Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170801

10 00 we get the isn manufacturing data for july and later this morning u. S. Automakers will report july Light Vehicle sales. Good indicator for the market and Consumer Spending. From shakeups to the white house to the senate remaining in session, every day brings new twist and turns. The man who follows it all is kevin cirilli. I guess we have to start with the white house. What happened . He barely lasted 10 days. Yesterday i spoke with several sky Bridge Capital announced scaramucci was fired by kelly hours into his first full day as chief of staff at the white house. Essentially they are saying this was general kelly trying to himself on day one to give himself a clean slate. The statement from the white house announcing the firing. Himself on day one to give himself a clean slate. They say that Anthony Scaramucci will be leaving his role as White House Communications director. He felt it was best to give chief of staff john kelly a clean slate and the ability to build his own team. We wish him all the best. Theres so much going on in the white house it is easy to forget the senate gave up part of their vacation to day in town. Weve got two extra weeks. What are they going to get done . They are saying they want to do more on health care and they would have a viable path forward with democrats. Orreally is unclear whether not thats just political talk. I think thats what it is at this point. On tax reform things are moving somewhat more ahead. The house of representatives. Rying to take up tax reform Steven Mnuchin released last week that framework. I spoke with a Senior Administration official last night who told me guess whos going to be at the Economic Council today presenting on tax reform . Newt gingrich. David whats going on with the budget and the debt ceiling . Theres also this looming problem of the government shutting down. Yesterday i interviewed the Top Communications Public Affairs guys at Treasury Department. He says the Treasury Department is working very carefully to avoid the same political mistakes that were made with Health Care Reform with all of these budget wranglings coming for the fall. When you take a look at whats going on with potentially raising the debt limit i also speak with the Freedom Caucus and they say they want to have budget cuts in order to raise the debt limit. That is a point of tension in policy. David thank you, kevin. The question remains what does it mean to investors. The asset that got hit the most is the dollar. The dollar index wrapping up its fifth monthly loss. Joining us is Philip Camporeale he. Good to see you. Hear all of the headlines from d. C. , what do you think . Versus a lot of noise the Asset Allocation themes we are putting in the portfolio. The dollar was a very crowded trade. Coming into 2017. Kind of linked to the trump trade along with things like smallcap stocks alix . Rates are lower. Dollar is weaker this year. To the u. S. Was based on a pretty resilient economy. Earning season in q1 and whats shaping up in q2 looks pretty solid. Alix we seeing revision downward for earnings. Plus you have fed Stanley Fischer saying uncertainty about the outlook for government policy and health care regulation, taxes and trade can cause firms to delay projects until the policy environment clarifies. Thats where youre going to get the intersection. What is your expectation . The market continues to move higher. Financial conditions are important. Credit spreads are very cooperative. Equity prices continue to move higher. Compared to last year when we had u. S. Elections, tariffs are just getting smaller. And there is still so much cash on the sidelines. The trade is a meld of inadequate prices, not down. I guess what im trying to, the wall of worry continues to decline. Headlines from yesterday, the market having another high. This trade is poised to move higher based on the fundamental story we are seeing. Onid you put your finger it. At the same time the markets keep going up, you have a lot of cash on the sidelines. Not just investors cash, corporate cash. That must indicate people are worried about something. I think 2008 especially was such a traumatic event for individuals. We talk a lot about the return of principle. Companies like to take a leap of faith. Not necessarily been taken. Thats where this velocity of money story hasnt come through. Inflation is still pretty tame. An idealtill environment to take risk in our opinion. Thathan its remarkable we sit around a table and talk about companies that have loads of cash to spend and dont spend it. It got a lot of dead. Why do we talk about them having loads of cash without thinking about the debt . Highyield default rates. Is the most risky type of companies defaulting. That is a very supportive story. Even though the debt is Building Financial conditions are so supportive this is a story were highyield isnt the trade it was last year. We have reduced highyield. Very supportive story based on default rates. Companies are not defaulting. Default looking for rates is like searching for the horse with the doors flapping around. These Companies Struggle to find topline growth. Pretty much all of them across a whole load of sectors. They are squeezing the bottom line by cutting costs. They are exacerbating etfs growth. When you look at the fundamentals of these companies is it actually that good . You could make the argument that the First Quarter of this year was the best Earnings Seasons we have had since the financial crisis globally. Sales growth is happening through the end of last week. In places like europe, u. S. Are pointing to europe coming back online. That is something we havent seen in five years. Buybacks are happening. The returns this year have been driven by earnings rather than multiples. The story is not gimmicky. We are not even banking on trump trade. That would be nice to have at this point. The fundamental story is very far from recessionary risk. Like the only question for the market is when does the credit cycle turn and what is the trigger . How do you frame the . The trigger is based on the recessionary risk. Financial conditions tightening. I think fed policy is one of them. Chairwoman yellen is moving very gradually. A fed mistake of being behind the curve is different than the fed over tightening. I think thats very different. If the dollar was rattling like crazy, Interest Rates moving rising, vixorate moving higher. That would catch our attention in terms of a Recession Risk in the market. , an interviewup with howard marks and why she is senate bill them on fence stocks buying stocks. This is bloomberg. Alix Alan Greenspan warning of a pop in bonds as inflation will crime. Climb. Real longterm Interest Rates are much too low and therefore unsustainable. Inare experiencing a bubble bond prices. This is not discounted in the marketplace. Also with us is Philip Camporeale. Digesting it is Interest Rates a lot better. Can we see a taper tantrum like event . Sure. I think brussels or the ecb probably has a lot more to do with our Interest Rates than the fed does. Mario draghi will be at jackson hole this month for the first time in five years so theres a lot of talk over whether that is signaling their normalization of policy. Interest rates are very low now because of how low global Interest Rates are. If you look at whats happening this year the fed is more explicit than they ever have been on normalizing their Balance Sheet and they have moved twice as many times in 2017 and all of those financial conditions we talked about our easier. A much the fed is in better place in terms of communication then when the taper tantrum happened. 2. 310 year treasury rate right versuspretty darn low where Economic Growth is and what the fed is telling us they want to be doing. It seems you have to have a constructive you on inflation. I thinksts and says, inflation is picking up. Thats why are not raising my s p forecast. The only get to 2600 if you see higher inflation. Them . U square reflation is very different than inflation. That means Central Banks are hitting their 2 target. Inflationary, go back to the bond vigilantes of the 90s. Inflation expectations are moving out of control higher and the fed is perceived as the behind the curve. That is a very tight environment where the fed has to catchup. Reflationary if we can get that is good for the stock market. I think a bad scenario would be a trip back down on tenyear treasury rates to the lows of last year because inflation is happening. I want to get back to the essence of what greenspan is talking about. If you truly believe the risk is in the riskfree asset and you want to do you risk where do you go . You are not going to go into a duration asset. You are saying the risk of higher Interest Rates. I think it is still equities. I think it is pro cyclical equities. See aials would love to steeper yield curve inflationary environment. I think it out of things in fixed income that have more duration. Cushion have a credit to your investment that should protect you against Interest Rates rising but its still equities. If you believe in what chair greenspan is saying it extends beyond sovereigns. Its the whole fixed income universe. How do you actively derisk without going to cash . I think its just a balanced portfolio. If you have an inflationary environment what are the things that would protect you . Commodities as one. Thats not something we are investing in right now because we dont see the risk of high inflation expectation. Ironicallynk tips make a lot of sense in that environment because they have so much Interest Rate risk for duration. Pro cyclical stocks should do well in a higher Inflation Higher growth rate environment. I think there could be people in for a rude awakening in fixed income. Jonathan i just want to stress that their income i think its very difficult to put together a diversified portfolio because bonds would outperform and stocks would underperform. You may see both moving together simultaneously lower. You get a big shakeout in equity. I think price stability is what matters. In thee like we saw taper tantrum, look out. Nothing is safe there. If you get it over a more , we aretime period seeing a much better digestion from investors on the Interest Rate policy. I think equities and parts of fixed income still make sense in that environment. To your point, fixed income david one way to look at this is that the projections on growth from the bond market are disagreeing with the projections from the equity markets. Lets assume the debt market is right and equity markets are going to suffer. Do you start to get very picky about the strength of individual stocks . Their Balance Sheet, their free clash flow their ability to whether a storm. I think thats now. Stock pickers are being rewarded there isntcause the lowest for longer anymore. An environment where Interest Rates have some sense of fortility, the time is now your managers to pick stocks correctly. David is that stock buy stock, company by company . Yes. Its a bottoms up work we are trying to do. Sectors matter. Financials versus utilities. Thats fixed income on the utility side. Thats a procyclical higher Interest Rate story on financials. Its the same asset class. Aside from sector, Balance Sheet by Balance Sheet to weather the storm. If you look at Companies Like boeing, kata taylor. These are bellwethers that are doing pretty well in this environment without the inflation story kicking in. Are doing pretty darn well right now because financial conditions are so cooperative. Alix thank god for that paris air show. Coming up, tomorrow i will be interviewing the ceo of goldman be talkinge will about growth, regulation, policy in d. C. This is bloomberg. Mrs. Bloomberg daybreak europe im emma chandra. Sales dropped for the Third Quarter in a row. Thats likely to add pressure on the maker of viagra and lyrica to come up with a deal so that he can return to growth. Viagra posted secondquarter profits that were better than expected. Record. Rose to a the Energy Company says lower oil spill payments for the rest of the year and funds from asset sales will ease the burden. Ap is almost 40 billion in debt. The Company Posted secondquarter profits that beat estimates. In the euro area economy steamed ahead in the second quarter. Gdp rose. 6 . Thats in line with estimates. The fastest growth since 2015. France is in its strongest continuous expansion since 2011. Thats your Bloomberg Business flash. Jonathan banks may face an extra 50 billion in cost to support your opinions in the aftermath of a hard brexit. Joining us to discuss from london is stephen morris, bloombergs u. K. Banking reporter who wrote the story and has read this research. Of this is the latest bad news for the european Banking System to come out of brexit. The analysis is they will have to find another 50 billion in capital in addition to the trillions they have already added just isnt going to be very good for bank returns. We will see more peripheral players. Just pulling out of europe altogether. Which is good for anyone. Jonathan if theyre are going to have higher costs whos going to end up paying those . They will ultimately be shareholders and the customers in various formats. Douglas flint warned yesterday that fragmenting the european Banking System outside of london