresa a draft it publishes brexit treaty that ignores some of the Prime Ministers most important demands. The block is trying to set out in legal detail how it expects britain to depart in just over a years time and in terms of the they addedperiod, that the 27 members oppose the transitional period. The House Intelligence Committee is investigating russian interference in the u. S. Election. The appearance before the committee is scheduled for 10 up up a. M. Washington time. Adam schiff, the top democrat on the intelligence committee, confirmed the panel does prepared to have the appearance soon, and she is not being compelled to speak by subpoena. Park was indicted in april of last year on 18 counts of of powern, abuse and leaking state secrets. She stands accused of colluding with her longterm friend to extort more than 55 million from big conglomerates, including samsung for business favors. The bank of korea has a left the Interest Rate unchanged. The unanimous decision to keep the seven day repurchase rate was forecast by all 17 analysts surveyed by bloomberg. The central bank weighs risks against the cost of borrowing costs. South africas new president has made sweeping changes to his cabinet. Announced marks a away from the old regime. The annual to reduce budget deficit target to just under 3 of total economic output. 2. 9 . Rget will be set at the target, which was set at 3 in the last couple years and has not been cut since 2012, is subject to approval at the National Peoples Congress Opening on march 5. Early data shows chinas economy remains robust, despite distortion accompanying the long Lunar New Year holiday. Saudi arabia has replaced several top military commanders, including the chief of staff and the heads of ground and air forces. No reason was given for the changes, which were announced in a series of latenight degrees. Several civilian officials, and Gooding Deputy ministers, were also replaced. Several civilian officials, including deputy ministers, were also replaced. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. This is bloomberg. Francine an offer was made for sky, implying the value is 22 billion pounds. According to comcast, that represents a premium of 16 to the current 21st century fox offer. Sky shares have jumped and are trading ahead of the offer. Benny, first of all, good morning to you. We have effectively three parties in the mix now. Benny that is right. Comcast has arrived on the scene and made the situation already more complex. The parties are disney, trying to buy 21st century fox. 21st century fox has this bid out for sky, and now comcast, trying to purchase sky as well. We have a regulatory review of the 21st century fox bid for sky. And that is pending right now. It is not even clear whether the 21st century fox will be able to buy this asset. Comcast clearly seasonopening here. Investors were disgruntled with the price. They came in this morning. They sprung this on sky this morning and feel they have an opening here. And a premium to boot. Francine why is it so valuable . The 16 st offer, premium to the last offer. A valuable asset. They are doing well. They just won the premier screening rights at what was considered a good price. That raised the value of that asset. If you look at the european have a good position. They are in germany, in the u. K. , obviously, and the market is in flux. We see netflix coming to europe in a more robust way. We have amazon pushing into this market and tom cast and comcast clearly sees an opening. Y have been looking at this for a couple months. They felt now they see this opening. The question is, what will Rupert Murdoch do . Will he combat with something else, or will he walk away . Francine given the importance and disney, are we exciting counteroffers . Benedikt that does not seem unlikely at this point. There is wiggle room for them to raise that bid. The question is, will they raise the bid for an asset when they are not sure if they cant own it ultimately. A regulator will rule on this next month. We will have to wait and see. But disney has said they consider sky a vital element of the transaction, calling it the crown jewel. There is obviously some interest in holding onto this has set. It is unlikely that Rupert Murdoch, who has tried to buy this several times, will just walk away and headed to comcast and hand the rest of the assets to disney. Francine benedikt kammel, bloombergs managing editor for global business. Lets bring back tim haywood. And financing m a options, what is 2018 looking like and is it dangerous to do an investment in the sector because you think it could consolidate . Tim there are two interesting takeaways from todays story for bond investors. Comcast announced they are financing this from existing facilities. There doesnt seem to be available finance for companies to do the m a spree. No shortage there. The second thing is, where m a activity occurs, credit spreads tend to move 18 months later. With this pick up in m a, credit spreads widen. Dream. A treasuers credit spreads are tight. The all in yields in which treasurers can finance is as low as it is going to be. Either industries are going to rise, or there will be a credit shock at some point. For a bond investor, its bad both ways. We have got to be careful how we manage those investments. Francine so, are you dipping your toes in this kind fof stuff . Tim from the bond point of view we have been short duration on the government side, and have been buying protection on the generic credit, well specific names that myself and my colleagues have found, which we were more excited about. There is no real sense of a wave of defaults. The level of growth everyone is talking about, it is a beautiful period, as ray dalio described and most treasuries finance long. It is about the really long dated debt market. The bonds that are being issued, up to 100 years, will be traded through three or four generations of Fund Managers and it is our problem how we transfer that risk from one manager to another, not the issue ares problem. Not the issuers problem. Great for m a. Haywood from gam investments. Uo up next, treasuries drop with the dollar. We are taking on the markets next. This is bloomberg. Francine economics, finance and politics. Ed norways Sovereign Wealth Fund returned 131 billion in 2017. It should pass the 1 trillion mark and shocked markets by proposing to drop gas funds. This largely follows indexes that has leeway for some active management. And apple is said to be preparing to release a trio of new smartphones later this year. That will include the biggest iphone ever and an upgraded headset the same size as iphone x. Thats your Bloomberg Business flash. First of all, these are the markets i am looking at. It all has to do with what jay powell says during his testimony, the first as the fed chair. I am also looking at a little bit of bonds. Stocks are slipping and investors are waiting for first Public Comments from the fed. We also saw a shift in where stocks were. I am also looking at japanese stocks as they climbed to the highest in three weeks. And they also ended lower before the close. Look at for that, and a german bunds edging lower. Bloomberg surveillance continues. Tom keene joins me from new york. And we will hear from andy halford at 10 30 a. M. This is bloomberg. Francine markets are next ahead of the fed chairs testimony in washington and treasuries grew 3 . Pounds perers 12. 50 share, sending shares surging to near two decade highs. And gaining traction. A two year suspension, we speak with the groups financial officer, andy halbert, this hour. This is bloomberg surveillance. And we are getting Economic Confidence out of the euro area. That is pretty much in line with estimates. Tom extraordinary news flow this morning. We have packed surveillance for the next five hours. In all of 2018, this is the busiest newsday i have seen so far. Francine i am looking forward to talking about comcast with you, now sitting the states for this sky takeover fight with some 31 billion pounds. It is so valuable that a lot of eeinge are sa counterbids. Tom we have a lot of coverage. For me it is fox, disney, comcast they all want sky for me, the real question for the global audience, is s ky considered a National Asset in the United Kingdom. I forced myself to watch. I am in my hotel room in london and i want to watch the different stuff. I cannot figure it out. Is it a National Asset . Francine it is a National Asset, but if you look at multiples, it is a lucrative business for british rights. We will talk more on that and now lets get straight to the bloomberg first word news. Taylor Jerome Powell testifies before Congress Today for the first time as fed chairman and his embrace to yellens gradual tightening policy is about to be tested. Financial volatility has increased. Plus, the new tax package has added stimulus at a time of solid growth. The Trump Administration will be looking for a new point for us and in dealing with north Koreas Kim Jong un. The special representative for north korea said young is stepping down. This comes at a time when north korea is signaling it is ready to hold talks with the u. S. For the First Time Since 2012, china plans to cut the budget deficit target. According to people familiar with the matter, the target will be just under 3 of total economic output. China has been stepping up efforts to curb excessive borrowing and reduce financial risk. The European Union plans to challenge theresa may tomorrow with a draft of a brexit treaty. According to a person from a year with the matter, the 100 page document ignores some of mays most important demand. Among them, the transition period, and a compromise on the u. K. Border with ireland. