Over in europe, snapping back, all of yesterdays post, up 1. 2 . The dax fell. Eurodollar, 112. That is not much ammunition. They need for the g7. It is a weaker japanese yen. Yields up a little bit. That is a market that is stabilized. Up a basis point. David lets check in with our bloomberg team. Mike mckee in new york on a possible summer rate hike. We will look at Goldman Sachs to annual meeting we will look at goldmans annual meeting. We will begin in paris with egyptair bound to cairo bound for cairo from paris. It seems that debris has been found. Yesterday, there was a report that it had been found from the greek navy. Not from theat was flight. The Egyptian Army has come out with an official statement says saying debris has been found a few hundred miles north of alexandria, which is the area that is the area with the plane was expected to go down. They found passenger items and bits of the plane. I dont know how long it will be before they can get to a laboratory where they can detest. It is pretty obvious from the to pre it is not obvious if it was a bomb are not. That will soon be the next development. Was certainly a tragedy, but it is not lost on people that the plane originated from paris. What is the reaction . Thewofold from governments point of view, they are very cautious. They really dont know what has happened. They say, nothing is ruled out, but there is no hypotheses at this point. On the other hand, there has been a defensive rush on airports in paris. There was footage within the airports showing checked bags went through xray machines. There was a real pr push of airports to show how secure they are. The transport minister was on tv saying that they have been under emergency rule after the last attack. I would point out that the plane was only in paris for one hour. It was a quick turnaround. Cairo, alexandria. If something was put on the know, but we really dont it wasnt necessarily in paris. David thanks, greg. Leaders from seven countries are meeting in japan the next two days. What are the big issues on the table for this many . What are the big issues on the table for this meeting . Went seems like the yen from being the elephant in the room to closer to the spotlight. We heard from japans finance minister briefing reporters and saying that when it came to the recent moves and fx, that was not discussed. He did reiterate that excessive and disorderly moves will hurt the economy. He also mentioned that stable fx is very important as well. That is when you get into that gray area on intervention. Overnight, we heard from the Obama Administration about wrapping up the pressure on currency manipulation. Japan and germany are on this watchlist monitoring the movement and currencies. We did for the u. S. Not exactly out japan. Singling they said it would be hurtful to Global Growth. Trade flows are weaker than they should be. This is not a time when countries should be making major moves to boost competitiveness. They said the g7 should not avoid competitive devaluation and they are working to attain growth as well as that the school growth. There is a lot of disagreement on what currency intervention would look right. Is there any agreement on what constitutes a disorderly fx move . That was actually a question reporters had asked the u. S. Treasury secretary moments ago. He gave a good example. What he constituted as disorderly was what happened back in japan in 2011 when the earthquake and tsunami happened. Sources telling us that the u. S. Feels movements began recently have been orderly. Its things like we have not gone to those extreme measures. Thank you so much. That is even on man thank you. Expectationsift in. Bloomberg radio surveillance says Michael Mckee joining us. Michael we have a saying in this country down south, the fed whacked the market upside the head. My interview yesterday with richmond fed president jeremy lacher. June is definitely a live meeting, but what we do depends on how the economy is going to evolve. Them marketing at expectations, it looks like june is roughly one and three. 60 . Ightening looks like dudley is widely followed because he is part of the core with Stanley Fischer and janet yellen. He sets the tone of what goes on. You can call him the guy goes around the asset store changing the prices. Jon expectations have been reset. Market und the 28 28 percent mark going into june. What do they want to see the number at . Michael there are a lot of traders who do not want the fed to move. They also think the fed has cried wolf too many times. If the data starts moving in the direction dudley is talking about, watch those numbers. We will get close to 50 , 70 . Janet yellen is talking june 6. Fighting back against Politics Around the Federal Reserve. Does that surprise you . He has been an outspoken voice saying the fed should not be dragged into the political sphere. Jon Michael Mckee, great to have you with us. We will turn to Goldman Sachs holding their annual meeting today. I next Team Leader Michael moore is turning us from london live with a preview. What is your reporting telling us . Michael we have a couple of items on the docket addressing longstanding issue, whether it is an independent chairman or investing for people who go into government work. Neither of those are expected to gather a great amount of traction. What you are going to be focused on is the common territory but the banks decision to stick with the trading business after a rough 12 months. And really a rough four or five years. David this is not a good period for those holding goldman stock. How much pressure is lloyd going to come under . Michael he will get a lot of pressure from the Bank Strategy and decisions that stick so strongly in the trading business. He is going to point to the cost cutting, the shrinking they have done of the Balance Sheet. There are real questions. You have analyst coming out and saying the Second Quarter is expected to be down as well for trading revenue across the industry. So this is a business that has been in decline over the last several years. David michael moore, thank you very much from london. Jon coming up, overbearing, too Much Negative sentiment. Find out what to buy when everyone else is selling. Lisa this is bloomberg. Google stock may be rebounding. Over the last few days, 900 billion was white off the value of global shares. Is this the bottom . Peter joins us now. Reached asign we have Tipping Point and people are going to go back into stocks . Peter it has been encouraging that the fed has gone out of their way to put the hike on the table and stocks have done reasonably well. We are down 2100, but we have not broke the 20, 40 level and we will start to see the rebound. People have just been bearish. Lisa i am struck by this. There is a great amount of pessimism. The fed is about to move and will destabilize its entire age that the economy is its entire mirage that the economy is in. Peter it will not take as much to push to higher levels. It is hard to push down when so many people are underweight. There are so many ways to look at it. Look at if you start digging into it, you have seen this egg trade were people are bowling out of tech if you start digging into it, you see this