would increase costs for everyone. Raise alone or a bond as a company in europe it may cost you more than it does now which is going to hit everyone in the pocket. Jonathan this is what the city of london has been warning the rest of europe. Look at the plain vanilla economics and understand what you need. You need a Financial Center for and the pipesnion already in london. You will have to do something about it. People arguing about whether frankfurt, dublin, paris, amsterdam will benefit the most. Research is saying new york will be the beneficiary. Financialbe there system chooses to center all of its operations to benefit from the shared costs and netting effect of having it all in the same place. This is more bad news. Stephen morris, thank you for breaking that down for us. Still with us is Philip Camporeale. Gdp is picking up in a significant way. The euro is flying with it. What are your thoughts on European Assets . Sales is something that caught our attention in the First Quarter. The First Quarter about 7 . Sales growth, not earnings. This is kind of our number one trade right now. Assets equities outside of the u. S. That include europe. As well as emerging markets. Underperformed by so much. Things could be cheap for a reason. Things were cheap for a reason prior to this year. Tail risk inbig the French Election. The operational leverage that we see in europe is tremendous. So depressedwere through the european debt crisis have the potential now with this sales growth to really catch up to what the u. S. Was doing and euro strength as a headwind nearterm. The euro is strengthening for a good reason. Its because of the gdp growth. The French Election gave a validation to the euro system and this is kind of a good spot for u. S. Investors. Investor in new jersey that wants dollar returns, if the dollar is weakening that means they are going to get more profits from what they take from overseas. Alix earnings are headed lower. What are your thoughts on that . It was a pretty elevated place. It caught our attention. At the end of the day if gdp and mario draghi continues to point his jedi mind signals toward normalization who knows when the automakers. Headwind in the nearterm that is financial tightening, its a good sign for europe. From new york city, youre watching bloomberg. Jonathan from new york city to our viewers worldwide, you are watching bloomberg daybreak. Im Jonathan Ferro. We are two hours away from the cash open. Futures up from her. Down 22 k someone will be shouting that. The s p 500 positive by three or four points. Energy leaving most of the day until the last couple of moments, mostly because of b. P. Ernies doing well over in europe today. The story in the bond market is not much of one at the moment. Unchanged on the session so far. In the fx market, some Dollar Strength against the europe and the eurozone and just a bureau and just a little against the pound. The single biggest game against the greenback. A big month coming off of single currency. Lets get th to the headlines on for the Business World with emma chandra. Emma the white house is looking for new Communications Director. Financier Anthony Scaramucci was ousted 10 days at the job. To general john kelly, his foulmouthed tirade to a reporter had put him on ice. According to the new york to 100,000 Russian Troops will hold maneuvers close to the eastern age of nato territory the summer. To drills could be a pretext increased Russian Military presence in belarus. That. K. Chancellor says brexit will not be postponed or delayed. In brazil, Philip Hammond says the u. K. Will leave the eu and march 2019 despite disagreements and Prime Minister theresa mays cabinet. The debate is over adjusting to the new relationship with the eu and not about staying longer in the bloc. Global news 24 hours a day powered but 2700 journalists and analysts in more than 120 countries, im emma chandra. This is bloomberg. David apple is going to be announcing its thirdquarter results after the close today and the consensus has it a dollar . 57 a share. Joining us now is joe weisenthal. Jamie berlin just sent me a note that actually apple is the secondbest outperform your today, up 30 . How important is this . Joe obviously we have seen tech a little underperformed as of late. We have seen a little bit of stumble with amazon coming off the recent highs. Yesterday the nasdaq underperforming. It will be very interesting. This is the last of the really big tech earnings with facebook, microsoft, alphabet on the back. All in the bag. The stakes are pretty high. Quarterhe last report before the iphone 8 comes up. Joe apple has these important quarters and then quarters of lesser importance. I would not be surprised that people pay more attention to some of those other noniphone related things. We are all going to look right away at the iphone unit sales. I think its at 41 million or Something Like that. I would not be surprised if there are some diminished importance placed on that over this quarter. Theres a lot of interest and how the Services Business is coming along. Kim if im another Growth Market that is not on that same calendar schedule can they find another Growth Market that is not on that same calendar schedule . Some other things will be in focus. Alix big leaders in tech same that if you add apple and their, they have propelled the market. Without one of them, you could be in trouble. Its not hold true for amazon. Amazon took a hit after its quarter, but it was fun. People that you talked to on your show, do they see the same risk with apple . Joe its a good question. It is interesting though that all these companies are just performing phenomenally well. You do with amazon, ok, some concerns about earnings or whatever, but its still knocking the lights out. Weve not seen the story change. Changed,story people would expec accept it. The fundamental story about them essentially eating the entire world is in place and its hard to imagine the storage engine. Story changing. Jonathan the guidance critical later. One is it coming out the new iphone . Are they going to be able to supply it in a significant way . We speak to some of the analyst on this program and they do not have a clue how to project apple forward for the next couple of quarters. Joe i go with analysts. I dont have a clue yet either. Alix youre not an apple analyst . What happened with that . Joe i do not have a unit Sales Forecast handey. Thats the way a hit driven company is. If you look at the difference between facebook and amazon, sort of these emergent dominant andes in the world, sucking more Economic Activity every single day essentially as more and more businesses go to their platforms, where apple is still driven by can you deliver . Cant the next iphone be a reason to upgrade . Is a frailty to that Business Model that does not make it on the same inexorable march as the others. Jonathan would you spend 1000 on a smartphone . I may have come close to that at some point in my life. How much was the iphone 7 . Alix it was a hundred something . 800 joe i dont know about the gadgets. Alix he has a daughter. He has to save for college and now. Joe thats my excuse. Jonathan joe weisenthal, great to have you on the program. Lets look at the global earnings in the potential impact of that. Thinking aboute these big for her five stocks that have dominated the performance of the s p 500 . Phil you mentioned apple at 30 yeartodate. Stocks dont go up 30 because you have people investing in them, but theres upside to the stocks. Theres disruptive capabilities. Amazon basically wants to take a slice of u. S. Gdp and call it theirs. The disruptive capability of these stocks is really fascinating. Because they are such public stories, as alix steel mentioned , theres an element of chasing that can go on and emotional behavior, which is what we have seen. Jonathan the investor behavior around this it was months ago when a guess came on the show and said that amazon was like a safe haven. I sat there and scratch my head and walked away thinking, what is this guy talking about . A lot of people think about tech stocks like that at the moment. I wonder what. Y. Phil when i think safe haven, i think something other than the Technology Sector. Theres something to the u. S. Sector being a safe haven and technology bellwethers like that you can be resilient because they are so disruptive, having that portfolio, but we would not consider the Technology Sector a safe haven. There is the element of chasing that can be going on in the market right now, which we are kind of wary of. That is what we have seen the past couple of days. We are not reliant on the fangs stocks. David perhaps they are safe haven in the different sort of way say from policy changes. Say from foreignexchange fluctuations. Thats as opposed to other sectors. Are these tech socks relatively immune . How i do wonder though industry policy could affect some of these companies because capital is so cheap right now. Gocapital or Interest Rates up a little bit, they have some its cash as well that they are also kind of immune to that. David talk about that cash. What about repatriation . Talking about a plan for companies to repeat trip that money for a fairly bee minimal charge. Talk about these tech stocks that have so much cash offshore. Phil we are not going to hold our breath for it because of the policy changes that folks wanted to see in 2017, but that could be a cherry on top of the outlook along with the Corporate Tax rate that goes to 20 . Our analysts were just talking about that yesterday. Again, not something we are holding our breath on because of how slow these policy changes have been in plac 2017. Alix what sector provides the most value also showing strong earnings . Phil within the u. S. . It goes back to the financial industrial stories for us. That has more valuation upside than some of the other sectors out there that have done so well over the past two years based on the low Interest Rate policy. Alix so, good stuff. We had earnings out in the last halfhour, so lets get you caught up. Under armour down by 5 6 in the premarket. It cut its revenue forecast to 9 growth versus 11 to 12 . They did see moderation in the north America Business segment. They also see growth margins down at least 120 basis points. Analysts were expecting revisions lower for the year so that should not come as a surprise, but the stock getting hit nonetheless. Different when it comes to sprint. It be on earnings, returning to profitability for the first time in three years, boosting the low end of its ebitda view. Situating it up for softbank buying charter. Strong numbers that we are seeing some sprint that you couldve written off a little bit of. Jonathan if im confused by one deal in the cards, im confused by this one and who pays for. The leverage on the Balance Sheet of charter is a nor enormous. Alix this puts sprint and a better position of showing what it can do. David john malone alone owns 21 of charter. I would not want to go up against him. Alix much more coming up on that. Coming up on friday, we have an allstar lineup of guests for you to react to the u. S. Jobs number. Alan krueger, rick rieder, bill gross, all here for you. This is bloomberg. Emma this is bloomberg daybreak. Im emma chandra and this is the hewlettpackard enterprise green. Coming up, interview with howard marks at 8 30 a. M. Eastern time. Emma now to your Bloomberg Business flash. Wall street regulators have begun to rewrite the volcker rule. Five agencies are moving to loosen restrictions essential to the governments response to the financial crisis. Changes would give big banks more flexible the for handling trades and investments in private equity and hedge funds. The u. S. It has taken an unusual move against the head of state. They have sanctioned venezuelan president nicholas maduro, accusing him and his government of undermining democracy. That came a day after a vote with a step toward rewriting the countrys constitution. The wife of a venezuelan Opposition Leader says he has been taken from his home by authorities and so has the mayor of caracas. Alix think you so much. For more on the story, we are joined by nathan crooks from miami. Walk us through what happened the last one for hours in venezuela. Hours. It was a busy 24 we saw the u. S. Sanctions against president maduro. Including specific targets on the oil sector that some people had been expecting. Nonetheless maduro last night spoke and celebrated the sanctions and said he was proud of them and was not intimidated by them. Venezuela and those of us on the east coast are waking up to the news that to really highprofile Opposition Leaders were snatched from their houses overnight by secret police. Alix where does it go from here . How soon until venezuela disrupts into a true civil war . Nathan thats a question a lot of people are asking. Certainly in the past four months, there has been over 110 people that have died in kind of these violent protests. People are starting to wonder where is this all going. Bonds fell to the lowest in 15 months yesterday and there was some d felt rising default rising. Investors are watching this. Some of the videos that you see like one of the Opposition Leaders seized last night, he was wearing his pajamas. The imagery that you are seeing is very powerful. Alix unbelievably so. Thank you so much, nathan