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Francine thank you. Last year a group of middle east countries cut diplomatic ties and transport links. Hat was after iran accused qatar of inciting terrorism. Almost nine months later, there is no progress. Otterse the boyc getting on . Among them are the united arab emirates. Over to you. Manus welcome to bloomberg, sir. It is a tough job. Event. Here at the fab youve run this region. Are you a supporter of more consolidation in the Banking Industry . Thank you very much. I think the merger that has happened between the National Bank of abu dhabi is very positive for the uae. It has been done on the basis that you have two strong institutions being combined to make them a better institution in one. Manus we have the deputy ceo talking about Interest Rates and what it means for the bottom line. I think you have got more than 40 banks in the uae. N your view, do we need crossborder consolidation within the Banking Industry . i think it is going to happen regardless. And that is due to technological changes. Which will drive efficiencies in these banks. I might differ a little bit with others who say, because technology could foster consolidation it might help the smaller players because it is now becoming more attainable in terms of technology and they are starting from a very low base to obtain this technology in a more onlyeffective way where the big players could afford to get into these technologies. Manus so, you welcome healthy competition . Mubarak definitely. We Welcome Technology and reducing costs. These technologies will help these banks provide better services. Manus we are broadcasting around the world and we have got tom keene and Francine Lacqua at the other end here. Europe is waking up. We will hear from mr. Powell later on today regarding the rates. For you as a central banker, will you mirror the fed this year during 2018 . Have a we at the u. A. E. Fixed currency regime with the u. S. Dollar, so we will much any increase in rates. Manus lets say the fed announces they will do three rate hikes this year, what is the risks to the u. A. E. From an economic point of view . Have you factored in a slowdown . Mubarak i think the currency regime has helped the u. A. E. Over the years. There are risks with that. With that regard, the inflow and outflow of capital, it has proven to be positive for the u. A. E. Of course, we know when it comes to businesses, increasing the rates increases the cost of capital. However in the u. A. E. We have what we produce recently, which is giving a score on different individuals and businesses. Is more of are risk with that entity. Of capitalhe cost should be reducing based on the profile of the borrowers. Is about you balancing. You have rate hikes on one side and this is your strategy to balance against that. Would you consider lower reserve requirements . Mubarak at this point, it is not being contemplated because we have liquidity surplus in the system. Our banks have a very high 18. 9 , versusat the regulatory requirement of 12 . All in all, liquidity is abundant and the Banking Sector is playing its role to support the economy. Manus i was looking at the u. A. E. And it is at a seven or six year high. Is that having any impact on the real economy . Mubarak of course, there would be a real impact. That means a higher cost of borrowing. However, what it want to mention is the margins have been shrinking. Which means theres more confidence in the Ruchir Sharma Banking Sector. Which means there is more confidence in the u. A. E. Banking sector. Manus you do not think you need to lower reserve requirements at the moment . Is there another way of adding liquidity . You say you have plenty of liquidity. If you need to, you can turn on the tap. Is more available to the banks, in case they need that. But we have not seen any requirements for that from the banks. Manus in terms of one of the biggest political issues in the region is the interregional issue with regards to qatar, the from a banking perspective, has that had any impact with regards to the flow of money to and from the u. A. E. . Mubarak if anything, we are getting more deposits into the system. As i mentioned earlier, our liquidity is high. The liquid resources at the bank at the moment are 18 . That is our ratio, 18 , versus a requirement of 10 . Manus last time i was here i did not pay 5 on top of the bill. My manager is sitting over there and she will get a higher bill the next time i go home to london and put this in. Everybody is talking about this. Are you seeing a Material Impact from 5 . Mubarak we do not see a Material Impact, given that we are a benign inflation level environment. Last year i think we are closing at 1. 8 and we have some real estate declines. So, it is upsetting. It is at 5 , i am not sure how much you pay manus 20 . Mubarak on a relative basis, it is a lot less. Manus you have liquidity coming in. The other thing the imf flagged very recently was a concern about reserves. Reserves in bahrain. Is that something that has come desk, is that something youd be prepared to help with if it was an issue . What do you have to say about what the imf has said with regards to reserves . Mubarak with regards to centralbank reserves, we have plenty of reserves. We have looked abroad to make sure there is the availability of the dollar. In terms of reserves, we have plentry of liquidity. That is with regards to the central bank. Uae,regards to the its the base for the Sovereign Wealth Funds, which help us during difficult times. Manus in terms with the Sovereign Wealth Funds, they have adequate reserves. You dont expect you have to draw on any of the Sovereign Wealth Funds. Mubarak of course, there is a coordination between monetary and fiscal policy. And Sovereign Wealth Funds, they play a part in that equation. Which means the government needs to keep surging growth rates, Economic Growth rates. In case no oil price is there, they into supplemented with injection from those. Manus just to close off, it need from any of your neighbors, with the intention be, this is to help the reserves of other countries . Mubarak that is a political answer, in terms of does. Ur government we are helping our neighbors and friends. That is a political decision. ,anus thank you very much mubarak al mansoori. Plenty liquidity here, as you heard from the head of the central bank. First softbank and the National Bank of abu dhabi coming together. Tom there is a terrific news flow today. So much going on. We have a massive potential merger in media. We have chairman powell in washington and of course, the knock on ramifications, day two of the idea of a dictatorship in china. There is also Business News in new york city. Heres taylor riggs. Taylor billionaire ray dalio is going against the grain when it comes to europe. Bridgewater associates spent more than 18 billion against some of the continents biggest ox. He spoke to bloomberg about the challenge in europe. Ray dalio the issue has to do with giving this expansion going because if you talk about the political issue, then there is the challenge between the haves and have nots. This is a worldwide challenge. You must not have an economic fly back because if you have an economic slide back, that is where the real political problems are. Taylor most of bridgewaters peers are betting European Equity will rise. It is another sign of consolidation in the semiconductor business. According to the wall street rostemmy has a market value of 7. 6 billion. That is your Bloomberg Business flash. Francine investors are preparing for jay powells first appearance at 10 00 a. M. Eastern time. Joining us now, the Senior Vice President and chief global strategist. Thank you for joining us. It is a pretty packed day. What are you expecting from jay powell . A dovish tone, or can he afford to be little more hawkish . He is not janet yellen 2. 0. He will be focusing not on the full implementation janet yellen was focused on. I do not expect any huge surprises, but if he talks about communication, prepping the market for potentially more than three or four rate hikes, that could cause a little bit of a shaky market here this week. Francine are you expecting a shaky market and overall, does he have a much more difficult job than janet yellen because we are at a different point in the cycle. He is managing a more difficult part of the communication because we want to know if we get two to five rate hikes this year. If he can talk down the ideasation and say the are still not that dramatic, moving away from the dot plot, if you like, then they can continue with the policy and say, when the sunshine and the economy is doing well, then it is right to move rates up. But he is going to have to manage that because as we get our forward curve closer to the dot plot, something has to give. They have to reaffirm it and they have to start selling bonds off, or they have to change it. He will have to do some juggling. Tom something that has to give is the fear in the markets. We have extorted harry set of days in the equity markets we have an extraordinary set of days in the equity markets. Powell advise jay the it is all clear on the market turmoil that we have seen the last three and four weeks . Of e does well in terms in the fed has been helped by a bond market at sub three. That is not really that high. A 3 10 year yield is not a highyield. It was 14 on the day i started. That does not detract from the fact that they still need to tighten. We cannot just throw more gasoline on the equity market bond fire and have a party every day. He does need to continue. We are doing fine so far, but they have not finished hiking. Tom jeff, what do i do with my cash this morning. I am baffled. 27, andhe vix, down to now i am down this morning at 16. 