where people are pulling out of tech. Something i want to understand is all of that negative sentiment, what is the signing off . Peter as normal people have been selling, some of that has been bought by the companies themselves. You are seeing the s p. It does have those utilities. It does have those low volatility names and you are seeing consumer stocks. You have seen shifts and that has absorb some of it. The sovereign wealth funds have been buying it. Has absorb this domestic selling. David we hear conflicting reports. Udp is coming down and they are concerned the jobs number make it softer gdp is coming down and they are concerned the jobs number is making it softer. The bearuch more case is easy to make. I can come up with the exact same analysis. That is the problem. Everyone is looking at the potential for the fed that is what people are underweight. It is a positioning. When so many people are underweight, it is hard for the market to go down. You have pressure from all these short positions. Tore has been a huge influx these volatility funds. They have been bleeding money. Some point, people cut those hedges that propel stocks higher. Is on why they are confident the fed can raise rates in june or july . They have it by bloomberg estimates. Stocks havent fallen off. That backs up my view that people are underweight. Some uncertainty into usmv. Becoming less fearful of the market. That propels us for the next high beta trade. David thanks peter. We are going to go over to julies. Julie a Company Called enter oil that trades in the u. S. Their assets are in new guinea. Assetsge which also has is going to be acquiring it for 2. 2 billion. Then it will sell the majority of the acquired gas in expiration assets to paris for 1. 2 billion. Tal ge and toa at thee are looking maker of cartier jewelry. Sales plunged 18 in april. The company is coming out with a negative forecasts saying challenging comparatives will persist through september. It is trading lower. Swatch is trading lower as well. We are looking at yahoo . Wall street journal is reporting that the bids they have received may fall short of the expected range of four. Billion. Ed range of 4 4 billion to two 8 billion. To 8 billion. Deere is down a third of 1 . Forecast,h it cut its indicate Equipment Sales will be down 9 . The prior forecast had been for a drop of 10 . We will continue to watch that want to see if there is more commentary. Jon thanks, julie. Coming up, the oil rally rages on after hitting a 12 year low in february. Crude has jumped more than 18 . Production down. Where is the sweet spot for producers . That is next. Jon this is bloomberg. Im jonathan ferro. Futures are up. S p is positive. In europe, snapped back from yesterdays losses. Dax up. At 112. Lar treasury yields are 1. 8 . Crude is in focus with oil set for it second straight weekly gain after production cuts continued. Firefighters where is the sweet spot for producers itching to ramp backup reduction . Joining us is james west. Where is the sweet spot for u. S. Shale . Mid 50s is the sweet spot. Service companies have no pricing power. They are working at cash flow even prices. Task going to be a hard given the devastation over the last two years. 65 is probably a breakeven cost for u. S. Shale. Jon the narrative is we have gone through a story of Storage Capacity to a story of a market deficit. Where is the reality is, somewhere in between . On a we are oversupplied global basis. That oversupply has quickly followed. We should see inventory strong the second half of this year. Cuts over the last two years will lead to very limited supply as we get into 17, 18, and 19. In february and march, we were hearing possible restructuring. Has that run its course, and how big a factor may that be in supply . James we are going to see more default as we go through this year. More restructuring as well. Of this. Lay into all what that will do will maybes producers will take up their interest expenses. They will have a better cost of capital and better access to Capital Markets so they can spend again. They want be they wont be the companies they are today. They stayed on script this quarter. Up, he mayake see a tick up, but not a whole lot. Lisa even if oil prices increase, that means the companies with 120 billion dollars of debt that have defaulted, there is more to come in they can come back online even with Higher Oil Prices . James not slowly not. Absolutely not. The bankers are mostly controlled by regulators. They are slow to change. Lisa there is a story that banks have been hiring law firms to build in tighter credit protections with energy companies. James absolutely. David talk about geopolitics. The canadian wildfire is a shortterm event, but nigeria, how important is that . Is that a longterm issue on supply . James geopolitics are getting much worse whether it is the middle east, west africa, the they are blowing up pipelines. These are serious outages causing longterm problems. We could see the spread to other places. Strikes going on in kuwait. , morell see more outages geopolitical tensions. Dont forget about latin america. Jon this is an important conversation. The geopolitics will prevent people from investing in most locations. Means thatsituation the cash flow will go towards the debt repayment. When does it become critical for the oil market . James we are in that stage where the major Auto Companies needs to figure out what they want to be when they grow up. Are they dividend payers, or will replace reserves . They have to start spending capital the next 6229 months six to nine months. West, thank you very much for this very important conversation. Coming up, currency concerns taking center stage at the g7. Stick with us on bloomberg. Show me top new artist. Ah, ha ha. Show me top male artist. My whole belieber fan group. Its not a competition, but if it was i won. Xfinity x1 lets you access the greatest library of Billboard Music awards moments, simply by using your voice. The Billboard Music awards, live sunday may 22nd, 8 5 pacific, only on abc. Jon good day to the city of london. Equity market globally remarkably resilient. The me give you the Global Market snapshot. Let me give you the Global Market snapshot. I want to begin with what is been happening with equity markets. What you see is the s p 500 down about 4 10, negative on the year. What is positive is we have not had a big equity market route off of the new federal rate hike expectations. You can see in green, this is the performance of todays session. Of 76 points and up one full percentage point on the session. Points and up one full percentage point on the session. Copper session bouncing back of 1 10 of 1 . Is reason the ftse performing the move away from the conversation about the fed to the g7 in the coming days. The fx market and what you see in the red is a weaker japanese yen trading down 1 10 of 1 . Dollar yen going and little higher. The one to watch. Japan worried about a currency getting too strong. The problem is a going to the g7, which is dominated by politics, and 1 10 is stable. David thanks, john. We are two hours from the opening bell on wall street. The g7 meeting begins in japan, the worlds most industrialized to adopte expect