crooks. Venezuela is also home to the Worlds Largest oil reserves and the oil output is at a 14 year low, under 2 Million Barrels of oil a day in june. Joining us for an intersection of oil in the markets and. Olitics is pedro borrelia cou d he was part of the state owned company. Your experience, but what would the most effective sanctions be for venezuela from the u. S. . Pedro one of the difficult things to figure out is what will make madero change course. Every single red flag that has popped up, he has decided to assume is a slalom course and you go around it. He is violating the speed limit right over. It. Its confounding situation for the International Community. The reason is that we are not dealing with a bad government. We are dealing with a corrupt government, which it is. We are dealing actually with a criminal government. Theres not a great deal of experience in the International Community dealing with a government that is fully involved in narco trafficking and has basically stolen so much money that they do not see a good exit. As a matter of fact, just going down in flames might actually be the exit that they like. The idea of what they did this weekend of basically rigging an election to an amount that even people who are kind of moderates said this is impossible. These guys just invented millions and millions of votes. That to me proves that we are not dealing with somebody who reacts to normal kinds of political pressure. It is hard to imagine, but i think a little bit of an undressing of what this government is an and expiration d an expedition to the world of how toxic a list will undermine the last remake support it has within the armed forces and will make it difficult for the few countries in the world still hesitant. HasInternational Community a great deal of information about the criminal activities of the senior figures of the government, including the president and his wife. Were to expose that, i think that would be the name and shame think. I think it would actually work pretty well. Alix the name and shame think and let the government crash and burn. What is the responsibility of the u. S. . Can oil sections help do that . Pedro i do not think the United States or any other country is going to do anything that damages the people of venezuela. Clearly what has moved them all is the suffering of the people of venezuela. I have not met a single official in the americas or europe who has not been completely moved by the suffering of people who are literally dying of hunger, dying because of lack of common medicines. Venezuela has lost 60 pounds on average of weight last year. This is catastrophic. This used to be the richest country in latin america. Most people will try sanctions that do not affect the ruling clique and their flow of money. I do not think youll see sanctions targeted in any way, shape, or form to the people of venezuela. There will be extreme laser precision as to how they go after the regime. The 13he sanctions of individuals and venezuela as well as the president , that actually works . Pedro it works a great deal. My sense is that those 13 people that were sanctions proves a couple of things. The first thing is that approved the United States knows perfectly well whos who. Some people dont know who these people are. They are not familiar names. They are really the people who are either ransacking venezuela because its the only thing or basicallyng following the commands of cuba to destroy venezuelas democracy. Is a perfect indication that the government of venezuela should take it. The United States and other countries know exactly what going on. I think its foolish to think. Hat this is going to stop my sense, and after what happened last night, you will see the escalation of that type of sanctions. It will be untenable, i think , for the government to survive. Alix thank you very much for joining us. Good insight into venezuela. If you have the bloomberg terminal, check out tv. Ck on ournline, cli charts, and interact with us directly. This is bloomberg. David this is bloomberg. Im david westin. The media may spend much of every day following going on in the white house, but if you listen to corporate earnings calls, is this is much more interested in what jeff bezos is doing than what President Trump is tweeting about. In the last 90 days of earnings calls, amazon was mentioned 635 times. Donald trump he was mentioned 162 times. Here to give us a sense of what investors are really concerned about, particular High Net Worth individuals, we are joined by ida lou. Good to have you here. Ida it is great to be here as well. David you deal with these very High Net Worth individuals and their families. What are they saying about their concerns when it comes to investments . Ida clients are always looking for yields, particularly in a very low Interest Rate environment, so we are seeing attractive opportunities in the municipal space, where you can get taxequivalent yields upwards of 4 on intermediate singlea maa credit. And double a credit. You can get six to 7 and we still expect oil to be in that 40 to 60 range. On the equity side, we are constructed globally on the emerging markets and europes where we see europe where we see corporate earnings outpaced the estimates. And then lastly, i would say we are investing our clients and opportunistic coinvestment opportunities, particularly in the real state space, where we have invested our climates in four thirds park avenue 432 park avenue and another luxury condo in boston. Half 1 billion invested in real estate. Just to sum up fixed income corp. , global equities, coinvestment opportunities, private equity, and strategic opportunities as well. David give us a sense of your profile for your typical investor client. Where do they live . What do they look like . Ida our clients have a minimum net worth of 25 million or greater, although most of our clients are sent to millionaires. Ourerve a third of millionaire clients. They are global and they have family members living in multiple geographies around the world and cities unparalleled Global Network really helps these clients. What is unique about Citi Private Bank is that we sit and said institutional clients group. Thats alongside the investment bank, markets, and treasury and trade solution. We not only able to offer our privateof what citi bank can offer, but the institutional and very comprehensive platform. David finally briefly, give us a sense of the demographics. How old are these people and is it changing with the silken valley Silicon Valley billionaires . Ida ultra concentration of high wealth is in the United States, followed by asia. A growth in asia, particular months the billionaires and a lot of growth. As those asian clients are gaming wealth, they are diversifying assets and to United States, followed closely by canada and europe. Particulate also in the Family Office space. David think you very much, ida. Jonathan coming up next on this program, a senior u. S. Economist alongside Morgan Stanleys u. S. Public policy strategist. From new york to our viewers worldwide, youre watching bloomberg. Whoooo. I enjoy the fresher things in life. Fresh towels. Fresh soaps. And of course, tripadvisors freshest, lowest. Prices. So if youre anything like me. Youll want to check tripadvisor. We now instantly compare prices. From over 200 booking sites. To find you the lowest price. On the hotel you want. Go on, try something fresh. Tripadvisor. The latest reviews. The lowest prices. Jonathan chief of staff john kelly looks to bring order to the white house and he begins by removing can medications record and they scare me she Communications Director Anthony Scaramucci. The latest gdp figures show an economy building even more momentum. Former fed chair Alan Greenspan has a message for investors. We are experiencing a bubble not in stocks but in the bond market. Good morning. This is bloomberg daybreak. Im Jonathan Ferro alongside david westin and alix steel. Futures are firmer. Sentiment good in the United States and europe. We are up by two tents of 1 on the s p 500. At 1. 1lar is stronger 814. Treasuries pretty stable and we have been range bound. Theres not much of a range to say. That is where we stay. Alix we have good reads on the economic data. At 8 30 a. M. , personal income and spending. At 10 00, you get the iso manufacturing data for july. Offer throughout the morning, we would get u. S. Automakers reporting july Light Vehicle sales. Onid now to get an update what making headlines outside the Business World, we have emma chandra with first word news. Emma u. S. Has taken an unusual move against the head of state. They sanction the venezuelan president , accusing him and his government of undermining democracy. That came after a vote that was a step toward rewriting the countrys constitution. Meanwhile, the wife of the venezuelan Opposition Leader says he has been taken from his home by authorities, so has the mayor of caracas. The white house is looking for a new Communications Director. Financier Anthony Scaramucci was ousted from the job 10 days after he joined the staff. The white house says scaramucci left in a mutual agreement with john kelly. His foulmouthed tirade to a reporter last week put scaramucci on ice. Senate republicans turning their attention away from health care to another priority tax reform. Several publi Republican Leaders say they do not see the 50 votes they need to get to repeal obamacare, so they will push for taxes instead. The white house is hoping for a tax overhaul in place by the end of the year. 24 hours a day powered by 2700 journalists and analysts in more than 120 countries, i am emma chandra. This is bluebird. Bloomberg. Jonathan why did it take 10 days to be offended by the light which he used in the new yorker . David it struck me right after the bat. Jonathan initial reports says he was oppressed with the way he conducted himself and was upset that Reince Priebus didnt fight back. Maybe some speculation around the table here in new york city. More on the markets and how they are taking the news of d. C. , we bring in omair sharif and joining us is michael ze zas. A lot of people trying to identify the Inflection Point in this white house and yesterday may well be it. I feel like we have been here before. What do you say . Michael it is far too early to tell its an Inflection Point. From a market perspective, what we care about now is what happening if its going to influence the policy initiatives that will boost the economy, whether its tax reform or some other kind of fiscal stimulus. While it certainly would be helpful to have more order in the white house, i think its way too early to tell. Theres real barriers to getting some of these policies done. As you heard in the earlier segment, it is nice that we got past the Health Care Debate in the senate. When you come back from the august recess come you still have a major budget resolution you have to do with. You have to deal with the continuing resolution funding and a lot of unresolved issues reform. This is helpful news in a sense, but i dont think its anything that tells you that some of the more aggressive timelines that have been put to us in the last 24 hours are going to work out. Alix the president of the United States says there is no chaos in the white house. Jonathan its important for market participants. Even if john kelly restores some order to the white house at least optically, i do wonder if agreement and the white house comes with tax policy. Who has been year of the president of the United States with the best direction to go in tax policy . When you listen to the ban nons of the world versus the cons of the world, its a big difference. Michael the six principles working on tax reform seem to be driving tax policy and thats gary cohn and Steve Mnuchin and the white house, mcconnell and hatch in the senate. If that group comes to a substantial agreement not just on principle but do tell, they will tell you a lot that they will be able to execute along the timeline we think is possible, which is getting this done somewhere around the spring of 2018. We are not seen signs that they have deviated from that path. Certainly health care dragged into the fall, then risk would be on the long side of that time. If those six principles can agree and have the cohesive policy lacking in Health Care Reform, that would be a good sign. David give us a view of what that stake. If you look at the economy and the delta of getting tax reform through or not, how much of a difference could it make in your estimation of gdp growth . Omair i think we would probably add half a percentage point in each of the two years on behalf of growth. It would be a boon to consumers as was corporations waiting for some sort of clarity. ,e have heard from the fed talking about how investment has been help that partly because of the fact that we do not have a lot of clarity here. David michael, he says it could make half a point of difference. As you look at those points coming out of the group o of six, did you take solace in that . Are they moving in a direction and i can see it have for now that they may be can get this done in the nottoodistant future . Michael a little bit. It was good news that they agreed to get rid of the border tax from political disagreement reasons, but there are major issues unresolved, which is likely to be an issue with blue state republicans. On top of that statement, they talked a lot about tax permanents. We know there is not a credible bipartisan path. That means they have to push the reconciliation process and it limits the potential for fiscal stimulus. We are a lot more conservative on what we think comes out of this. We think there is not a meaningful fiscal stimulus on the back end of this although there probably longterm benefits to getting this done. Alix nonetheless confident stays. This chart looks at seo confidence in the economy one year from now. That is the white line. Businessline is small cap x plans. Nonetheless they remain high. Why we so sure that this expectation does rely on d. C. . Omair given the chatter out of the administration and what they hope to accomplish, that is where people are sort of pinning their hopes as well as sort of the accelerated depreciation as well. Even though we are not getting clarity just yet, its not that we have lost hope that we are going to get any sort of tax reform. Its a bit of a scaling back. Rate,we do not get a 15 but maybe we get a 20 to 22 . Still a lot lower than 35 . Theres hope that something will get accomplished later on this year. Alix if you talk to an equity strategist, they say im investing in the stock market because the fundamentals of the economy are good and things are going well. You talk to an economist and they say it really depends on d. C. And the fiscal stimulus on hold. Can you help me square these views . Omair what we are looking at from our point of view is that we will start to see unit labor costs creep up and even to those earnings Going Forward. Weve not seen that yet and we assume wages around that 2. 