03 on my bloomberg. What do i do with my cash this morning . Jeff i do not think it depends on the market, i think it depends on you. You could be over allocated equities after years of stocks outpacing bond. It is time to sell some equities. If on the other hand, you have been holding cash waiting for a pullback opportunity, it is not too late. We will have more opportunities to purchase this year. We will see a lot of dips tied to bouts of surprising economic data. But rebalancing that portfolio back to the intended target is incredibly important this year for the first time in a while, given the high level of volatility and the chance of a bear market beginning as soon as the beginning of next year. You. Ine thank the Deutsche Bundesbank president interview. We are talking german yields and inflation at 8 30 a. M. In new york. This is bloomberg. Tom bloomberg surveillance from london and new york with tom keene and Francine Lacqua. Lets get to the transaction of the day. And 160alcomm billion all bet in. Not broadcom for qualcomm. I look at it right. This is an extra dinner a chart. This is an extraordinary chart. Sky tv back to 2008, the extrapolation of a trend from 2015, as clear as all get out and with the subpar performance of sky, the bid by mr. Roberts brings the value on most up plus or minus a little bit. Murdoch, iger and roberts in this asset. Great to have you with us on short notice. Sky difference that makes them want this . The thing with sky, whoever owns a sky has the leadership position in paytv in the u. K. , german and italian markets. Also, there is a presence in spain. The only market of the five major markets you would not have a presence is france. If you look at the sky brand, it has externally good brand, they run their business and in an extremely good way. Tom that is where i wanted to go. I love your essay on the premier league and how they did well in the bidding. How will comcast change sky . Mr. Roberts has the usual quote that he will maintain the United Kingdom platform. Ohlonbalogna, they always change it. How will comcast change sky . From a practical standpoint, i think it will be very little. The sky brand is wellestablished in the u. K. It would be suicide to change that. Then what you are looking at is, is there anything they could do in terms of cross promotion . For universalmer and comcast content. Guy has its own production as well. What this deal really gives comcast though, and comcast has been talking about this for years, it gives an extremely fruitful distribution network. Nbc universal, it has a presence in europe. Bear in mind, the headquarters are in london. This is a market that they will wellknown. But this massively increases the distribution work for the comcast content across the european continent. Europe is still very important. Given thebut ian, strategic importance of sky to fox and disney, do you think they will put in a higher offer . Will they choose the higher offer . And do they want the easy regulatory option . Ian there are a couple of things here, one is the way comcast has explained this bid. They said the bid is dependent on 50 plus one share of sky. At the moment, fox only have 39 in terms of the voting rights. So, from that standpoint, fox cannot block this. It would have to go out and buy the shares of the market at the price they are today. It iss already indicated willing to get out of skies by selling these assets to disney as part of the wider deal. Fox to now come back first of all, they would need to get some sort of agreement with disney and there has been a question as to disney would want to get into a bidding war. Secondly, you have the Regulatory Risk as well. Ofncine ian whittaker, head european media research. This is bloomberg. Mom, dad, can we talk . Sure. Whats up, son . I cant be your it guy anymore. What . You guys have xfinity. You can do this. Whats a good wifi password, mom . You still have to visit us. I will. No. Make that the password you stillohave toovisit us. Thats a good one. Seems a bit long, but okay. Set a memorable wifi password with xfinity my account. One more way comcast is working to fit into your life, not the other way around. Tom good morning. Thrilled you are with us. Lets get right now to our first word news. Heres taylor riggs. Foror a proposal background checks has run into a roadblock in the u. S. Senate. Hasblican senator mike lee blocked fasttrack consideration of a bill. Both President Trump and the National Rifle association have indicated their support. Attorney general Jeff Sessions is ending the obama era policy that led to legal recreational marijuana. Sessions will reverse the policy that set up guidelines for federal prosecution of marijuana. U. S. Attorneys in states where the drug is illegal can now prosecute cases where they see fit. In saudi arabia, king saw mom has shaken up the military. He has replaced several top commanders including heads of staff on the ground and air forces. It leads a coalition that has been struggling from was three years to regain control of yemen from forces with ties to iran. In south korea, prosecutors are demanding a 30 Year Prison Sentence for the former president. Landmarkrested in the Corruption Case that involved some of koreas bestknown conglomerates. Global news story four hours a day powered by 2400 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Shares are trading higher this morning as the company restored its dividends after a twoyear suspension. The group also announced a dividend of 11 cents per share. We are delighted to host right in the studio andy how for. Thank you for joining us. If you look at the volatility that we saw in the markets, you can look at the performance, underperforming some of your biggest rivals. What have the first couple of weeks of the training year bring . Andy last year we saw a lot of challenges in the Financial Market sector, but the start of the year not just Financial Markets across the face has been really good to we have seen some doubledigit growth across a wide range of products. Its a good start to the year. Expecting moreou volatility and youre confident you will be able to capture that volatility and turn it into profit . Andy what it does show is that where there is volatility, we are wellpositioned. How much forecast volatility is a little more tricky, but we are well positioned to capture it when it is there. Tom andy, good morning. Your bank in china changed yesterday with the announcement by the leadership of china that they will borderline move to a dictatorship. In your initial meetings on this, how will business in china transfer your bank and frankly for all of western finance with the new politics of china . Andy i think the politics in china have been involved in over time. Its not all about yesterdays announcement. We have a reasonable sized business in china and have been based there for over 100 years. We are firmly rooted in the re, but we see opportunities good. Their opening up avenues for overseas banks and that is something that absolutely plays to our strength. Tom across the strength of Standard Chartered in the pacific rim, how will those business relationships change because of the new dictatorship of the communist party in china . Andy i dont think its going to change relationships. I think of the countries in which we operate there, the relationships we have got our strong. The evolution of the china journey is one which continues and i dont see it as something that will cause a pivotal change. Francine the big picture for some and consolidation of power for others. When you look at your targets coming need to double revenue to hit those. How are you going to do that . Andy we need Revenue Growth between 5 and 7 Going Forward. It was a year when we were way down by 4 because of the Financial Markets performance. Excluding that come the businesses at that sort of level. We have markets which we operate generally in the midsingle digits anyway, so i think we are in china, india, and hong kong where there is natural growth. We need to make sure we take our fair share of that. Francine how can you turn that around . In anthe private bank is investment phase so we are spending quite a lot of money putting in a new platform. We have been hiring quite a lot of new staff and that has weighed down on the cost side. Over time, we will improve the productivity on the back of that and move the business up to profitability. Francine when you look at m a or the spinoff, how close are you to selling the private equity business . Andy the private equity business, we would say about a year ago we are looking to exit and were making progress on that front. Over the course of 2018, we should see the exit of that business. Tom which country interest you most . Standard chartered has such a heritage of emerging markets and building economies. Which is the country that you talk about most . Andy we talked probably about several countries. Hong kong is very big for us. In terms of very interesting markets for us, india is one that we are focused on with a Huge Population and its digital a very savvy. The opportunity over a number of years is very considerable. Francine what kind of clients are you going after . Andy its more on the corporate side at this point in time, but as we roll out a digital platforms, that should enable us to have a bigger retail presence. Its a huge market in a 100 billion market for banks. Its a very big market to be involved in. Francine how do you sell to that market . Howdy sell mortgages to that market . Its different over there than it is in the uk. Andy every market we operate in his fascinatingly different. We operate 100 ranges in india. We will be Going Digital as well. Tom this is a fascinating conversation. Lets continue it for two hours, andy. Do the indian people just as one representative country of your heritage, do they want western Retail Banking . Thats a fascinating question. Andy i think it is. One of the things we do have Going Forward us for us is a huge history of being involved in these countries. I think there is an association of something very stable, very good, very high quality, very ethical. I think that clearly resonates with societies in which we operate. It is something which we really need to play to play two and develop further as we go to the future. Ifrs,ne when you look at how does that change how you do business . Andy both of those have changed how we do business. It has not have a huge numerical impact on the business, but it will make excellent differently as some of the risks the portfolio. Its very early days. It was only adopted in the first of january. Basil three, we have clarity. Most of the banks will understand what that means. That isctive date of not until 2022 so i think that will be more evolutionary over the next three or four years. Francine that was fun. Will you come back . Andy absolutely. Francine you heard from andy hoalford. Where heback to yousef is joined by a very special guest. Yousef lets talk a little about india. A major driver of a lot of Economic Activity in asia, but more importantly, a powerful domestic story to