practical measures to improve the International Fight against terrorism. Equipmentt farm producer has reduced sales of tractors and combines as farmers have a decline in income. The wall street journal is reporting bids for the core business of yahoo may fall that had originally been projected. We will go to vonnie quinn. Investigators now have their first clues in the case of the missing egypt jetliner. Some of the wreckage has been found. The Egyptian Army says they discovered debris from the plane 180passengers belongings miles of the coast of alexandria. Investigators say they will look at the degree. Debrief. Salam say they hope they will give him information about islamic states. Today, he has nothing to say. He was arrested in belgium after four month on the run. He was excited to france. In his study says more than half a British University students dont have a date of the referendum on the european union. Many run the risk of not being able to vote. They are on the electoral register, but just in the wrong location. Global news 24 hours a day, powered by 2400 journalists, in more than 150 news bureaus across the world. John . Jon to the g7 with a summit meetings are underway as finance ministers from and central bankers gather in sendai, japan. This morning, printing 00 spoke to Pierre Moscovici this morning, Francine Lacqua spoke to Pierre Moscovici. There it is up to americans to decide. Optimistic and willing to find a Global Solution by the 24th of may. That would be a great, great thisl that we are solving issue and we are maintaining the integrity of the eurozone. For brexit, i hope that the british voters will choose to remain because that is the only win win solution for the u. K. And the eu. Francine you always comes up as a problem child in the world. We have seen a little bit of growth, but because of the referendums and lack of debt relief, we are pointed to, we can do more. Change . L it pierre i am not agreeing on that. The that the economy eu is in solid recovery. It could be even stronger. It could be faster. It could be even superior. But we are at a level nearby 2 growth a year as well as for this share and for next year. It is solid. We need to pursue reforms, social reforms, and keep a strong pace of fiscal consolidation, but not damaging recovery. We are leading the investment euros. 300 billion rightrozone is on the track, but of course, i understand there is a need for more political leadership, and some choices such as a refugee and some issues such as the refugee crisis needs to be addressed. Francine, what would a g7 be without a conversation with greece . Agenda, what did you make of what he had to say . Francine i cant believe we are 12 months after the brexit concern. Greece would have to leave the eu because of debt problems. Again, we are talking about greece and worried about a summer of turmoil, a summer of discontent. It is crazy that we have not had a solution. The imf is still trying to talk to the counterparts. The germans still seem to be the blocking point in terms of debt relief. We did speak to Pierre Moscovici, the commissioner of economic stability. They both told us that they were confident that a program would be reached as soon as next week. We talked about brexit and talk a lot about the other concerns. Guess what . They have not talked or addressed currency wars get. Jon i wonder if that is a conversation for behind closed doors . The president of the European Commission, here is a quote they will not be welcomed with open arms. Get together, these institutions, do you think they should be warning about consequences about risk, or thinking about contingency plans many politics take care of themselves . Francine the problem about politics is that it is very emotional. Know what trade negotiations look like, which is by the president of the European Commission is saying, if you will the eurozone, there be consequences because we will not put you forefront. First of all, it sounds very emotional. Is it the right strategy . I am not sure it is. If you are a u. K. Citizen, you have president obama coming, you have your celebrities weighing in on the brink the debate. Brexithing in on the debate. With sore bombarded much influence on the outside, maybe your gut feeling is you want to follow your instinct. I am only going to listen to my neighbor. Jon Francine Lacqua, very good to have you on the program. Moscovici may not be talking about currency concerns, but finance ministers will be talking about it and about it at the g7. Stephen, and a world of negative freights, what is at stake . Stephen they also growth is inadequate and they want someone else to do something about growth. The u. S. Keep talking about fiscal policy, but they do not have a fiscal option to put on the table. They are encouraging europe to do more fiscal and encouraging japan to do more fiscal. The japanese, they have their backs against the wall. They need stimulus and they need a weaker yen right now. Jon it was all about the stronger japanese yen and well have this g7 meeting in our diaries, that this was a disorderly move. It is not that . Steven it is not a disorderly move one dollar yen is going up and only when it is going down. Back to japanese internal politics, that they have an economic cold they are digging themselves out of. They dont want to dig themselves out of that hole. Lisa do you expect them to come to a decision and agree to some kind of truce in the currency wars . Steven i think interpretations will be different when they walk out of the room. Japan feeling it has some option now it he arguing that it has some option nobody with respect to intervention in the u. S. Adamant that they dont. End of the day, if dollar yen starts threatening 105 or 100, if they do intervene, whether or not the treasury likes it. Says takeet yellen some of the pressure off here. If they start hiking rates, it will weaken the yen relative to the dollar automatically without people having to do anything. Steven when you talk to g7 g20, they dont want to see dollar rates going up. When you are g7, the europeans would love to see a weaker euro. Japan would love to see a weaker euro. Or a stronger dollar. And above the fact that the fed is putting a summer rate hike on the table. Lisa the last meeting, there seems to be some kind of truce or agreement reached. They want to revisit that . Steven the only time they reach the agreement says when it seems to be in everys interest. The japanese feel that one of five is not in their interest to have this kind of truce. I think part of the next package, they want to have the option of cutting rates. Ch would certainly lower weaken the yen as well. Dont think they will say anything to limit their ability to do Monetary Policy and walk away with a weaker yen. Lisa how low could rates go in japan . Steven they said as europe. For them, it is important for the market cutting further. After the disastrous Market Reaction in january to their cut, the market they said you cant cut it any further. David what degree of confidence to they have at this point by lori rates at this point by lowering rates . Steven it did not work because the market they walked away thinking when i do that again. The nikkei dropped