5 level. Are feeling is that we have this gradual increase happening in unit labor costs and that will at some point begin to start to eat away at the Pricing Power that the firms have right now and earnings as well. That should start to make a difference moving forward, which is why we are bit more reliant on what comes out of d. C. Jonathan just to wrap things up on d. C. , a lot has been made of the idea that the Republican Party faces a full year without a major legislative a couple smith. A couple accomplishment. How normal is that . Michael it is uncommon. Going back to world war ii president s who had their party in control of both houses of congress in the first year of their administration, you typically get 60 of their Major Campaign promises through. It would be unusual to effectively have struck out on Health Care Reform and tax reform and infrastructure. Its part of the reason we still think tax reform will ultimately happen and we think theres more ideological agreement on this. Certainly anything that causes us to bleed to the long side and other disagreements and distractions would perhaps take that out of our base case. David michael, thanks so much for being with us today. Omair sharif will stay with us. Coming up next, we will take an early look at Apple Earnings coming out after the close of the markets today. We will talk with a securities analyst. With from new york, this live from new york, this is bloomberg. David this is bloomberg. Apple is going to announce its thirdquarter earnings after the close of the market today and the consensus right now has a making 1. 57 a share on revenue just 45 billion for the quarter. , aning us now is abhey security analyst with a neutral rating on apple. Good to have you. Abhey good to be here. David tell us what you expected here today. What might surprise you to the upside in this Earnings Announcement . Abhey absolutely. I think the main thing we need to Pay Attention to is the iphone shipments. Thats the major kind of earnings driver for the company. We are expecting iphone shipments to be below where consensus is. Consensus is looking for 41 millions and we are expecting 40 to 41 million units. Yes patient also be coming down. The revenue numbers will probably end up relatively in line with consensus and maybe marginally below. What could surprises on the upside is two things. One is clearly the iphone shipments if they turn out to be better and we could see better traction in china. That could surprises on the upside. Also on the Services Side, we could see a better attach of services. That would also be positive on the upside. David talk about the Services Components because we think of apple almost exclusively with iphone. How large is the Services Component . How fast is a growing . Is there a world where it would be 5050 services and product . Abhey services right now is 10 of its total revenues. Is going much faster than units per share. We are expecting a stable growth rate this year. Split, webe 5050 think we are a long ways off of that. Clearly growth is in their on the Services Side is there on the Services Side, but it still 10 of revenues. Iphone, as you mentioned, is about 63 or 64 of total revenues. It could be a long time for it to be 5050. Alix you mentioned that you see asp rolling over a little bit and volume getting softer. Usually the selling price needs to offset that weaker volume. What kind of valuation captures where apple is in the growth cycle . Abhey at this point, you look at the last six or seven years and apple is at its highest multiples currently on an earnings basis. Thats partly because theres a lot of excitement about iphone 8 and what they can do with the iphone 8. We think we could be disappointed with the iphone 8 and the shipments of the iphone 8. That would make holding this typical valuation a little bit harder. Jonathan tell me about the guidance you might get for the iphone a later today iphone 8 later today. What are you doing about the launch date . Abhey we do not think they will talk about that at all. That is not apples modus operandi. They will give us some guidance. What we are looking for is a revenue guide of 48. 5 to 50. 5 billion. That would imply iphone unit shipments of 45 to 47 million units. That is the area we are looking at. We are assuming a september type of launch event. Iphone 8 supplies could be very short initially. We do not expect much on that. Jonathan help me out with a price point. There have been report suggestions that maybe its 1000 a unit. And econnomists 11, you hear about the less it to city of demand u. S. To city of them in. Elasticity a demand. Abhey we have heard a 1000 price point given the higher bill of materials for the found. To be see initial sales . Do we see initial sales . Absolutely there are quite a few fans that could afford that type of phone. That would taper off very quickly because its not to your point about price elasticity, its not a point where we could see a reform. Alix thank you much. Its like the extra number. If it was not hundred nine dollars, i would not freak out. David it might tip the other way the. They may make a truly premium brand. Alix we are halfway through earnings season. Take a look at where we stack up. This is sales growth of s p 500 and average sales growth has come over 5 . Its a little on par with what we saw in the last quarter and the highest level in the last year or so. , andng us is art hogan still with us is omair sharif. Wheres the strength and where is the weakness . Art we look at being halfway through the season and s p 500 has clearly done better on the the bottom line in the top line. The interesting thing i think is that guidance has been mediocre at best. As the only real drag in the market right now. If you look at the back to my quarters of doubledigit earnings growth, certainly significantly higher than expectations coming in both on the bottom and top line. You get the sense that there is guidance Going Forward for the back half of this year and into next year that have a lot more to do with not knowing what your tax rate is going to be and how soon we might get some policy objectives accomplished coming out of washington. If theres one thing to say thats negative about the earnings season because it has not been stellar it has been stellar, its guidance has not been Crystal Clear after two great quarters in a rough. Alix i love that you brought that up. You take a look at where forecast, its and utilities, discretionary, and stable sectors. Do we have a read through on the things for the consumer on that . Omair it has been plugging along fairly well outside the auto sector. Droppedles have and its essentially starting to wind down. Consumer spending for the most part has been steady. We are running around two to three quarters. I do not think theres a lot of tremendous upside here for the consumer perhaps without some boost either in the form of higher wages or in the form of tax cuts. We are dependent on a few other things. Once coming out of washington and much has one has to propel spending further. David what about auto sales in the relationship to Consumer Spending overall . Auto sales have gone soft and Consumer Spending has stood up. As a possible that auto sales are leading indicator and we will see a trickle through two Consumer Spending . Art probably not. It feels like we spent a couple years pulling forward in auto sales. We are still sitting at will probably be like 16. 516. 8 million, which is still fairly robust. The calls for a auto is probably ahead of itself. Theres more a secular change on how autos are used. Millennials are using autos much less with the advent of the sharing economy, you have seen it be a lot harder to pin down. Amazon has not had much of a drawdown. Certainly in the home market and things like doityourself home repair and remodeling. Consumer spending for sure weve not seen the pullback there. I do not think we will see a pulldown in o auto. David what about the relationship with wage pressure . If people dont make more, they will not have more to spend. Might that be a limitation on Consumer Spending growth . Omair i think it is a limitation, but the other thing you have to look at his credit growth. Talking about specifically is credit card spending. It was taking up earlier, but it flattened out a fair bit. We know its coming up on the other side. You not seen the robust credit growth you expect to see and the savings rate stuck around 5 to 5. 5 . People are not drawing down the savings to spend more and not come trouble taking on debt. Debt. Thats limiting the upside for Consumer Spending as well. Are you find the 1000 iphone . Art someone in my house will for sure. Theres a couple of college kids in my house that will before i did. With a high savings rate that we have coming out of the financial crisis that we had, that savings is part ofat 5. 5 what is pulling back the consumers. Jonathan are does not get the upgrade. The college kids do. Alix welcome to parenthood. David that doesnt happen in my house. Alix my daughter says, buy it for me, mommy. Good to see you. Both of you will be sticking with us. Coming up tomorrow at 8 30 a. M. Eastern, Goldman Sachs ceo Lloyd Blankfein, i will be speaking to him. This is bloomberg. Emma penetrometer with the Bloomberg Business flash. Money lined up to buy Charter Communications according to people familiar with the matter. It is merging with the struggling u. S. Provider sprint. Alix this is one of my favorite stories so far the w of the week. Softbank has as much a 65 billion in financing to potentially by charter. How much debt with that pile on the Balance Sheet . Jonathan how much debt is already on that Balance Sheet . David a lot. They are pretty levered up already. They would be taking on 64 billion in debt that charter has on its Balance Sheet. Jonathan i do wonder if theres a certain guy over at softbank that likes being connected in the news. I just wonder whether these deals are out there just to get people talking about the prospect of big deals. Because this is massive. When you think about how theyre going to fund it, theres huge debt on either side. Wheres the money coming from . David at the same time, hes got a lot of pressure because sprint has not worked out the way he wanted to. The markets are saying, what are you doing here . Alix in terms of profitability today, you still have survivor growth subscriber growth winning. This is tied into howard marks and what he said last week about it. Softbank raising 93 billion for technology funds. What does that say when investors are willing to put that money fourth . David all that said, the landline will get with the mobile people one way or the other. You have the cable guys get together. It will happen somehow. Jonathan if im giving him 100 billion to invest in the future of technology, not showing not saying this is where the money is going, but at the money from that did go to this, i would not say that is the future of technology. David there is a little guy named john malone. Jonathan who kind of doesnt like the deal. David people dont do well going up against john malone. Jonathan we may get news later this week or next week. Who knows . The ceo of rio tinto will be joining us on this program. We will bring that to you around 8 20 a. M. New york time. From new york, this is liberty. Bloomberg tv. We check our phones 85 times a day. So it only made sense to create a network that keeps up. Introducing Xfinity Mobile. It combines americas largest, most reliable 4g lte with the most wifi hotspots nationwide. Saving you money wherever you check your phone. Yeah, even there. See how much you can save when you choose by the gig or unlimited. Call, or go to xfinitymobile. Com. Xfinity mobile. Its a new kind of network designed to save you money. Jonathan from new york, this is bloomberg daybreaks. Lets get you a score ahead of the data in the United States. Real nice town, tone. Frankfurt,ndon and the story in the bond market, yields up. The dollar slightly stronger against the euro and sterling. Income comes in that hero percent. Comes in at 0 . Personal spending comes in back in line as 0. 