be told. Who better to give us additional context on where the story goes then the former chairman of the state bank of india . Thank you for joining us. Is a get started with what bad loan problem in india. The past the new bankruptcy law. Is it working . I think so. Interview in my last four years asked me that. I think we are about to see the end of the cycle. At the Bankruptcy Code that this new government has brought in and has been able to operationalize the number of cases there, some of the largest cases on the verge of getting resolution. Its picking up and that is something very welcome. Yousef what about tightening norms for the recognition of some of those loans . Is that making an difference at all. . Arundhati i think loans have just come in. The tightening loans will cause him out some cost some amount of pain in the shutdown. Longterm it is something we all aspired for but was difficult to achieve given the fact that the system itself is not organized in that manner. Now its a long time coming. Im sure the industry as well as the banks will all benefit from the settlement. Ansef recently announced major recapitalization and looking at details as we speak for the banks and this is specifically for government on banks, isnt it . Is that going to be enough or is there more needed from the government . Arundhati at this point in time, they have done a proper deep dive into the bad loan issues to determine how much capital is really going to need to be required. The have forecast a certain amount of growth rate. Ado not think they have taken growth rate beyond 12 for these banks. Therefore it all depends on how the banks grow as to whether the capital be sufficient for both regulatory as well as for growth. For regulatory requirements, it will be sufficient. We are 100 of that. How much it will also help growth is something that we have to see as we go along. Yousef there is a lot of controversy around the public banks. You have overseen the state bank of india. What is your lead on all that is happening . Have you respond . Understand that india has gone through a phase a very rapid growth. After the downturn, it has resulted on a number of factors. It is not only something to do with the Public Sector banks. Infrastructure growth in our country had never happened at this pace at which it happened in the years 20082011. When the downturn came on the back of very many allegations of nontransference allocation of resources on certain decisions that were taken by the board in the interest of everybody, so a number of things contributed to the slowdown. There was also some kind of policy paralysis on part of the government as it started reviewing many things. All that has contributed to what we have seen today. Having said that, i still believe that we are getting at the end of the cycle. India as a country is actually moving quite rapidly. If you look at the demographics, the share pressure of the young population is such that its a country that is bound to develop. Its a country where Economic Activity will pick up and all the signs are available. Most of the macro support. Yousef in terms of how that gets fixed and i want to fledge this out a little bit with you because its quite an intense debate happening in india. Starting chance or point for more mergers when it comes to some of the government on banks. Is this the way to go about . Arundhati mergers is something they probably may look at once the Balance Sheets are fixed. I do not think they will go in at this point in time, but probably two years down the line , it is something that government will probably look at. If you consider the sizes of the banks in india, theyre really not optimal sizes. Other than the state bank of india, which ive had it, which is three times larger. All the banks are optimal in size. I think the case for consolidation is very much there. Yousef the macroeconomic environment is shifting around the world with rising Interest Rates and a lot of countries. Is the cycle turning in india . When the cycle starts turning, does that from growth crimp growth . Arundhati one of the things that india is watching very closely is oil prices. We are very large Energy Importers and therefore oil prices do make a difference to the amount of revenue that the government has in order to do very many other programs. Oil prices is something that we are all watching. The other thing is regarding the fact that Interest Rates are going up in the rest of the world. Because of india through today, inflation is on the way up on account of low prices of the rates are not going down. Of course the rates are stable, but it seems to be on the upward trajectory. There is still a very big difference in Interest Rates of the developed markets as compared to ours. Therefore people will still find a good place to invest in india. Yousef i love the conversation ive had here in oper abu the expectation that the will be more volatility in Global Markets. Is that your biggest worry Going Forward . What is something that may keep you up at night . Arundhati keeping us up at night is probably in the Banking Sector the huge amount of technological change that is happening. In india theres a lot of innovation going on whether it be in the payment space or in the form of all kinds of other nonbanks coming into the banking activities. Its the unbundling of the various kinds of Banking Services that we give. On the other hand, as you put all the technology to work, the cybersecurity also kicks in. Thinkare things that i are real challenges ahead of us. Its a cycle. Growth will again take up and you will see a lot of investment coming back in. Thats the nature of the country. The markets are huge and its well worth developing growth markets. On the technology front, i think we do have our work cut out for us. Yousef former chairman of the state bank of india, thank you for joining us on the program. Plenty more to see across abu dhabi. Tom greatly appreciated this morning. Markets, kit the juckes from societe generale. I want to go to an important know if feldman speech. Riding on law and constitutional law. Noah feldman with this important essay on china. The nations limited presidency corresponded almost exactly to one of the fastest periods of Economic Growth in human history, comparable to britain in the age of industria industrialization and the United States in the years after the civil war. Dictatorships are terrible at transition. Wagers on its stability and growth should be revised downward. These are extraordinary comments at an extraordinary time. The only equivalent i know a when putin2004 became a permanent force in russia. Do you change your view on china . Kit not yet. Theres a risk that we will demand a slightly high risk premium for a while to see how it pans out. Ultimately china has thrived on control. In the shortterm the policymakers are so much in control of the economy and so much of what they have been doing is good. The markets will probably give them a fair amount of benefit of the doubt. There is just going to be unease about the really long term. He was in power for a while and still to come for another five years. We are going to have doubts about the very longterm, but that will not get priced and quickly. Tom thank you for the comments of 2022 and 2023 and on. From where you sit, does china have any sense of independence to their central bank . Kit no, i dont think so. I think its a central bank thats part of the government as also joe banks are to some degree. What you see very certainly as of late is that the central bank is part of the process of maintaining control over domestic monetary. Iscal policy where balancing and it flows inflows and outflows is the number one objective. Stability is what theyre doing together and thats a political process. Francine what does that mean for actually the world that you look at . Are concerns that what this means in china is that we are likely to see radical reform. Radical reform is difficult in a democracy. It takes time. When you have a technocratic government and place, you are able to enact reform very quickly. What does that mean . Does that mean china take rapid a more rapidate slowdown in their economy as they use these clumsy levers to adjust lets happening in their economy . Are they managing some of the credit risks and other things or are they just worried about that and take a much more methodological approach and not doing much from the data which will be very smooth . Im continuing to try to get real business context and china to get truthful data on happening rather than relying on more Government Data which may be less trustworthy. Toncine this is a question both, but do you worry about a trade war between china and the u. S. . If there is some kind of trade war with a steal tariffs and the noise that we are getting from the Trump Administration, but if they go hard on it, what does retaliation look like . Jeffrey i dont think its highly possible. The u. S. Get steal from 25 more countries than china. I think it is a state area to impose some tariffs. The Trump Administration is not looking to target important areas that would have a negative impact on both sides of that. It looks like the Trump Administration despite heated rhetoric is taking a very relaxed approach on trade with china. Kit the chinese authorities have felt for a while that what they need to be is pragmatic. They need to be grown up in the relationship with the United States. They will react, but more token than anything else. It is a need in nobodys interest to ruin the economic relationships between two economic superpowers. That way lies madness. The chinese will not be the wants to do that because they need to get continued Economic Growth to help pay for all the other things they want to do at the moment. Tom jeffrey, when you look at this, i guess it comes down to u. S. Trade relations at of washington. Sit is theere you ross the narrow access navarro axis and the Trump Administration . They seem to be percolating with the president. Do you anticipate we will see significant trade action from the trade administration . Jeffrey i think we will see some trade action, but i do not know how significant it will be. Ross and