the time. You dont have a rate cutting option. What they have to do is find a way of protecting their equity when they go for when they go into negative rates. Did what they did. That is a discussion we will have, the rate differentials. Steve englander is sticking with us. On itsup, the u. S. Strongest weekly losing streak this year as the dollar gains momentum, the impact of the feds next hike on global economies ahead. Yahoo s core business may not bring enough from the option. Zon are expected to the next round of bids do the first week of june. Deutsche bank is investigating whether a group of employees made millions while improperly training with the firm. Deutsche bank is beholden to their payments. Involved thatare involve credit indexes and the other line debt. Old navy brand is calling it quits in japan. All 53 Old Navy Stores in japan will close this year. They have been developed to compete with other japanese fashion brands. They are focusing on north america and china. That is your Bloomberg Business flash. Jon the chinese cap another biggest losing streak as a u. S. Dollar strengthens. More hawkish usve englander is still with. We do have you with us. The good, the bad, the ugly. The battle of the ugly, which one is it for china right now. Where is the by point for you when you Start Talking about destabilize china all over again . Part of it is a chinese reaction on its own because when moved, they took the rest of the emerging markets with them. As a result, we have the volatility that everyone was concerned about. , in terms ofis seeing why depreciation they have done better when i said markets have been risk on. Anothere depreciated emerging markets currencies. Maybe in the own interest not to be aggressive, but calm emerging markets down so that they dont end up depreciating. Lisa hold on. This is a really important now is a good time to allow china to depreciate because it is risk on. Steven they are much better off depreciating against other em currencies and a risk on environment. It is a big debate. The fed has decided that one hike can change for 2016. If they do two hikes, how will the e. M. React . Destabilizing . Jon it is very important as lisa points out, a lot of people will be waiting to look at the e. M. Fix. What are you looking at specifically in the fx market . Steven i would look at the six the fix occurs. ,nd to see whether or not things that look like echos than what we saw in january and august. David you have a centrally managed economy. What other tools to they have in their toolbox . To affect capital . Steven and the best of times, capital is 80 closed. They have more tools than neg 10 country does in terms of dealing with outflows. It is not perfect. If they want to, they can deal with it. The the flipside is depreciating dollar, which we have seen, which could thattially be a trend accelerates as the fed ramps up its rhetoric ahead of the june meeting. Your perspective, earnings have been ok. They had not been as bad as expected. Do you think this is all a positive fx effect from the weaker dollar earlier in the year that will be offset and potentially he raised later in the year from the stronger dollar . Steven they always have the option of hedging. Lisa why were they complaining about it for so long . Really the question is the u. S. Domestic economy. , theyial markets understand that the dollar is up. What they want to see is whether the growth rate in foreign currency terms it in the right direction. Matters, butrate it is a one off type of impact. Viewpoint, is since they are, but the Exchange Rate than they were last year because the impact of the Exchange Rate on the u. S. Economy has been well within the range of history, so it is not going to throw the u. S. Into a recession or destroy the manufacturing sector. It is stable, but it is what you get from growing faster than anybody else. Fascinating to me because we heard these companies coming out and saying the reason why our earnings are lower is because of the dollar. All of a sudden, you are seeing a boost in earnings and places like walmart. Maybe the fed, you bring up a very good point, the fed seems to be, about this. The 15th to be calmer about this. Lmerhe fed seems to be ca about this. En that is why they are counter valued. Literary year, Economic Policy that they expected to have, we will not get. The definition of divergence has changed over the last year. Last year, we thought that the burgess was four or five hikes. 130 diff the yen. 105, 115, chump change. Find it in the cushions of your sofa. [laughter] stephen englander, thank you for being here. Coming up, mario draghi reaches and ec be milestone. We will show you that next on bloomberg. Years whenn two mario draghi said he would boost met thes meet he has limit. Julie hyman is here. What do we get for 3 trillion euros . Julie a whole lot of nothing. He said he would boost the Balance Sheet around 2012 levels around 3 trillion euros. Goal is toadded, the spur inflation. Here is a Balance Sheet and the white line. We reached that milestone. It is a problem this site is inflation, so now we are looking at negative inflation. The blue line is inflation. Essentially, mario draghi has not gotten what he has paid for. Crux ofngs us to the the matter and the challenge with Central Banks their effectiveness with stimulus in achieving their goals. David this is roughly october, november, and december of 2014. It is a huge diversions here, right . Counterfactual, this would be lower if they had not done this . Julie you can argue that it is not the ec bes fault. Here in the u. S. , we should point out that we have seen an expansion of the feds Balance Sheet and has held pretty steady. This one, the blue line is the feds Balance Sheet and inflation. They have gotten a little bit more. David this may give mario draghi and argument. It starts to,. It starts to,. Up. T starts to calm it is talking about contracting to some degree when inflation is finally starting to pick up, but not at 2 . David they have not gotten what they want to go. Lisa . Lisa in the next hour, from headwinds to tailwinds, bob doll joins us. What part of the market will rebound . Isr two of bloomberg next. Federal reserve officials talk about a june rate hike. Brexit on the agenda. Chiefs convene in japan with one eye on the u. K. s upcoming referendum. The story of the gambler, the golfer, and the german. It a story featuring golf superstar Phil Mickelson. Jon welcome to the second hour of bloomberg. Im jonathan ferro. David we have a lot to cover this hour. Jon a lot of discussion about markets and a change over the last week. Futures not softer, firmer, down by 49 points. Futures positive around five. The snap back from the losses yesterday posted up one full percent. Lets get to the commodity markets. Oil rolling over just a touch a coming back a bit. The fx market, weaker dollar story. A weaker japanese yen ahead of the g7. The Politics Around that currency is fascinating. David . David we want to go back to the egyptair story. There are details emerging on the disappearance of the flight. We will go to cairo, our North Africa Bureau chief on the phone. Please bring us up to speed on the developments. There is a little bit