1 . Core pce year on year in june, but athe estimate 1. 4 revised number of 1. 5 , month on month and 0. 1 . In line with the estimate and the previous number. Hogan atith us are art omair sharif. Are you still at 1. 7 . Ofdown to 1. 6, a function what has been going on in the inflation data and revised court lowered from 1. 921. 6 because of the weakness earlier. Not significant changes. David changes just command, do they reinforce just come in, do they reinforce or more weakness in the second half . Not more weakness, this is backward looking data, when we get the cork deflator data, we have the in flight from the cpi and ppi to get this number. A good idea of how this will print. We are thinking about now the back end of the year, what do we look forward with core inflation , things will pick up marginally versus the march to june weakness. Not enough to get the yearoveryear rate accelerating towards where the fed would like to see by the end of this year. Alix where do you stand on inflation. At Goldman Sachs they say it you could see 2600 on the s p but it takes up, 2400. Art we have been looking for inflation to pick up four years and there are structural issues. The fed is working towards normalizing their Balance Sheet, still with the view that at some point we get closer to the 2 target on pc and we are not getting close. Inwill make the next topic terms of stagflation interesting and comical at the same time. Global economy, where we are in the labor market and productivity, to see a massive increase of inflation over the next 1218 months. Alix you have to get the more constructive on the market, ironically . What it will do is keep them on track for the kind of gradualism we have gotten used to over the last eight years in my talk about normalizing the Balance Sheet, coming out of the gate in september between 20 and 40 billion of assets that have matured, probably reinvest half of those and talk about how that affected markets and see what kind of effect they have if they take a month off and do the same in december. Everything they will do throughout the normalization process of the Balance Sheet from over 4 trillion to between two and 2. 5 trillion will take years and not months, that will have much less of an impact in the overall market. Thethan on inflation in United States, germany as a case to become a bigger Global Forces that point, germany has a currency that pretty much everyone would agree as a currency that is ridiculously undervalued for that respective economy, has an Unemployment Rate at or near record lows, has pmi printing in the high 50s, gdp is ok, inflation is 2 , germany is our case study, something bigger happening . That has been the case and something everyone will try to understand for years, what is the impact of globalization and technology on inflation. It has become much more of a structural issue and to some degree you can make the argument that in the u. S. , perhaps the fed cannot engineer inflation the way they were able to in prior decades. Look at the core pc over the last 20 years, outside of the two dozen fourto us in a time, whatn the downside is to satisfy your ability to engineer inflation. Jonathan how we also find out that the target inflation was crazy really lower. You pull on the lever that says high rates, high rates, the that aggressively, they are not so good, deflation up . That is fair, prior to really the last naked or so, they used to be it used to work both ways, you could cut rates and generate stronger growth and inflation. We have not seen a lot of that in the last decade plus. Alix to your point, wages did ack up in the last month as survey results show, up 4 10 of 1 but as global income, if you back about four inflation, was flat to down. Is your prediction of wages starting to pick up that will wind up hurting unit labor costs . Slowly inching up . It is very gradual, you have to squint to see wage growth picking up. Severalre talking about different factors telling you the same thing, eci, average hourly earnings, all right around 2. 5 , that is moved up from 2 per year but we have been stuck at this level for the last six to 12 months. David we are told it is coming, this ways pressure, it does not seem to be arriving soon, is a possible that there has been a structural shift between globalization and the digital it is goodthat says for companies and investors and stocks, not good for workers . What does that do in the economy such as are so dependent on Consumer Spending . A good point, i think it is very structural, the combination of a Global Economy increased use of technology, and the change in our labor forces, has kept the fed added space. Just 18 months ago, we were at two percent, at 2. 5 , we exit the your north of 2. 5 percent, a gradual process like the recovery in this economy. We will get there but it iss gradual process and it will take longer than we expected as we started the recovery eight years ago. Jonathan great to have you on the program. That wraps up that segment and lets get you headlines outside of the Business World. Emma wall street regulators have begun to rewrite the volcker rule, according to people familiar, agencies are moving to loosen restrictions that were central to the governments response to the financial crisis. Changes probably would get big banks more flexibility for handling client trade and investments in private equity and hedge funds. One of the biggest moves in the Vladimir Putins a big up, up to 100 troops moved to the eastern edge of nato territory this summer and the u. S. Military officers say the drill could be a pretext to include russias military presence in belarus which borders three nato countries. Vice president mike pence says President Trump will sign a bill with new sanctions on russia soon, he spoke and the formers of the administration has concerns about the buildup, russia has retaliated against the sanctions by ordering u. S. Diplomatic missions to cut 755 staff. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. I am emma chandra. This is bloomberg. Is august, we count after friday as payroll product, coming up, an allstar lineup of guest react to the u. S. Payrolls report, including alan krueger of princeton, and reacting immediately to the number is no gross of janice. Janus. Do not miss those conversations. You are watching bloomberg. Emma this is bloomberg daybreak been at 2 00 p. M. On bloomberg markets, terry duffy. David our colleague is with us, erik schatzker, with a very special guest. With the cofounder and cochairman of Oaktree Capital. Good morning. As many people know, you have a flair for writing memos and in your latest, you do what few people have the courage to do, particularly at a time when everyone is making so much money in Financial Markets, you have sounded a warning, why . The time to sound the warning is when everybody is making a lot of money. That means the market is going up, up, up and enthusiasm is incorporated in prices and behavior. You cannot sound a warning after the thing has turned over and died. Market inat we see a which there are a lot of uncertainties, prospective returns are low, asset prices are high, and people are engaging in risky behavior, that is the kind of climate in which we should take a hard look at what we are doing and i think british risks. Reduce risks. Erik a lot of people want to keep making money, what kind of pushback have you gotten . Howard i want to make money also but i try not to deceive myself about the ability to do that. Gotten the most response of any in history. 90 i would say that favorable but some strong not favorable. Erik what do they have to say . Howard one of them, who have seen on tv this morning, says howard marks says it is time to get out, i do not say it is time to get out, i do not say anything about getting out. I say it is a time for caution. Now is nom said better time for caution than any other time. In fact, there is no better time etc. Sh, or for hedges, and no worse time that we can proceed. In other words, it is impossible to correctly put risk on or take risk off. We should always act as if we do not know. Erik thats how slight a recipe for disaster. That sounds like a recipe for disaster. Howard just mortal performance. If you want to perform above average, you have to use your put risk on at some point and take it off at some point, rather than be consistent in that regard. There are better and worse times for aggressiveness and conservatism. Erik you have run the alarm bell before in 2000, a timely ringing of the bell and in 2005, which was a bit early. Does the need to reduce risk feel any more urgent now that it did then . I thought that in 2000, my comment was not about the stock market but about tech stocks which i thought was much more urgent than today. They really looked offbeat in those days. Urgentt was not quite so by the market had another two years to run, at which time it became urgent. You know, i would not describe it as urgent today. The economy is still clipping along at a modest pace and likely to do so. There has not been in the comic boom. An economic boom so i do not think there will be a bust, certainly anytime soon. Not commenting on the fundamentals, i am commenting on investor behavior and asset prices. Erik many of the conditions that you describe in your memo are reflective, or indicative, of an overheated market, at least a market that is on its way to being overheated. Among them, rich violations, low volatility, super stocks, the popularity of etfs, he reads for yields, those conditions have been in place for months, if not quarters, if not years, what changed, why now . Howard there is no magic, just the accumulation of things. I once read for a journalist said i gather string. About hightidotes valuations and behavior. My son andrew brings these things to my attention and we talk about them. Enough accumulated. Erik a gut feeling . Howard yes, no magic. Erik does anything strike you as most vulnerable or most dangerous right now . Howard absolutely not. I think it is evenly spread. The main cause for all of this is uniform and applies to everything. That is the low level of Interest Rates. Low Interest Rates cost for inflated valuations of everything. To by being so unappealing investors on faith instruments, they push everybody of the yield curve to the risk he takes. And is, the real question is how to make a good return and a low return world . Erik how do you do that . What offers the appropriate mix of risk and reward right now . Howard there is no magic. Erik there has to be something. Let me float a few ideas credit spreads are tight. You may say that things are getting expensive in the highyield market. Howard yes. Erik as an investor sabr buying off better off buying howard there is no easy answer today, you are safer of buying a treasury with yields one or two but high yield five or six and you may have to wait a few years before the treasury turns out to have been the right thing to do, 12which case you pass by 8, points of yield. Erik the reason people are walking is having this conversation is because they also are struggling, trying to figure up what to do. Lets give them ideas. Howard the only thing i am confident about is that, within every strategy and market niche, whether highyield, or emergingmarket debt, or equities, there were riskier and less risky things to do. At this point, i would be moving towards the less risky. Somebody said on tv recently about me, it is time to get out. I do not say it is time to get out. Erik many investors cannot. Howard somebody said there are no better and worse times for caution. I do not agree. There are better times for caution, and this is one. You should be moving investing is not black or white, in route, risky or safe, when risky and prices are high and the market has been doing well for a long time, it is time to be shifting your portfolio in the direction of caution. That is what we are doing, we are full invested in every currently investment vehicle. But we are applying an unusually high level of caution and we consider ourselves cautious investors. We are doing more than usual. Erik willow tree investors have the patience for underperformance if youre warning and the caution that results from it proves to be too early . Howard a great question, i believe so, you know why, because when they sign on, we ,ell them, if the market cooks and you get into a climate where the people who take the most risk are making the most money, it will not be us. Our clients are intelligent clients, and they self select. The one that come to us are the ones to say, i do not necessarily want to make the whole return on the market when it does well, i want to be protected in the bad times. Erik at one point in this memo, you call the Fee Structure around softbanks vision fund, 100 billion vision fund, questionable. Is that fair . Erik it is not the howard it is