trump have played good negotiation. And ross has been more statesmanlike as opposed to trumps bluster. That has changed lately and have coalesced a little. Trump has a number of announcements likely to take place in march and april on trade, but they will be much softer than feared. Francine turning to the eu, which will challenge theresa may tomorrow in a treaty that a norse some of the Prime Ministers most important demands. The bloc will set out a legal detail how they expect britain to the part and the terms of the transition that will follow. Thats according to a person familiar with the matter. Were back with kit juckes and jeffrey. I dont know whether you look at europe pound or cable as a benchmark of how brexit is going to kit. Kit not that much of the moment. Sterling is very cheap. Sterling is just off multiyear lows in failing to balance very much. Cannot get much weaker. That reflects how we feel about brexit frankly. Its shifting about Interest Rate moves, but we are depressed about brexit. We are pricing in weak growth and uncertainty and im not going to get any less regrowth or any less uncertainty. Francine do you look at brexit . Jeffrey i do. I think its an interesting one. Given so much of the case stock financialstight overall, thats the biggest risk as we go to negotiate the second round of brexit. What is that going to look like for opportunities for Financial Companies . Itncine at the moment, is just tough negotiations because its negotiating positions or are we worried that we will run out of time fairly quickly . Kit we do not have long left in the positions have not moved. Thewouldve felt a year ago first thing we need to do is get a sensible solution to the border and ireland because of the human level not doing anything that rekindles old concerns. So far we have made almost no progress at all on that front. Butave still got some time, could we make some progress on something sometime please . Tom i look at where we are on brexit and kit juckes, do you have a sterling call or have you thrown up your hands and say ive got to wait for the carts the fall . The political cards to fall . Kit i have a call that were going to do brexit and it will slow trend growth by half a percent for five to 10 years and we are one year into that process. As a result of that, i will probably have a slightly weaker sterling. Eurosterling trading between . 90 and parity. It will make skiing holidays unacceptably expensive for me. Tom i want to go back to chairman powell and the incredible news flow that we have got this morning. Peter coy has an absolutely brilliant article this morning on the end of low rate don. We have a president who everybody assumes loves low rates. Manyany rate rises, how Goldman Sachs rate rises before the president screens at chairman powell and ends up getting yelled at nonstop . Jeffrey i think that depends entirely on the stock market. If stocks are going up, that he is fine with what the fed is doing. Only when the fed starts to raise rates enough that they invert the yield curve, that is something to worry about. We are ways away from that, maybe a year or maybe two. Francine do you worry about an overheating u. S. Economy . Jeffrey not yet. We like to talk this is late in the Economic Cycle and in terms of sports metaphors that we are in the Fourth Quarter. I think its more like a party. When parties get late, they get good. This is the melt up before the hangover comes. Volatility, stocks returns are good this year. Tom when parties get late, do parties get good . Kit they get good, but of old enough to know the hangover comes quite quickly. About this party is that it never got too good to this is like a dinner party rather than a rowdy party. The danger is the tax cuts and the branding. Tom kit juckes, thank you so much. Jeffrey kleintop with charles schwab. Lets review what we have got right now. We have extraordinary news flow and that interview that we did ansky television is just amazing transaction. We have china as well. What are your immediate thoughts on sky . Francine first of all, this is a fight to get sky so we do not have a transaction yet. It is likely when you speak to people in the market that they will start fighting for this asset. We need to look at regulatory concerns and we need to ask ourselves why it is such a valuable asset. It goes back to the sports rights, but it goes back to some of the Great Technology that sky has. Tom please stay with us. We will do first word news across the hour. Brian levitt will join us from Oppenheimer Funds. Brian levitt on Global Market equity melt up. This is bloomberg. Mom you called . Oh hi sweetie, i just want to show you something. Xfinity mobile find my phone. [ phone rings ] look at you. This tech stuff is easy. [ whirring sound ] you want a cookie . Its a drone i know. Find your phone easily with the xfinity voice remote. One more way comcast is working to fit into your life, not the other way around. Tom this morning, the stock market surges and the dow sits at 3. 5 below record highs. This morning, chairman powell what take questions from henson link and the House Financial Services committee. Threes company and i dont mean suzanne somers. Murdoch, eiger, and roberts desire complete ownership of skiey tv. Mr. Roberts goes to london. In china, dictatorship. Good morning, everyone. This is bloomberg surveillance. Live from our World Headquarters in new york, im tom keene and Francine Lacqua in london. Let me give you this open. What are you looking at this morning . Francine im looking at everything. Im looking at treasuries and german bunds and this could shift depending on what jay powell says. Im looking at this m a stories, which is a huge deal because you could see more of a pressing battle at sky and that im looking at brexit because you have a white paper usually these butlong and boring, we focus on what the u. K. Ones that we forget to look at the other side of things. Tom and day two of permanence in china. We will touch on that for a very busy hour. For first word news, heres taylor riggs. Taylor Jerome Powell testifies before Congress Today for the first time as chairman. Jerome powells embrace of Janet Yellens policy is about to be tested. Financial volatility has increased and the new tax package has added stimulus at a time of solid group. Be Trump Administration will looking for a new point person in dealing with north Koreas Kim Jongun. The special representative for north korea is stepping down for personal reasons. A comes at a time when kims government is signaling that its willing to hold talks with the u. S. For the First Time Since 2012, china plans to cut its budget deficit target. According to people fully with the matter, the new target will be just under 3 of total economic output. China has been stepping up efforts to curb excessive borrowing and reduce financial risk. The European Union plans to challenge british Prime Minister theresa may tomorrow with the draft of the brexit treaty. According to a person familiar with the matter, the 100 page document ignores some of mays most important demands. Among them is the terms of a transition and a compromise that may once on the uks border with ireland. Global news 24 hours a day powered by 2700 journalists and analysts in more than 120 countries, i am taylor riggs. This is bloomberg. Tom they that hear very quickly with equities, bonds, currencies, commodities as well. I dont have any idea what to do with that after two big days in a row up . The europe an oil has done nothing. Remarkable equity markets with the vix at a stunning number. 3. 5 below the dow 26,000. Gold i put in there because i did not know what else to do. Francine im looking at treasuries edging lower. Investors are awaiting the first Public Comments of the fed chairman jay powell. For good measure, i put in oil and you can see 63. 76 down from 0. 2 . Tom we have two experts in differentith capitalizations and maybe expertise, but this is a good thing. Brian levitt of Oppenheimer Funds joins us now. Sowerby is with us this morning. Lets bring us the chart. I have put it out once again on twitter for radio london. A record high in january and down we go and the world coming to an end. Down here the percent changes 1929. Right here is where i went to cash 100 . Everything right there. Levitt said no, but i wanted cash. How many people in your world went to cash . David very few. Whether its institutional for investment committees listed on, private capital clients, very few want to cash. If anybody did anything at the end of 2017, they upped their risk bucket on the margin looking for the proverbial low correlated assets. That was simply on the margin. Tom Oppenheimer Funds is expert on those local related assets. Im in cash. Brian i do not think there was any reason to go into cash and i assume youre saying that in just. This is not the end of the cycle. The end of the cycle will not be Interest Rates going up and the dollar weakening. You will have Interest Rates coming down and a very strong dollar on the back of significant fed tightening. Tom where do i put my money today . Emerging markets . Growth markets are going to do fine, but also think investors are going to do better outside the United States. If you consider the last time we saw a lot of fiscal stimulus and fed tightening, that was 20042006. International markets did very well and a stable to weak dollar environment. Francine lets take a step back. Where do you see Interest Rates in the u. S. By the end of this year and by the end of 2019 . David Interest Rates cyclically can move higher. This move down to 2. 8 can be expected because 3 or 1 real yield looks nice to investors who have not had a real yield in a while. Probablyy Growth Continues to improve in the United States with some stimulus. Rates could perhaps trend a little bit higher, but importantly Secular Forces are likely to keep Interest Rates andfor the prolonged time thats aging demographics of the western world, high senate race Savings Rates in asia. Given where we are in the Economic Cycle, its not likely we will see higher sustain growth. I think you will see rates stay in a 2. 