of progress. They have located some degree 190 miles of the coast of alexandria, which they are saying is part of the missing airline. The aircraft. They have not clarified what they found. But it, this is a step forward in terms of something can oso to show that the plane went down in that area. Were struck yesterday in the press conference that was given that the egyptian authorities were fairly quick to allow the possibility of terrorism to affect this aircraft, unlike what happened when the russian aircraft went down. Is it any further development on what the egyptians are saying about the possibility of a terrorist attack . They are careful to say they are leaving all options open. The minister of the aviation said it is a stronger likelihood of terrorism than mechanical failure. Barring any actual evidence to indicate one thing or another, they are very cautious to speculate on really what might have happened. , the islamicback state claimed credit for it quickly. His any group come forward to claim responsibility of this . Not that we have seen. Any kinds of claims need to be treated with a measure of caution because you dont want if it turns out to be terrorism, it would most likely be quite sophisticated. David very wise. That is our north African Bureau chief from cairo. Jon getting back to the markets, looking pretty resilient. Julie hyman is looking at some of the stocks. Julie i want to look at some of the Companies Reporting earnings. Deere stocks are down by 1 after they cut their profitable forecast for the year. Even of a say sales will not decline as had been estimated. The forecast is giving investors positive. Giving investors pause. Retailers. Rd from is more doom and gloom tlockersmissing estimates foot lockers forecast missing estimates. Ross stores suffering here. First quarter up. Quarter iss second below analysts expectations. We want to look at materials Applied Materials. This is the biggest maker of machinery to manufacture semiconductors forecasting thirdquarter sales that may Beat Estimates. They have seen an increase in demand from ship chip makers. They saw higher orders in the Second Quarter versus the first. I want to see i want to take a look at a couple of financial companies. They want ceo says their independence. Are saying they may sell a stake in their online broker. Theirare reviewing holdings in poland and turkey to raise capital. Id our next guest started started a firm in the 1980s. Now david booth manages millions of dollars. What sets them apart is his special strategy of ignoring daily market noise and taking longterm returns. Is davids to explain booth. Welcome. Atm struck by the fact that a time when everyone is saying we need better stock pickers, you said stockpicking is not the answer in the longterm. Why is that . David there is no evidence that it has paid off. If you look at institutional money managers, inaccurate it, they holding market in aggregate, the hold a market. In order for one institutional investor, someone else has to have an inferior return. Our approach is based on the idea of portfolio construction. We think people need to have a philosophy they can stick with like a personal philosophy. Philosophy,a robust you probably wont be doing a lot of trading. Nevertheless, what is important is the structure. Most fundamental decision have been stocks versus riskless assets. We spend more time on the structure. Over the years, what has emerged from Academic Research is a notion of dimensionality of returns. There are certain threads that run to stop returns. And people say, where the returns come from . There is an underlying relation between risk and return, of course. Identifying what those threats are has been the focus of research. Lisa a lot of friends will say they dont focus on the shortterm noise and look for longterm friends to outperform. This is longterm trend that outperform. Can you walk us through one specific successful thread you picked up on . And the financial gotturn in 2008, people bailed out of equities. 5 billion of u. S. Equity funds. Our clients stayed with it. Now, the benefit of that is arepeople i feel sorry for the ones who lost their money and it went to money markets. Thats what i mean by having something you can stick with. The key for us is we are relatively transparent. So people understand that we are not going to be shifting around during much daytoday or week to week. Over the long haul, we manage money differently than we did 30 years ago. Nothing that the yeley different. David you refer to Academic Research. The world Academic Research is quite unusual. Tell us about that. David the field of finance, i dont know what it was like before 1950, but over the last six or seven years, research has Academic Research has emerged as an academic discipline. Beginning when computers that developed in databases became available. A lot of hypotheses can really be tested out. A lot of the things that people took for granted turned out not to be accurate. David but you have a pipeline directly in the academic community. How many nobel prizes have you had . David four total. Next time you pick up first i will give you some hints. What are people getting wrong now . David the things people are getting wrong is the are getting nervous and then trading. Systematically, people have a tendency to want to invest when expected returns are low and they want to get out of markets when expected returns are high. By the financial turmoil when re in financial turmoil, because we have prospects, i will get out. Markets are already reflecting it. Counts ishing that can you forecast better than the market can . The answer is probably not. David we will come back in see how you forecasted. Lets go to first word news with vonnie quinn. Vonnie and a proposal for the i am up underscores differences it has with european lenders over greece. The imf says greece should not make bailouts payments on it bailout. In washington, House Republicans the democrats have reached a deal for puerto ricos debt. It calls for a control board to help manage the u. S. Commonwealth. That board would also oversee some debt restructuring. Lawmakers are trying to pass a bill to force puerto rico to default on its debt. Of taiwan isdent resisting pressure from china to it knowledge theyre part of a single nation. Taiwansworn in as first female leader. She says she seeks peaceful ties with china. Aging wants her to endorse a one china principle. Global news 24 hours a day, powered by 2400 journalists, in more than 150 news bureaus across the world. Im vonnie quinn. Coming up, with a june rate hike on the table, some volatility in oil and the markets, is it just noise . Thats next. Happy friday from the heart of new york city. Futures up. Lets get to the boards. Stocks up in europe. The dax is up 910 to 1 . Ftse charting on by almost 80 points, lisa. Lisa this is all because a june rate hike is back on the table. Oil at a sevenmonth high. Volatility in the market still with us. David booth, chairman of , help you nots Pay Attention with the rate hikes . David i Pay Attention, but what i learned a long time ago is that my paying attention does not seem to be particularly meaningful. Lisa i have talked with a lot of people