not the Fee Structure, the capital structure, if you want to about 100, 62 has to go into debt and 30 has to go into equity. If they make good tech investments and produce a high return, you only get that high return on 38 of your money. I think you are taking substantial risk on all of your money. I do not know their portfolio or what they will do, erik they made by charter for 65 billion. May buy charter 462 5 billion, is that a wise use of capital . Erik i do not know that well enough and would never say on your show. 38, i believee on you have downside on more than 38. Weighted against you. Erik if you look at every capital and Fee Structure on every oaktree fund that is existed, could you say with confidence that none of them in retrospect was ever questionable . Get on ourl, we closedend fund, 20 of the profits. We have a hurdle rate, we have to make a present before we come in for our 20 . The client has to make net fees. I think it is fair to them. Interest fees, carried has been the story of the Investment Business for the last 30 years. You can always complain and say, is it fair to get carried interest and should be 20 as opposed to 50 or 30 , but i do not think it is unfair as long as you get paid on multiyour performance, not one year, and there is a hurdle rate. Erik what about the fang stocks, they merit special mention in your memo, it appears you have some concerns about the moment of behind the stoxx, the amount of money people are putting into them, if we were to measure them on the basis of valuations, and we used the price to forward earnings, valuations have been coming down for most of those stocks. Howard he wants to have earnings are doing well earnings wise, i think theyre so high, i optimism. Embody my point about the thing was not that they are bad investments individually or they are overvalued, it is that they the anointment of one group of super stocks is indicative of the bull market. You cannot have a group treated like the faangs have been treated in a cautious, pessimistic, sober market. That should not be read as a complaint about that group, rather indicative. Erik of all the things you highlight in the memo, the vision fund, etf, emerging market debt, skinny spreads and credit, single out one format, what concerns you the most . Howard i will single out two. 3. 5 you go to a video store and rent a video, some of the videos give you a choice of amended, which is the good ending for that bond . The best ending is you make three and five its percent, how 3 when you straight bond, the coupon is the best you can do, all of the other endings hours. The fact that people will buy a three and 5 8 bond from a and the facttflix that argentina, emerging from bankruptcy, can issue 100 year bonds. They have at five to buy rations and the last 100 years, what is a chance they get to the next 100 years without a devaluation, a coup, or scandal. . Investorsabout willingness to take risks as opposed to insisting on safety. Highly willing to take risks and not concerned about safety, that is when i get worried. Erik thank you. Howard marks, the cochairman and cofounder of Oaktree Capital with wise words of caution for those listening. Great conversation, thank you, lets go to the Market Action and get you set up for the opening bell and 35 minutes, futures positive, dow up a half of 1 . S p 500 futures positive. Point or so with the dax up eight 9 10 of 1 . Bond market, treasuries have been stable throughout the theion, range bound over last month and the range has been tiny with yields of a single basis point. At cable rate last week 1. 3215. Saundersnds of michael for a rate hike go back down which is the story for thursday, whole coverage of a News Conference with mark carney live on this program. What a month in july for the eurodollar, the biggest monthly gain since december of 2014, well over two months with a new 2017 with a 1. 18 handle. Down by about 16 of 1 on the day. From new york, you are watching bloomberg tv. Jonathan john kelly looks to bring order from the white house, beginning by removing Anthony Frederick at least from our jim Alan Greenspan has apple responsible for 11 of the advanced after the bill. From new york city, this is bloomberg daybreak. 30 minutes from the opening bell in new york. July s p0 closes 500 closes july with a fourth straight monthly gain, almost two percentage points. Points on futures with the eurodollar coming back , 1. 1818 with Dollar Strength. Treasury yields up by two basis points. A u. S. 10 year. Alix and 20 minutes, we will talk about the dow, sprint up by 4 in premarket, they returned to profitability for the first time in three years even though they were still bleeding subscribers. They lost 39,000 customers and their net income is solid, 206 million. Why sprint is interesting, how it will play out with the Softbank Charter potential deal, softbank owning 84 of sprint, they reportedly raised 65 billion to buy charter, the drummer drama playing out. Royal caribbean up 3 in premarket. A second corner earnings beat, Strong Demand trends from europe, north america, helping their,. Omp. Elping their ca excuse me. Under armour down 4 . 9 to 11 to versus 11 to 12 . Analysts looking for a revision for revenue in the back cap a beer, how back to get . Asy were hurt by competition well as discounts in north america, hurting sales. Jonathan you have a drink and settle down. The at fiat, july u. S. Auto sales down 10. 5 are sent. 10. 5 , the apprentice is down 10. 5 with the estimate down 6. 1 , not looking good. David softening in auto sales and we will see if this does to other Auto Companies. Jonathan a lot of moving parts elsewhere in the market connecting to auto sales. Auto sales for Fiat Chrysler down 10. 5 , the estimate down 6. 1 , expect a lot more Auto Companies to report sales for july this hour and we were bring them to you. The dow closed at an alltime high monday, fourth straight 13sion doing so, a total of record closes in 2017. Howard marks is sounding the alarm, a word of caution and warning some investors about risky behavior. Which we see a market in there are a lot of uncertainty, perspective returns are low, asset prices are high, and people are engaging in risky behavior. That is the kind of climate in which we should take a hard look at what we are doing and, i think, reduce risk. Jonathan Alan Greenspan does not think it is safe to hide in the bond market, saying the real problem is when the bond market bubble collapses and longterm Interest Rates will rise and we are moving into a different phase of the economy to stagflation night not since thats not seen since the 1970s. Great to have you with us. ,ets begin with howard marks not saying get out of the market, just think there is risky behavior, do you share the thoughts . I think so, where the market has gone in the last several years and since the election, looking at the leverage in the market now, you have margin debt at all time highs with a lot of leverage strategies, some of which sell volatility, questions about volatility and why it has been so low. Not wrong to worry about the what is Going Forward in the near term. The lot of the things market was banking on, regulatory and tax reform, Health Care Reform, is up in the air and some of the agendas are being pushed out. If you get the midterm elections and things have not been done, i think the market is expecting stuff it may not get. Reason to be cautious. Jonathan when you see signs of complacency, what do you think come in the fixed income university and where howard marxs or inequities . The density bond markets name bubble but equity market not, if you justify a high equity guys on the back of low Interest Rates, the fact that low Interest Rates are there because the Central Banks of the version of down, means they are interconnected and you cannot pull out one without the other. Jonathan greenspan is wrong . He has one side of the question but the other side of the equation is you are justifying a lot of equity valuations on the back of low Interest Rates and of Interest Rate or what, can you said that equity valuations are where they should be . It is not an either or, the could be an and. David what howard marx was saying, do not get out of the market but the prudent. Protect yourself. Are the particular places where people are making bad decisions, bonds are equities . When you have too much money come you cannot to discipline of making good decisions. This feeds back into where else do you put your money, everyone is being questioned to risk assets and which risk assets are riskier than it should be becomes a question of, if Interest Rates move, you have the tension between highyield an Investment Grade. If you look at the stock market, he had big stocks making hes mitts and a big component of the return so far. There has been a positive spiral because when you have those stocks, the the people you you have to get into them and if they unwind, the positions and crowded trade. Hard to say that one is worse than another. Instead of saying, overall, a lot of risk in the market. David if howard is right, lets assume for the moment he is, does that say, take a less risk go to Investment Grade and go to highyield to oversimplify in the bond situation . When it comes to equity, where do you go to take less risks, they will be a downturn sooner or later . You look at places the defense factor have a huge move and they used to be more defensive. Things we like like raytheon has had a big move, we see actual growth which has been a long time since defense stocks have seen growth. Some places you can be defensive. Energy, which has been all of the place with oil prices, not as expensive and other parts of the market, some risk because it is on the back of a commodity and we cannot figure out where the commodity is going. Relative to other sectors, not as expected does expensive and some sectors are beaten up for a reason and you worry about a value chop and there are a lot of ways to look at it. Alix the same areas are not all safe anymore. Say areas are not all safe anymore, a lot of risk and Long Duration for bonds, it sounds like you are in a value trade, that is the trade you want, value versus growth, although that has not worked out in the last few years. It is very tricky and we are dividend players and were looking for stocks that have dividends, that has been pretty good. Growthd like to see some but that have got more tricky over the past couple of years ago, easier years ago because evaluation were not where they were. If you look at situations where things are bad that may get there is opportunities that are less risky because already be stocks are beaten up. Jonathan when People Safety risk, talk about what that means in 2017, it used to me headed towards pitted for you sking mean . Erik making sure you do not have a lot of leverage, for us leverage would be small anyway, for strategies that are leverage right now, that would be trickier because youre worried about any kind of unwind turning into a bigger unwind which is a reason people worry about volatility and it has been so low, you have strategies that have been selling volatility and what happens if it comes apart . It is looking at your portfolio, looking at the Balance Sheet of your portfolio, in the end, if you get any kind of issue, we will go back to those places were having a risky Balance Sheet becomes a bigger risk than having a solid Balance Sheet. Some of the solid Balance Sheet do not get the respect as levered ones. Looking at things like that and saying how will that and saying how will they react if things do not go as we expect. Jonathan do you think it is time to derisk . Time to be cautious, look at what the Balance Sheet metrics are in the cash flow metrics are and saying to yourself, could this is thing a problem, if we got into a lower growth environment, i do not think we will see a catastrophe. I look at the leverage and say there is leverage and you want to be cautious and make sure the companies you have will not be put up against the wall like a lot of them were in the financial crisis, because they need of financing and could not get it. Those are places you want to be careful of risk. Alix thank you. Goldman sachs some like like like find will join us tomorrow at Lloyd Blankfein will join us tomorrow, do not miss it. Alix in the thick of the earnings season and no doubt had has been solid across the board but concern that for investors is the guidance. Line is thethe blue s p 12 month earnings estimate, you see them slowly starting to come down. Particularly in the Fourth Quarter when you rollover starts to happen. The s p holding up at the white line although off the highs of the last few weeks. Sarah had is with us. Hunt is with us, how have we have had an trimester earnings started up high in the beginning of the rent had to come down for the last couple of years and this is the first year where everyone was expecting earnings to go up and they did. Part of the reason you seen by which and living and multiples expanding. What people are worried about is , if this is not sustainable, do we have a situation where we go back to earnings being stagnant with the market at a higher level already . I think then you said yourself, see continuedcan earnings growth, on the back of cost cuts or actual revenue growth, two different issues, i think cost cutting is hitting a