5 to 3 range. Francine do you agree with that . David as a former Bank Economist and fulltime portfolio manager, it is hazardous frankly to forecast Interest Rates. More people have been right than wrong. Nevertheless we are asked to give our thoughts. By year end, the 10 year is about 3 . I think 4 on a 10 year treasury is the likely ending point with 2 to 2. 5 inflation that puts the real rate at 1. 5 . As a result come a Long Duration assets and fixed income look really troubling. They have underperformed for the last five years and you have got to think about when that crosses the point where it becomes problematic for stocks and that somewhere above 4 on a 10 year treasury yield. Tom i just brought up this chart so you and i can see into the world of David Sowerby. We do apple and then we do facebook. That we do Something Like General Electric and then we go back to apple. Steel dynamics, fort wayne, indiana, seven or 65,000 employees. Look at the moon shot of this thing. David it is the manufacturing renaissance. I live in michigan. Its the manufacturing renaissance in the midwest. Tom he has nothing with the p multiple under 24. Im exaggerating, folks, but your world is a lot better p multiple then levitz world. Our small and midcap portfolios, our average p e ratio is 14 times earnings. A Free Cash Flow yield better than 5 . Brian weve been an environment where large cap growth has looked over value to other parts of the market and yet largecap Growth Continues to be the winner into this year. I expect this will be an environment in the United States where we hit some stimulus on the fiscal side and monetary tightening. It is sort of hitting the gas and hitting the break. That continues to flatten the yield curve favoring largecap growth companies, weaker dollar, multinational companies, and growth outside the United States. David i think value is a way of life. I tend to lean to the value side as a way of life. As been 14 to 15 months that largecap growth has outperformed value and an even longer cycle. Nevertheless the valuation spreads are more compelling to value. Tom this is great. We have got to go to break. Brian levitt with Oppenheimer Funds and David Sowerby as well. Really wonderful to have them. 3. 5 below record highs. Talk about an important event Jerome Powell, the chairman of the Federal Reserve system, 10 00 a. M. This morning before chairman had sterling. This is bloomberg. Taylor this is bloomberg surveillance. Im taylor riggs. Lets get the Bloomberg Business flash. Goinglio is against the grain when it comes to european he is spending 18 billion when it comes to some of the biggest stocks. He spoke about the challenge in europe. The issue of course still has to do with keeping this expansion going. Because if you talk about the political issue, then there is the challenge between the haves and havenots and this is a worldwide challenge. You must not have an economic slide back because if you have an economic slide back, that is where the real political problems are. Taylor most of bridgewaters peers are betting that european equities will rise. There may be a bidding war for the uks biggest paytv company. Come past comcast has jumped in for sky. That beats the amount that point for century offered for sky that it does not hold. Disney has offered to buy most of foxs film and tv assets including its stake in sky. Another sign of consolidation in the Semi Conductor business according to the wall street journal. Microchip technology is in advanced talks to buy micro some i. Semi. That is your Bloomberg Business flash. Tom what an interesting morning of these flows. Lets dive into a morning mustread. This definitive book on Alan Greenspan and Julian Robertson as well, sebastian malady in the washington post. Goldman sachs predicts the fed may actually raise rates 4000 times over the next two years to head off inflation. No president once a central bank dampenin growth growth, particularly not one who has dismissed chicken little talk about the economic speed limit and has boasted 4 growth that should be attainable. There it is. It really gets out to low rate. Its interesting four months ago that went how will took this job that the world was very different than it is today. There is volatility in the markets. 1. 5 trillion stimulus in the economy. The first challenge is communication today. I have to jump in because we have that ruling that we have been waiting for all day. This is the german court onusing to overturn the ban city diesel cars. Basically germanys top Administrator Court today was due to decide on whether thi the decision and this is in germany, which is the biggest omaker market for europe whether the decision to ban some of these diesel cars was legal. That would wipe hundreds of millions of euros off the value of some 12 million vehicles. We understand now from that court that they have refused to overturn the city diesel car. Ans as far as i understand it, these bands will continue. Tom we continue with brian levitt, David Sowerby, and Marty Shanker with us. Brian levitt, we make a joke about it with 4000 rate increases. Its quadratic and not linear. Give us the difference equation on when it slams and really begins to affect President Trump. Brian directionally we know we are going higher. Tom give me the quadratic. Brian good slams in went tenyear rates start to converge on shortterm rates and the dollar rallies. Tom i know what you are going to say, david. Its a real rate analysis. David it always is. Real rates have been negative for too long. The outcome with the timing and perfect is never good for inflation. And i think to the question, if the 10 year goes to 3. 5 and fed funds go to for, and the curve goes inverted, 10 and 12 times we get a recession. Againsts really pushes it and peter coy had a spectacular article for business week a couple weeks ago. Theres a point where the old economics these guys are too young to know the old economics. We get back to normal, dont we . Marty normal means theres a Business Cycle that says a recession is due. Trump, who celebrates the stock market, has never really talked about the bond market. Hes going to have to start learning that link which. Learning that link which. Brian we are still below 2 . Youre right that there will be an Economic Cycle at some point. I think what important for investors as that it its not likely to be this year or next year. With the feds preferred measure of inflation befor below the comfort zone, we can see rates move up gradually over a prolonged time and i expect the fed will allow rates to be somewhat above 2 for some time. We know how to deal with inflation. What we have been struggling with for nine years and what we dealt with even in 2015 to 2016 was deflationary concerns. I dont know if we necessarily run this exceptionally hot, but i suspect we will allow wants inflation gets to the preferred measure to perhaps remain somewhat above that for a while. Francine let me just jump in here. Sorry, david. Are you expecting the u. S. Economy to overheat or not . Brian at some point. I dont know if i would necessarily say overheat. I suspect the cycle will go on for some time and i suspect ultimately you will see more euphoria show up and asset prices. That nine years into the cycle that we still dont see a lot of exuberance. We still have more americans playing the lottery than holding equities. We are not that point yet. See assetint we will valuations higher than they are now. I think investors want to participate in that. It is not these early moves on Interest Rates that killed the cycle particularly when growth overseas is good. The first rate hike in 2016 almost killed the cycle because the dollar rallied so much and we had earnings headwind in the. Nited states today we dont have to see that because capital will go toward growth is better and the dollar does not have to go up significantly so the cycle can progress. Francine all right, david, jump in. David when we listen to how will testify today, i hope im terribly wrong, but one name comes to mind and that is g william miller. Burns, who inflated the economy. And flesh and went from 6 to a 12 level. Inflation went from 6 to a 12 level. He is inheriting an economy where we have incredible monetary stimulation and now i think very positive tax cuts. That is something a put a yellow flag on. Tom henserling will probably weigh in here. Marty he has been a sharp critic of the fed and wants to see a quicker normalization. We will see whether Jerome Powell could stand up to the communication skills and janet yellen. Tom Marty Shanker with us today and John Mickelthwait our editor in chief. Mr. Levitttinue with and mr. Sowerby. Stay with us. This is bloomberg. Francine this is bloomberg surveillance. Comment francine from london and new york. Tom and francine from london and new york. Lets talk about ray dalio and his position on european stocks. Armed with a rigorous checklist on why he wants the short european stocks, he has built up almost 18. 