who set historical models may not work this time around. How do you rely on Academic Research that does look at the past for this era . David the key is to figure out where reality begins. There is a gap between the model and reality. The model explained everything, you would not call it a model. You would call it reality. [laughter] that is the trick to figure out, getting given this Academic Research, how much of the information is useful . Predicting the past is not interesting, it is predicting the future. David you see much a modest man. You have not had net outflows of ones. Net outflows of funds. What is attracting people and holding them . David actually, i looked at some date have recently. If you look at funds that were around that we started in the year 2000, 86 of them over the last 15 years outperformed their benchmarks. We have a tendency to go up and down in the markets. Historically, we have been able to achieve a premium. David is that your fundamental goal . You will stay with that fund. You will stay with the index fund. David we get all the Downside Risk in on the upside risk. The main thing is we dont miss out on the upside when it does occur. Lisa what are your fees like . David our fees are very low. We are one of two firms were all of our funds are medium in terms of fees. Lisa is that important for performance . The most reliably the most reliable way to get performances low quartile these. Your mentor was eugene. How active is he in the firm . How much are you following his guidance and . How much are you following his guidance . French and him are the basis of how we construct portfolios. Active of them are very on corporate governance, which has become an important issue for us how we build proxies and so forth. Jon the profile, what is in it right now is marked what is in it right now . Well the key is to be diversified and keep your fees low. Dont try too much. David i think we have a pie chart of your allocations. Can we put that back up and take a look . See if it looks familiar. Thats not it. [laughter] that wehe basic idea is are invested in the outside categories. The other question is how much to wait them. Lisa what is the Biggest Tail Risk . David oh boy. I would say unfortunately, it could be some military action somewhere. It can be very disruptive, geopolitical. Lisa do you had to get Something Like that . Is that something you are trying to model for . David no, the essence of what we are seeing is whatever the risks are, they seem to be are best guess is that they are baked in the cake and reflected in prices. Going back to when the financial crisis was down 50 . People will say, is this the time to get out . The market has a readjusted. Lisa do you find that it is difficult to apply your strategy at a time like this where markets are sideways and very choppy . David i have only been in the business 45 years. [laughter] i never found a period of time where people say, this is the time to invest. Are always concerns, which it should be. David david, its rising that your last name is booth. There is a Business School in chicago named booth. Is that a coincidence . [laughter] david this is a time when correlation is the same as causation. [laughter] that was the biggest thrill was the taming of the school. They did so much for me and somewhat for the industry. It was i was glad to pay back a little bit. Lisa david booth of the university of chicago, school, head of Dimensional Fund advisors. David next, we head up north for profits. Find out what stocks will continue to rally and which ones are poised to fail. More bloomberg on the way. Jon this is bloomberg. Just getting detail of a meeting with president obama. That will happen on june 7. The importance of india is becoming more important with apple going there. Politics, front and center as well. David it is growing more than china. Lisa india is poised to take over being the second largest economy in the world. It is a point for obama to head over there. Jon the one thing that separates india is a positive demographic. A very young population. This is the future for them in terms of growth. That is a story we will keep an eye on for you. And 7 with president obama indias resident. Blackrock chief investment. Lifting the lid on the canadian equity market. Q1 story, is that going to continue . This is a great year for canada after several years of underperformance. The market is up 6 . As you point out, it is driven by the material sector, which has had an incredible start of the year. A lot of that is gold mining stocks and gold prices moving up the percent or so. I would expect that gold has room to run. In of the Global Market is negative territory. That would suggest if there is reflation,nnon that would be looking at the stocks versus bonds play in the dividend play, the yield play, why is it now pronounced why is it more pronounced . You have a couple of sources of higher dividends and canada. The leading one of the financials representing 37 or 30 of the Canadian Market cap. 38 market cap. That yield stands out. Comparing to the 10 year, at about 135, they give you a spread of 1. 7 percentage points. That is a pretty hefty advantage in the highest it has been in the last 20 years. Jon the commodity story, the infrastructure politics story, and canada front and center as well, is that story in the market or played out, or is there room to run . I am not sure if it is fully priced in. What we have is the reliance and overreliance on Central Banks. I think there is some question marks of the efficacy. You have a Monetary Policy plan insupporting the stance canada with deficit spending. They have repaired their roof when the sun was shining. We have a lot of wiggle room to move here. That is a backstop on growth if there is ever something of a slight fall back in oil prices, it is good to see there is a bit of a support coming from the federal government. Jon whenever there is a light meeting at the fed, a reallife does notthe governor give much away. For you going for some, the wildfires in canada, is that something that he will be thinking about . It seems as if these wildfires are going to be ahead of q2 it will be a hit ahead of q2. I am guessing that he will be looking at the recent strengthening of the canadian dollar. It could weigh on manufacturing. Jon great to have you with us. Coming up, has a Retail Sector hit bottom . Raising concerns about the u. S. Consumer. Coming up next. This is bloomberg oh, lets get a check on the markets. Points. Res of 53 as we approach the close past the halfway point, the ftse is up 1. 4 . Dax up by 9 10. 35. Lar 10, 110. A stronger dollar story. The risk is up. A basis point of 1. 