wall. Concernedu will have about where earnings go, especially in the beginning of 2018 as people worry about whether the economy will slow. Alix sectors hit the hardest consuming very dustin cymer discretionary and staples, piggybacking over a cheap equity strategy at bloomberg intelligence, are we learning about the consumer in that respect, or, our expectations just high enough and that revised and that is why you see the downdraft . Estimates tend to have a linear component to them, things are going, people extrapolate into longer times, having part of the problem, this goes back to the other sector, you have had time where people have been getting auto loans longer than the is to become a longerterm, so payments are lower. Running into problems there. Colleges there is not a lot of income growth, not that much income for people who are not at the higher levels. A lot of that Consumer Spending you hope to catch up on retail or restaurant, they have had not taken easy time of it. You look at that and say, issues there with spending and that will be very tough come you can adjust keep it all in the upper echelons of were incomes have been higher. Very, you have heard one way to summarize the discussion is, can keep going, we about a couple of good Earnings Seasons and now some concern that they cannot keep up this pace of growth. Where are you . The first couple of quarters were double digits, cost control has been very good buddy lack of Pricing Power. One of the things we have been looking at is the peak of the growth rate of earnings what should be around be third order. David Third Quarter. David is this globalization, digital, what drives that . You have two of them, globalization, digital, and the way we dealt with the financial crisis. This is obligated macroeconomics but we had a depression basically and we did not extinguish the debt and the money on the other side of it. As a result, the velocity of money collapsed which brought down inflation. This is the best environment in the last 10 years for good macroeconomists. Ford, casasng news, out, Light Vehicle sales down 7. 4 versus estimates down 5. 5 . Makers areke the car delivering on their disappointment that the analysts were expecting, take a look at what the stock is doing in premarket and forward is down rd down. Foe jonathan delivered on the disappointed, never heard it phrased like that. The number down 10 in the estimate down 641 , breakdown through the different brands, brandhrysler. Chrysler down 30 , jeep brand down from percent. Broadbased down 12 . David not just to the number of units by the price of units, getting into chrysler, minivans, that is where they make more money come in the past, they have made up for the reductions in numbers of vehicles sold by how expensive they were and you have to be concerned whether they can keep that up. Jonathan the numbers that have come through, expecting the worst, expecting this to roll over for quite a while, something you should just expect or something to be concerned about, the spillover effect of autos . Autos in the last two cycles have had a long, flat top with a of volatility at the top, i am more concerned about housing. I want to see singleFamily Housing particularly come back which would help carry the economy further. Alix isnt that more of a supply issue rather than a demand issue . On the autos or house . Alix housing . We do not have a lot of inventory of houses, credibility Credit Availability we could use 2000 more single incoming Family Housing starts to be comfortable we have recovered. Alix at the end of the day, what it boils down to is what will turn the credit cycle, if you contend that outcome you do you know what the consumers doing and know about wages and labor costs. Will it have to be that mistake will it have to be a fed mistake . Financial conditions have not gotten much tighter, we have seen charts that look like that, the ecb and the boj are still doing supportive and still doing quantitative easing. Cant Financial Markets handle, if you pull back on all these fronts, or do we end up with an economic slowdown in the of saying, we will unwind the Balance Sheet, we add to the Balance Sheet . That is what we do not know and that what makes it tricky to figure out whether valuations are in a more risky or less risky, you saw a big relief when you so we could data because it looked like the fed would back off raising for the next couple of cycles and now it looks like you do not see anything until 2018 would give the equity market relief. I can the bad news is good is good news because it means no one will raise rates. Jonathan how to the federal exploit the dilemma, loose financial conditions against the softening inflation picture, which one do they need to go after . Knew the answer to that question, i wish i knew what they would do. Jonathan with one do you think should they do . I think that keeping rates low for so long has been problematic for a lot of the fixed income timidity and a lot of people who are living on a fixed income. I would rather see normalized rate. On the other hand, the opportunity to do that may have been a couple of years ago, instead of now when we may be hitting this point in the Economic Cycle where that may be more problematic. I do not know that opportunity has come and gone or tightening up more will help and worry less about inflation. Because inflation is happening in things like housing and health care. And not in other things we are seeing deflation. Story,is there a broader we were counting on the new administration in washington to take over the ace responsibility for the Central Banks, we had a good run in part because of so much liquidity into the marketplace. If that fails as it appears to be having difficulty with, what does that say as we going to 20182019 . I would say that one of the comments earlier about the fed missing the opportunity two years ago is probably not correct. Starting in 2013, every country and every region potentially devalue the against the United States, japan and 201314, europe and 20142015, when they devalued against the United States, they grow the dollar up and the flavor the United States. The fed has their hands tied if they will be deflated and the dollar cannot be too strong or will have negative price, which is deflation. What we need a synchronized Global Recovery and Central Banks to move towards the exits abroad. I am washing European Central bank more than i was the fed. David thank you very much. Sarah will be staying with us. Tomorrow, we hear from the ceo of a utility that walkway from a multibillion Dollar Nuclear power plant in south carolina. The Southern Company ceo will be joining us live from new york, this is bloomberg. David this is bloomberg. Twice 17 for under armour appeared to be getting worse as shares working their way to a new threeyear low after the cut annual Sales Forecast, a son a climbing out of its yearlong slump may be tougher than it anticipated. Joining us is our apparel and footwear analyst. Take us through the numbers, just not asowth much as we thought, what is driving that . They expected acceleration in the second half of the year but that is not happening. I couple of reasons, the Sporting Goods industry as a whole has been weaker than expected, consolidation last year. Thed is it a matter of tide going out, or are they losing market share to 90 nike . Jonathan they are crushing it, stock up 6 last year, up 30 approximately this year, what are they doing that the others cannot do the same . 6 that is that is the secret sauce, you design products that people want to buy, people buy them, hard to put a finger on it, that is the david what about their ceo, he had ball predictions a year ago full productions a year ago about how he would grow, he lost credibility with the street because hes not making this productions. If you listen to because, you understand that it is humbling for him. He knows he has to make it pivot and go in a new directions and they will get faster, smaller, smarter, and how they market ,heir product, marketing assets they can build on that, it is a matter of creating good products. David they will cut costs. Is that people, leases . Both, least dormant termination, store termination, realign with the new retail landscape. More digital and less brickandmortar. David how much of it is tied to the gunsight guys to the zeitgeist . They were a hot Property Three or four years ago, are they losing some of the luster . I do not think theyre losing luster, they are still a strong brand name, 50 growth internationally, you mentioned adidas, they were not on the map three years ago. That has what changed the last couple of years and you have seen growth rate, that has taken share away from under armour. Jonathan leadership is pivotal. You have to look at leadership in the company and many people are this morning with under armour. David thank you very much. Jonathan opening bell coming up next, futures are positives. A studio full of happy people somewhere. You are watching bloomberg. Whoooo. Youre searching for something. Like the perfect deal. On the perfect hotel. So wouldnt it be perfect if. There was a single site. Where you could find the. Right hotel for you at the best price . There is. Because tripadvisor now compares. Prices from over 200 booking. Sites. To save you up to 30 . On the hotel you want. Trust this birds words. Tripadvisor. The latest reviews. The lowest prices. This is bloomberg daybreak and moments away from the opening bell, 23 seconds way with teachers positive of a half of 1 . Futures positive is cross assets, treasuries have been stable throughout the morning with yields high. Showing growth, particularly against the euro with the dollar index pushing back. The eurodollar printed 82017 7 highesterday a 201 yesterday. Gmbers from the auto sector, coming out with another disappointment, sales down 50 . 15 . A downside surprise across the board, gm, auto sales falling 15 . Lets wrap that up and get you to alix steel. Alix another record on the dow away upot one point from a record high on the s p with the dow jones of 4 10 of 1 and the s p up 3 10 of 1 . The doubt with record closes 30 times this year with the nasdaq having 44 and the s p with 29 and we look the momentum to continue and a lot of that has to do with earnings. Some of the names moving, the first is Lumber Liquidators on the upside by 23 . Quarter to net sales at 263 million. They totally hit and 2015 on accusations from 60 minutes they sold toxic flooring and trying to recover from that. Sprint up 5 , theyve let subscribers, 39 thousands but returned to profitability for the first time in three years for under armour is down 5 , their average move on earnings 9 , loweringd their fullyear revenue forecast of growth from 9 to 11 from 11 to 12 , still growing but at a lowercase that analyst were anticipating. Motors off toeral present, down 50 for the month of july while ford down 7. 4 percent for july and Fiat Chrysler down 10 , all of them missing the lower estimate we had already seen. The big number we are watching is out of 4 30 today, Apple Earnings, with a picture of how important it is for the overall thist, i will show you blue line, apple stocks, the yellow line is the s p come on a normalized basis, the outperformance we have seen from apple is so strong within the s p and the bottom panel is its number waiting, coming in at 3. 