5 billion of thats against some of the regions biggest companies. A lot of people disagree with him. We spoke with him earlier in china and this is what he had to se say about his europe that. Today andes there is what it used to be. Mario draghi and the ecb should be ca congratulated. Theres always a debate as to what the best processes are. The germans argue with the italians and so on. Now look at it. Through thebeen worst of that crisis and have had beautiful deleveraging. We are in our that crisis is largely behind us and we are now in a situation where growth is improving. Of course, it could always be better. You can have more Structural Reforms, but there have been quite a bit of Structural Reforms. We are in a situation in which growth is positive, the debt difficult by as any means, and we are not having an inflation problem. Its to get it up to 2 and thats a struggle. Thats not a big problem. The issue of course still has to do with keeping this expansion going because if you talk about the political issue, then there is the challenge between the haves and havenots. This is a worldwide challenge. So you must not have an economic slide back because if you have an economic slide that, that is where the real political problems are. Thats where the challenges are. So im not worried about too much inflation in europe, ok . Im not worried about that. I think we are on a good track. Of course there will be the political issues. Theres always political issues. Put them to perspective, theyre better than the last 20 years. Francine this is one of the most significant and interesting thats the market. If you look at some of his peers and rivals, theyre going the opposite way. We were looking at the numbers today and they have seen net inflows of more than 3 billion since bridgwater began its short. Its an interesting dynamic and it is may the best fund win. Tom theres nothing anybody else is talking about. There are harsh critics of mr. Dalios proposed short. Lets get right levitt in trouble here brian levitt in trouble here. I will be real careful here. Ist it comes down here microeconomic foundations around the theory, doesnt it . Brian perhaps. I think what is being missed here is that this idea that the center can hold in europe. What we have seen since the european experiment is that we increasingly go toward more europe and not less. Tom lets come back on this topic. We will refocus with ryan leavitt and David Sowerby Brian Leavitt and David Sowerby. Francine lacqua traveling to italy here on thursday. Governor king here at 8 00 a. M. This is bloomberg. Mom you called . Oh hi sweetie, i just want to show you something. Xfinity mobile find my phone. [ phone rings ] look at you. This tech stuff is easy. [ whirring sound ] you want a cookie . Its a drone i know. Find your phone easily with the xfinity voice remote. One more way comcast is working to fit into your life, not the other way around. Tom bloomberg surveillance. Let me tell you a little bit about bloomberg. Shecine lacqua in london, will be there for complete coverage of the italian election. What is this no update in rome . Those pictures were spectacular yesterday. Francine yeah, it hasnt snowed in five or six years. It will continue selling. I will not be wearing gucci shoes, but will be bringing you full coverage of the election. We cant talk about the latest polls. At the market, theres not much euro angst like we saw with the german election or french elections, but we could end up with a Hung Parliament that could be messy. Tom interesting to see that. Tonight, mervyn king will join us at 8 00. Much else going on. We will talk comcast in a moment. Right now, here is taylor riggs. Taylor a proposal to toughen background checks for gun buyers has run into a roadblock in the u. S. Senate. According to people familiar with the matter, republican senators fasttrack consideration of the bill. Both President Trump in the nra have indicated their support. Attorney general Jeff Sessions is ending the obama era policy that led to legal recreational marijuana. According to senior officials, he will reverse the policy that set up guidelines for federal prosecution of marijuana. U. S. Attorneys and states where the drug is legal can now prosecute cases where they see fit. In saudi arabia, king solomont has shaken up the military. He has replaced several heads of staff. Leaves theilitary coalition that has been struggling for almost three years to regain control of yemen. Korea, prosecutors are demanding a 30 Year Prison Sentence for former president bok choy. Arrested among some of south koreas bestknown conglomerate. Global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Tom, francine . Francine thank you. South africas new president makes sweeping changes to his cabinet and one man is back as finance minister more than two years after his latenight firing rocked the country. The dismissed finance minister is back as well. Our guests are still with us. If you look at emerging markets, i dont know how much you are looking at structural things or what the fed does next, to see whether it is a good time to get into emerging markets. Will, structurally, the emerging markets will be the big drivers of growth in the Global Economy Going Forward, but what i am referring to is more cyclically, where we are in the markets. Think about whats going on in the United States. We will probably balance between expansion and slow down, depending on how tight the fed gets on the back of fiscal stimulus. If you look at the emerging markets, that he are in the recovery phase, moving from recovery into expansion. The currencies have been beaten up, when they got a hit, inflation came down, policy is more accommodative, in valuations are more reasonable. So from our perspective, the lower inflation, more accommodative policy that is the better part of the cycle, likely favoring equities and bonds in the emerging markets. I view this similarly to where we were in years like 2004, 2005, 2006, where stimulus in the u. S. And fed tightening emergingmarket outperformance. Theres a lot of that stimulus seeking out into other parts of the world, given our natural propensity to spend overseas. If you look at, equities in emerging markets and some of the indices in asia, they are very technology rich. They make the chips for the future when it comes to artificial intelligence. How much does have to do with Structural Reforms and centralbank policy, and how much does it have to do with your equities . They have companies that are undervalued at the moment. Two thirds to the latter. I will agree with brian. I dont know whether to be excited or anxious, but i think emerging markets represent a great opportunity. They have had a run for the past 14 months, but these cycles generally go three years plus, and it centers on being able to buy e. M. At 11 to 12 times pricetoearnings ratios went debt to gdp is lower, than that makes the em play much more sustainable over the next couple years. 7 ave a better chance to get returns and portfolios of a possibly can. Tom bring up the screen. This is the Global Equities screen. It is a little hard to see, look at this thing. What sticks out within all this doubledigit glory is china. China has basically gone nowhere. Its an outlier. I make jokes about dictatorship, this is not funny. Is this the mother of all opportunities in china, because we have a massive political change . You always have to be careful to look at the broad indices in china. You will end up with stateowned banks, and in our community you dont want to be looking at stateowned companies. If you are interested in china, we believe you should be looking at the big growth companies, names that are involved with online retail, the number of people consuming in china is going up every quarter. You want to be looking at search and gaming. Its not the broad state banks which will show up in these indices, it is more about growth. Tom is there tech in the midcap world . Sure, i will give you an example. Avaya just came out of bankruptcy avaya. It came out of bankruptcy december, 2017. They went private in 2017. They were already listed. They were cutting costs, generating Free Cash Flow. Theres a tech play in small to mid cap to go with bigger play, not exciting, but a name like cisco. David, if you, so look at emerging markets, where do you see the most value to have a heavy position . I wish i knew with greater certainty, that i want to find the country that is moving in the right direction with respect to taxes, regulation, monetary stabilization. That could be anywhere from greece to brazil. Those are the kind of countries where i think the Second Derivative is moving in the right direction. Continue debriefing in the morning. Bloomberg radio. Bloomberg daybreak, coasttocoast, on all our Digital Properties as well. Stay with us. This is bloomberg. Francine this is bloomberg surveillance. Lets get the Bloomberg Business flash. Apple is looking for a way to boost mobile phone sales after the iphone x missed expectations. According to people familiar bill, the company is planning to release three new smartphones later this year. Thankfully, the largest iphone ever has a less expensive mode. Billionaire john malone with Liberty Media has emerged as a potential white night for iheart radio. He proposed a deals to link some of the biggest names in music and entertainment. It calls for liberty and sirius xm to foster them through chapter 11 bankruptcy. A hightech trial that has been six years in the making. In san francisco, lawyers have made Opening Statements in the fraud case of autonomy and hewlettpackard. Prosecutors say autonomy cooked the books, forcing hp to write down its value a year after buying the british company. Defense lawyers say the cfo is a scapegoat. And thats your Bloomberg Business flash. Tom, francine . Francine thank you. Changing gears, the European Union will challenge theresa may tomorrow when it publishes its address that ignores the u. K. Prime ministers most important demands. It was set out in legal detail how it expects britain to depart, and the transition. That will follow, according to a person familiar with the matter. David, always great to speak with you. You put things in perspective. We understand liam fox has a speech that is eminently here at london headquarters. Talk about the Customs Union. How divisive is the Customs Union for the conservative party . This is becoming the big issue. You reference the proposal from brussels, the withdrawal tree. They have until october to hammer out the details, it is just a draft. The real fight taking place back here in the u. K. , specifically in westminster, after Jeremy Corbyns significant intervention. He made his move, says labour will support a Customs Union. This has blown open the big divide in government. New proxies will be standing up in a few minutes, he will be making a rebuff to the lead of the Customs Union, and there are many people in the party who disagree. And of course, there is a vote coming up in parliament on the amendment tabled across bench team of lawmakers to force the government to accept joining a Customs Union. Theresa may said this is one of her red lines, and it has the potential to bring down her government. Francine does this mean . In the past we had labour and the tories. Will we see a mishmash, or will it be probrexit versus may . It is fascinating, the whole Party Landscape gets dismantled. To the conservatives, who support the Customs Union or a soft brexit, do they across