86 . Crude in focus at 38 bucks a barrel. We are under one hour from the opening bell at wall street. The s p 500 is lower, closing at a sevenweek low. It could be shortlived with features indicating a positive open. He g7 is meeting in japan the worlds major industrialized nations are meeting to agree on a range of issues to combat terrorist financing internationally. John deere lowered its fiscal fouryear profit outlook on projections for selling fewer tractors and combines because farmers faced declining incomes. Lets go to our first word news with vonnie quinn. Investigators have their first clues in the missing egyptian air airliner. They have discovered debris from of plane off the coast alexandria. France and britain will look at the debris. The airplane disappeared flying from paris to cairo. Donald trump one supported restrictions on gun rights. The likely republican nominee will address the National Rifle association convention. R himnthusiasts will hea speak in louisville. Politicians to walk the nra line. A new study says half of British University students do not know the date of the referendum on the european union. 1 2 of them run the risk of not being able to vote. They are on the register, just in the wrong location. There is greater support for there ish greater support among younger members. The s p 500 has been stuck in a sideways trading range. Will he go lower before going higher . Joining us from irvine, bob. Ornia is what are you looking at for the path of equities in the next two months . Bob i think we need to take steam out. People got to negative in january and february. We had a rally and people got too complacent. We are giving some of that back. We will not break out of this until we have visibility on better earnings. That is the key, will earnings improve . I am looking at a chart that shows volatility on the Chicago Exchange index is increasing. It is increasing more than other asset classes. Does this mean losses could be steep before they rebound . Will we be stuck in this daily top . Daily chop . Bob a whiff of concern, i think we are stuck in the chop. Everyone is concerned over china, currency, oil it could happen. The oil is behaving itself. The dollar does, though it is creeping higher we need oil and the dollar to behave themselves to have a shot at the better earnings im hoping for. We have heard some people say it is because of the dollar. It is weaker or stronger. Others say maybe not. Loyal might be a factor. How important is the u. S. Consumer in looking at earnings . Consumer is important. There is a dichotomy that is confusing people. Job growth has improved, wages are beginning to improve, Balance Sheets are in good shape here the problem is theyre not spending the money at bricks and mortar retailers. They are buying new homes, existing homes, cars, do it your self retailers. Look at home depot and lowes and how well their business is doing. Consumers are being selective and spending a fair model of money. Do you think home depot and lowes are good bets . Bob i do. They have done well. Their Free Cash Flow story remains good. I think their stocks can go higher. I would rather own them than try to bottom fish in a bricks and mortar retailer when you dont know if and how they will turn. We have been talking about a cyclical bear market going from sector to sector. Where is the next sector within u. S. Equities that will experience a bear market . Bob the bondlike equities, utilities have done very well. If nominal growth is getting better, real growth is picking up inflation. Not a lot, but enough to talk about. You are watching the 10year treasury move up. I think that puts a concern over these stall bondlike equities that could the the next ones that go into the barrel. David going back to consumer discretionary, you said the consumer has a better Balance Sheet with more to spend. They have to be willing to spend. Do you Pay Attention to Consumer Sentiment . Bob absolutely. Consumer sentiment has done better. More important is consumer behavior. They are spending money. Consumers are spending more money and raising their savings rate simultaneously. They are being smart about how they do what it is they do. They will not spend beyond their means as we got used to in prior decades. It is not the consumer pedal to the metal. It is more selective. Marketser, you said will fall before they rise. We have been talking to people that have been pointing out who say look, there have been so , it isarishness interesting it hasnt fallen more. There is natural support coming from Companies Buying that shares from the massive amount of centralbank money. What do you make of it . Bob how much cash is on the sidelines . In a love retail broker offices and ask the Branch Manager how much cash is in this branch . I get numbers in the 20s and 30s. 20 to 30 . Bob there is lots of cash out there. That is a bullish sign. That is why i do not think there will be a lot of drops in the market. There are lots of bears. That israeli when the market accommodates them. Where will the s p 500 be at your end . Bob my target was 2150. Im not giving up on that. We need better sector earnings. Bob doll, the senior Portfolio Manager in irvine for nuveen asset management. Down 1 million, that and more, next. David this is bloomberg. I am david westin. We will be joined by this man. That is at 9 00 a. M. Eastern time. Heres your latest Bloomberg Business flash. The Worlds Largest tractor fewerdeer will sell tractors and combines because farmers incomes are falling. Sales of Agricultural Equipment may be down as much as 20 . The u. K. Lifeng will not be the same if you union. E european the french finance minister told bloomberg tv that britain is deluding itself if it thinks it can keep the advantages of eu leaving. P after the u. K. Votes on whether to leave on june 23. The Worlds Largest luxury brand opening its workshop. It is the Company Behind laura piano. It will allow the public to visit 50 of the mh workshops. He sat down with bloomberg for an exclusive interview. It is a nice relationship working with your family. It is very pleasant being the being that it is very pleasant. Being the son and a family such as mine is a great responsibility. Vonnie david . I will take over. Management int irvine. Lets talk the bond market. I want to look at the gap between the earning yields on stock and the earning yields on bond. It is interesting to me that there is a divergence that makes equities look cheap relative to bonds. Is the bond market in struct if to you given the low rate environment . Tobond market instructive you given the low rate environment . Bob it is. Under waiting bonds makes sense and why our bond yields in the framework you just mentioned so low . It has to take us overseas. If you have negative Interest Rates, it is hard to argue that the 10 year treasury should be 250. Year treasury would have at least 50 basis points higher than we are today. Bringing up foreign money, we have heard a lot about money from japan and europe coming into the u. S. Toward fixed income. I do not hear it coming in to u. S. Equities as much. Is money going into u. S. Stocks . Bob not much. They are buying bonds, which they feel sure about. Equities, they are uncertain. That to our earlier conversation, there is so much uncertainty. H going into equities, viewed as risky, seems like a bad game. And you have the s p 500 with a higher yield than the 10 year treasury, that doesnt happen often. It does argue in favor of stocks on a longterm basis. Jon given where the duration is in the equities, and how many people have gone into bonds, that tells me when we have a bumpy ride in the bond market, people have to cover their losses. You look at the relationship that bonds and stocks will move in tandem . Bob