6 , the highest member waiting in the s p and makes up about 6 of the dow. The worry is that we have seen stocks outperform and tech outperform, strong earnings estimate, what happens if apple misses . Jonathan a big question. Sarahng in sara hu hunt. Nasdaq, a person of the 8 of the nasdaq, difficult to get the guidance of apple throughout the next quarter, given we will not find out much about the new iphone 8, when it will come out and if it will have enough supply, how difficult will it be to call the market . When you look at the Tech Industry and how it has led the market, it is one of the key facets of for we are dealing with, in terms of the ability of the economy to grow and the peoples perception of the new economy. There is three competing theories, the reflation, deflation, the new economy fruition, these tech majors. The three theories we are working on. Jonathan if apple stumbles, does it take the market with it . I think it will have to, in the end, the outperformance and larger stocks has driven the idex performance, if it does, am not sure this will be the quarter that will matter so much because people are waiting for 8, so this quarter will not be the most important but whatever they are forwardlooking will be, as important as what just happened. Jonathan well its fark some selling elsewhere . The money well its fark some selling elsewhere will it spark some selling elsewhere . Had trouble yesterday, amazon came down, google came down, there has been a little bit of pullback. If there is Something Like that with apple, you could see continuation of that. You have seen the qs strong, not as much the last couple of days. If there is a feeling that there is something wrong in tech land, a lot of money going into tech and some could come out. David as you look at this remarkable runup in tech, overall, sort outcome on the one hand, really structural changes, global plus digital is changing everything, that is part of it. Another part is fear of missing out, how much of valuations are truly a jim those each of those . A handfulsual to have of stocks driving market with the market today having pretty good brett. Breadht. We find asset like platform companys with for car unit growth and not Pricing Power, are wellpositioned in the economy without Pricing Power, or unit growth is not that strong. They tend to be standout. Alix like what . Obviously, talking about the , netflix, apple, google, facebook, tech leaders, i with roman health tech, biotech has the unit growth and Pricing Power. That has been attractive to investors in this microenvironment. Alix good to see you, thank you. Dig a little deeper into the. Pple earnings, joining us is daniel morgan. Ivan, what are you expecting . They reallybeat, miss, they are usually conservative. This is not one of their most important quarters for sales, but it is important to get the Quarterly Results where they talk about what they will do with a huge, massive cast position. Already increased their dividend so everybody will be focused on how much they will increase their stock buyback. Alix that has to do with what you do in terms of style evaluations, we spoke with someone earlier and talked about the valuation trap and what he sees for apple. When we look at the last six years, seven years, apple is at its highest multiple, currently on an earnings basis. That is probably because there is a lot of excitement about iphone 8 and what they can do what iphone 8. We think we could be disappointed with the iphone 8, and initial shipments. That would make holding this type of a valuation a little bit harder. Alix you own apple, how do you feel about that . I disagree. The iphone 8 will be this exciting will be exciting, you have the center, a screen that comes with a new display screen, the ability to charge the phone without a wire, if you this quarter, looking at 40 million iphones, next quarter the september quarter, 47 million, then it really goes up, in the december quarter, looking for 85 million iphones. Looking for iphones to nearly double with the release of the iphone 8 and the anniversary phone. Areaverage selling price expected to increase substantially with these new phones. It will be very similar to the iphone 4 release that we had in 2011, 10 terms of timing and we are excited about the iphone 8 and the anniversary phone and apple Going Forward. Jonathan the price elasticity of an iphone, if it goes up to 1000, what happens to demand . We used to have these conversations about apple three years ago, four years ago about what they would do in india and china in terms of bringing down the cost of their average selling price to match some of these low producers. I think apple, this point, is like the mercedesbenz of the car manufacturing industry, they are looking to push prices up. Above 1000 per phone on some of the newer phones. You have 600 Million People that use their phones and always people that want the highest and the best and the most extensive. I think there is some ability for them to push prices up on phones and really drive iphone revenues, not so much on unit volume but on actual asp. Id baby the mercedesbenz it is also largely, not exquisitely, largely a one product company, 64 of revenue come from that, if you are running apple, do you say, that is it, we are a phone company and lets ride the iphone 8 or do you worry about what you have besides that . It is what is besides the iphone, the internet of things, peoples phones are such an important part of their personal and professional lives and they are willing to pay up for it. Even if the iphone was 1200, that would be 50 per month on a twoyear contract plus unlimited text and 45, unlimited data, 55, 160, 170, you have the tool that manages all aspects of your life and to medication. That people use that are industry specific to certain professions and all the things people use to run their lives, there is so much behind, connectivity, content behind the iphone that is a key driver for apple. David how much success are they having and up selling their services, music . A this quarter, looking for 17. 5 increase and services, about 15 of total revenue, like you said, 65 of their overall sales are in iphone and they are trying to do other things with the i watch and the services. It is not the big piece you would like. Itunes,rowing, ipay, apple tv, they are in the service segment. Beo not expect services to 35 of revenue but maybe 20 , 25 of revenue and growing at a nice case. Right, they are an iphone company right now. Jonathan great to have you all. In the markets, 11 minutes into the session, lets wrap up the action, another alltime high on the doubt, up a third of 1 . Dow, up a third of 1 . From new york, i am Jonathan Ferro. Youre watching bloomberg daybreak. Emma this is bloomberg. That 00 p. M. On bloomberg at 2 terry duffy, p. M. On bloomberg markets, terry duffy. David auto sales for july coming in and we have heard from Fiat Chrysler, ford, general motors, all expected to be down but all down significantly more than what we expected. The effect in the marketplace with stock prices. Ivan is bullish on the auto sector. We are seeing a slowdown, a softening in auto sales when it comes to unit sales at least. Getting a turnaround in the business or just a temporary blip . Temporary, summer is normally a soft time for auto sales because people will wait a month or two to get the next the 2018 model which will start coming out at the end of august and in september. The other issue has been an uptick in auto loan delinquencies. And most recently, an issue with , theyfargo auto finance are a very big financer of retail car purchases. There has been a slight cut back on Credit Availability, which can hurt auto sales and does hurt auto sales. And also, a seasonality situation of the timing. David i want to put this in perspective, a chart that shows auto unit growth over time, 20 2008, the white line has gone up dramatically, over 18 million and now come down with a 16 18 million, no come down with city million, way above where we were a few years ago by the blue line is the s p, has kept going up, a divergence. Still doing reasonably well. At what point do they need to become concerned . If we have mores office. Ess. Ore softn close to 70 Million Dollars this year, slight 17 million this year, slightly down, the main thing is the average car on the road was to 11 years old, a huge amount of tens of demand and the cars today have greater safety features, entertainment systems, a lot of other factors motivating people to buy new cars. If you are running an auto company, how do you manage this issue in which the man may be tapering off and maintain margins and efficiency . At the same time getting ready for a new world, electric vehicles and Autonomous Vehicles right around the corner, coming faster than we think, how you prepare that an manager or Business Manager core business . Additional service, try to figure out how to sell less carbs and increase sales. The other thing is that the technology is going to be driving the future of cars. They say the self driving car will negate peoples from buying two cars in one family when one car may do. I still think we are at least five years away, maybe closer to 10 years away from being able to get in a car and telling it to drive us somewhere. But, there is a lot more what i would call Driver Assistance Systems and safety systems. They are coming out in cars today. Tesla does have a fully self driving autopilot, they just now have pulled back the ability to use it. X is coming up with one on their 2018 cadillac is coming out with one in 2018. Purely selfpower a driving car, connectivity that still has to be put in place. David not just Companies Like tesla, tech companies, also google, your range of competitors goes up dramatically when you become a tech company as a car company. Apple will think compete, apple and google will enable the self driving cars, providing component and technology, and connectivity that will enable it. Componentzed is a big maker of the systems for self driving cars and that got bought by intel. You would have to have a lot of in going data because you have to know about, not only what is physically around the car, but other cars moving with the car. Microsoft will be a big player in providing data for the self driving car. Will be part of the self driving making component for the self driving car, they make gps systems and autopilot, and cameras. It will be opportunities for a number of other companies that are not carmakers. Alix earnings from tesla after the bell tomorrow, what are your expectations . A battery company, car companies, tech company . , a techf the above company primarily, as they view it, not an earnings story, people do not Pay Attention. While i think the focus is on the model three that just came out on friday and already is getting good reviews being well received, the model three is there transitional car. The ability to ramp up the production of the model three to get to the 500 million 500,000 units by 2018, people are skeptical, jonathan im matt i imagine eli mustang 500 million million . Usk saying 500 manufacturing, the market u. S. Manufacturing for july, the final read comes out at 53. 3, slightly better than expected. That hasot think anything to do with the manufacturing pmi number and would be very surprised if it was, a marginal upside surprise at 53. 3, the previous read was 53. 2. If you have bloomberg terminal, check out tv , look at our charts and interact with us directly, go to tv on your terminal, this is bloomberg. David this is bloomberg, i am david westin. We are looking forward to a week of relative quiet in washington. Lets bring in our chief washington correspondent, kevin cirilli. A lot of the discussion was about health care and tax reform but there is a thing called north korea and venezuela. Geopolitical risk. Geopolitical risk and yesterday i spoke with the treasury secretary spokesman about how Steve Mnuchin is handling the possibility for more sanctions in this global world. The Administration Last night announced more sanctions against venezuela. About the growing risk for potential new sanctions against the chinese for their direct financing so to speak of north korea. When we talk about north korea and the latest development with their Missile Launch the past several days into the japanese see, they are the top exporter and importer with north korea, that is china, more than 80 . When we are talking about sanctions and by the United Nations to not allow for more sanctions, it is because the chinese and russians are not taking as full of a force against north korea as the United States. David the United States these sees it as much more of a threat with senate still in session, two more weeks before their vacation. Taxosed to be working on reform, what progress are we making . Beating behind the scenes and trying to push forward on tax reform. The chatter about whether or not health care is dead has caused a little bit of confusion on capitol hill about how quickly they will give it the tax reform. Whitee with a senior house official who said that Newt Gingrich will eat with the national Economic Council today and talk about ways to reform our nations tax laws. David you raise an important point, who is calling the shots . I read the gop leadership in the senate is saying we are not doing help get them and will go to tax wrong on the white house says no, we want you to stay and keep doing health care, who is running the place . The white house is trying to have it both ways, at least from the sense, the sources i say i know do not want to clay defeat on health care and want to have something done which is was which was a big campaign promise, they have to have house tax get cuts by the end of the year. David we have a new sheriff in town any chief of staff, general kelly, Anthony Scaramucci has his, he is residing over first cabinet meeting, the new chief of staff, what change do expect on the white house because of the new chief of staff . With several sources last night fire following the firing of Anthony Scaramucci, they all said they hoped this is the beginning of a new era in the koran for this white house in decorum in the white house. Any indication about the firing of the mooch, i think it speaks for itself. David thank you. Our chief washington correspondent. Alix coming up tomorrow, Goldman Sachs chairman and ceo, Lloyd Blankfein joins us. It will be about washington and how he views what is going on in washington, d. C. Looking forward to a quiet week. We will miss alix steel. We will catch up with the rio tinto ceo before we speak to Lloyd Blankfein. More records in the markets, you are watching bloomberg. Is this a phone . Or a little internet machine . [ phone ringing ] hi mom. It makes you wonder. Shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. [ laughing ] so all you pay for is data. See how much you can save. Choose by the gig or unlimited. Call or go to xfinitymobile. Com introducing Xfinity Mobile. A new kind of network designed to save you money. From new york, im vonnie quinn. Welcome to bloomberg markets. A lot to cover this hour. Andings from under armour bp. Manufacturing at a 63. 3 reading. It is a drop from the prior month. 55. 8 is what analysts had been anticipating. The comes on the heels of fewet pmi that came out a moments