the isle and joined the labour party . Do they care enough about this issue to force the resignation of the Prime Minister, a general election . That is what we dont know. We are trying to get more feedback from the remainder mps. We know the cabinet is lining up behind mrs. May, saying we will francine are they . They were talking about trade they are all towing the line at the moment, even the chancellor and the home secretary, the most proeu members, who said yes we are accepting it. We will have to wait for friday, because on friday misses may will be making a big speech. Maybe she will come up with some language that will placate her party. She may not call the Customs Union, she may call it something else, some sort of bespoke deal which effectively does the same thing. Francine what will the eus position be . They have always said no cherry picking. We heard the president of france speaking, saying that a Customs Union will be possible. It is not great, it would be an arrangement like turkey. That has some problems, not exactly popular with the turkish. It does mean surrendering a lot of their say over the other trade deals. That yes, the eu would say that is possible. Its a fascinating situation, the labours leaders the labour leaders proposal. Francine how do you follow brexit . We had a chart looking at europound, which is the trade that a lot of investors want to play, more that the cable. Do you play it through currency, or do you just leave brexit alone because it seems like such a mess . I dont think that we spend a significant amount of time dealing with the intricacies of the day today movement on brexit. Bottomup, then companies within europe, and companies within the United Kingdom that are benefiting from improvements in the emerging world, synchronized global growth, and some stability in the u. S. Dollar. I would advise investors to expect a less than optimal outcome for the United Kingdom, but that does not mean on an for the European Union. The u. K. Is for more reliant on europe than the other way around. Tom do you expect m a in europe . Let me start with you, brian mergers and acquisitions keeps things going. Witness sky and qualcomm. Will that be something for european and british multinationals . And we haveit will, turnover that within europe we are early in the cycle. Europe went for this prolonged austerity period, a deflationary type of environment. What we have now is improving earnings and that should lead to more mergers and acquisition. It is a better part of the cycle. You will get m a picking up. The key is, if you do it with cash and not too much stock, than it is not a potential value destroying acquisition. That makes it more palatable. Tom we now turn to the merger of the day, and we can do no boxer, who matthew works in london with paul sweeney on the Media Business and has done tours of duty at Goldman Sachs and deutsche bank. Thrilled that you are with us. I will cut to the chase. It is an extrapolation to the bull market trend. This thing has got to go at a premium. Do you assume there will be a bidding war from this moment on . I think there has to be another coming. We are expecting it to go to fox or disney to make some pretty compelling strategic rationale for taking control of sky. I think it is similar to what we are hearing from comcast and i would be amazed if we dont see a counter offer. Look at the chart quickly and that get to the financials. This is a log chart back to the great market. I have extrapolated out from the peak of 2015, and you have to believe it will move up in some form. Matthew, the Free Cash Flow of comcast is 12 billion, i have 1. 5 billion on sky, and what is absolutely remarkable to me is the difference in profitability. Comcast is basically twice as profitable give or take on a percent basis. Mr. Roberts has all sorts of head room to boost profitability if he gets a hold of this thing, right . Yeah, i think so. I think they should be able to realize a whole bunch of situations. Nbc universal has a substantial operation in the u. K. And we dont see sky as a renter infrastructure in the u. K. It has taken on assets in italy and germany, which are much less but it has very clear plans of think the path is always for improving margin at sky. Treasure they british product of sky tv or will they make amendments to it in context . The great problem in the british press, are they going to americanize the content . From what we have heard today, i think they are going to respect brand, it is an incredibly powerful brand in the u. K. And they think translating it says fully into germany and italy. I think they see a lot of value in their technology platform, which they can potentially take , andto the u. S. As well they have already been investing substantially on their own content, sky originals in the u. K. , which have been successful and have had great traction. I think they will respect that and take some of it back to the u. S. Francine talk to me about regulation. Who will they say yes to . Today, you look at it comcast looks much more straightforward. We are still waiting for the u. K. Market authority to opine on the fox offer. We have heard in the last week or so that they have made additional concessions to attempt the cma but it is still unclear, not due to give their recommendation back to the u. K. Offers, onewo cash ,lready higher than the fox bid i think he will be difficult to be an independent director and not recommend the offer. Francine when will we find out it is such a hot topic at the or , will it go fast the regulatory process for comcast would definitely months,be three to six but if it looks like it is a straightforward process it should be a phase one review, so that could be two or three months potentially. Whereas the fox offer, the next data will be the green light. Tom thank you, greatly appreciated. We are thrilled you could join us on short notice. We need to do the single best chart, and the framework of this with chairman powell at 10 00 a. M. , the news out of china, his huge media merger, is your gloom on the market . For the optimist, we need to go back to the depression and get depressed. The single best chart, the dow back to 1910. Everybody knows this chart. It is based on the classic cfa. Up, up, and away. What do you do with that . Environmentll an where for the next 10 years, stocks return between 5 and 6 and where you tell i am an active investor and i will always be where my or fully manager says, but in an environment where active management wins, we need Free Cash Flow tom when we studied this with the cfa, you had an allocation to emerging markets. We all formula doesnt work anymore, does it . Well, i think what we need to realize is that these markets will trend higher. There is little reason to think this cycle is ending. The emerging economies are better positioned, they outperform, if you think about longterm cycles there have only been a short period about isformance, and that unlikely to end with a synchronized global expansion. Investors may have to deal with some volatility around uncertainty and monetary policy, that ultimately this cycle will continue and investors should consider diversifying. We have not seen investors do that, and those are likely to be the out performers. Most importantly an investor should stick to their plan. Francine david, when will the next recession hit . What will reformat . If you only know, but i will watch, when the Manufacturing Index dips below 46 or 45, and fed funds are trading above 10 year treasuries, those are my trigger points. I think we are a long way from that where we have at least 1824 months left and have not ratified the Business Cycle. It is simply what you dont know , the risk you dont know today, that will most likely be the corporate the culprit. The United States is further along in this so we will watch them for signs of the end of lifecycle and we will have the clear signs, sustained higher a flax to inverted yield curve, and a strong dollar. As long as we remain with modest inflation, the yield curve is not particularly steep but also not particularly flat. And the cycle should continue. Dont knowf you where the next recession is from and you say it is likely to come from something we havent seen before, is there a canary in the coal mine . If you see it waving, its a good time to get out . And ierted yield curve pay great heed to my highyield bond colleagues because they are always worried about what will go wrong and went highyield starts to become more troublesome it has widened out that is when i will start to lose sleep. Francine what about you, brian . I agree completely. To me, the canary in the coal spreadsl be highyield and the u. S. Dollar. Policy, dollar stabilized. Tom we have Jerome Powell at 10 00 a. M. , chairman bernanke and yellen speaking together. David sowerby, help these bankers out. Can we actually get a sustained 3 gdp . None of them agree. We can, and we are getting there. Regulation is more sensible, taxes are going lower. We are getting fiscal stimulus late in the cycle when we usually get the opposite of that. Tom can they sustain it . I think they can if the that reads and Milton Freeman textbook, in reads that the mission of the fed will be price stability. Tom thank you. David sowerby. 3 real gdp. We have much more to talk about. Bloomberg surveillance will continue on bloomberg radio. Dont forget, 10 00 a. M. , a very important and historic testimony powell fort chairman the Humphrey Hawk testimony before the House Committee services. Worldwide, this is bloomberg. We are going to be at the part where the Central Banks will have a problem getting it right. Operation do no harm. Ray dalio says Central Banks have to be perfect as jay powell faces the Financial Services committee for the first time as fed chair, with the one goal of dont roil markets. And Prime Minister theresa may is caught between her own party, jeremy corbyn, and brussels as the eu draft to brexit tree. And comcast challenges Rupert Murdoch and bob iger with a cash offer for sky. Welcome, im david western. Almost in march. , my god, really . Have before we get the senate remarks from j power. A little softer down seven points but we had the monster r