if bonds are hit hard and fast, that will not be good news for stocks. It has to be over time. Back to the earlier conversation, stocks will not do it without better earnings. If we have a modestly better economic environment in the u. S. And globally, not a lot, just modestly, that is good for bonds and slightly good for stocks. It will be a slow grind for stocks. Andhat do people in japan europe have to see to have more confidence coming into the s p 500 . Bob if earnings are going to sh, it will be hard to get them to Pay Attention. As we look overseas, they look here. Political leadership is key. We have a lot of question marks they are. Bob doll, thank you for your insight. David we will turn to golf. Phil mickelson is faced with one hazard. Do you get that . Jon i do. Im with you. David the sec named him a relief defendant in an Insider Trading case. He agreed to pay back 1 million. Joining us is bloombergs Financial Crime reporter. Why dont you start by explaining what that means. He is in the least amount of trouble of the other individuals involved. He has not been charged with anything. He does not have to admit guilt. All he has to do is pay back the proceeds that he earned from using the information he received. David how did he get the information . It starts with walters. He is a wellknown sports better in vegas. He is a big amateur golfer. Also have mr. Davis, he used to be the chairman of dean foods. Getsis where it interesting. He was passing interesting firsthand information about the earnings and outlook. Different tanks that would help walters make money. David the good stuff. Keri primo Insider Trading staff. Very old school. They were using cell phones to communicate. We are going back to the 1980s. David disposable phones. Keri he was doing this because he owed money to walters. Owes the chairman of dean money on gambling debts. Keri and it was a way for him to relieve some of those debts. Walter then goes to mickelson. He also had gambling debts. David son of a gun. Just say no to gambling and Insider Trading. Thatssue with mickelson is the law, even before there was a change in Insider Trading laws last year which made it more difficult to prosecute, i do not think that applies to this. It would have been difficult to prove that he knew that that was inside information. You need that to convict someone. It was secondhand. If he says he didnt know and they cant prove it, that is why he was named a relief defendant and only ordered to pay back the money. Did he agree beforehand . I he have talks and said pay you 1 million, you lay off, we are all happy . Keri it is a negotiation. Is they had any inkling of wrongdoing he would have been sued by the fcc or had much harsher charges. Or the Southern District who indicted walters would have come in. Does this put this chapter behind for Phil Mickelson . Keri legally, yes. David they will not go after him in the future . Keri unless something new comes out. It is likely closed. It could impact his endorsements and business issues, but he got a good deal. 1 million. David well lawyered. Thank you for being here. An it takes a lot to run treasury trade. Not since jfk was president have they demanded less compensation for longterm u. S. Government bonds. We will show you in the battle of the charts. Or d2 twominutes away from the open. 42 minutes away from the open. In europe, the equity market maps back and erases yesterdays losses. Jon this is bloomberg. Data use and the heart of new york city. Crude weaker on the session down 4 10 of 1 pulling back from the sevenof high. Seven month high. Futures in the united states, 40 and its from the open. They are firmer. Thou futures of 51 points. Futures positive six points. In europe we are up for the second straight week of gains, bouncing higher by one percentage point. Very quickly, the dollar, the bloomberg dollar index after touching a sevenweek high, the euro at 112. 21. The dollar yen at 110. 36. Yields, maybe not a shift in yields, but the shift in sentiment over what the Federal Reserve may do. 10. 86 . This is bloomberg. Time for an International Battle of the charts. Julie hyman taking on mark barton. What have you got . Julie i want to look at something that federal bank of new york measures. It is a measure of the 10 year term premium. The perceived riskiness of Data Security versus shorter Data Security. Going back to the 60s that is because the gap is the smallest since 1962. Not only the smallest, but it is negative. 0. 3 percentage point. That means that you are not seeing a perception of riskiness of longer data securities in this environment, even as the fed says june and july could be live and rates are going higher because we are seeing competitiveness of the u. S. Treasury market. That is one of the things that has been driving the buying of treasuries or has put a floor under u. S. Treasuries. There are some bond market professionals that say the level below zero, going negative, its is theoretically overvalued, but folks are saying we could see more buying on the longer end of the curve. And this perception of not much riskiness. Jon mark barton . Mark 1962, im talking about germany. That is what is going on with the german benchmark. Dax felle you 11, the to a 16 month low declining 29 in last years record high. It then embarks on a 19 rally through april, almost a bull market. It has fallen a 6 . Its a valuation is waning. This is the purpose of todays chart. Timesx is trading on 11. 8 estimated earnings. The stoxx 600 is trading on 14. 72 times estimated earning. You do the math. 2. 82. Ion gap is the chart says everything you need to know. That is a record valuation gap to the stoxx 600. Investors are concerned about a slowdown in the global economy. Hat could hit the dax lets not talk about 1962, lets talk about the dax. Enough . G btv 1391. Jon he gets points for enthusiasm. , you get points for flair, but julie you win. Like your chart but i am perplexed. I dont know why people are not buying german stocks. You had me until the dumping of 1962, which is the year of my favorite car. It goes to julie. I will go with julie hyman because it is difficult to break out the individual components of yield. It many people talk about for that reason, the complexity. It is a big story in the treasury market and Global Markets worldwide. Mark barton, im sorry. It is heartbreaking. Julie is the winner. We will be joined by the sky Ridge Capital partner. How he will increase volatility and where the opportunities are across the globe. We are counting you down to the market open in the united states. Futures positive across the board. Markets rallying in europe. Iaaem jon stocks are down, s p futures rise, more clues on the strength of the u. S. Economy. David deja vu. Is the talk of a fed rate hike feeding a loop that will keep it from tightening like in the First Quarter . Reversen a big banks the tide on their big trading businesses . Jon to our viewers worldwide, a warm welcome to bloomberg. Alongsidehan ferro david westin and lisa and brim of which. Seemingly going nowhere. One week later lisa we have a correction. The markets are david a big change in what theyre saying was expected and the markets are not reacting that much. Jon the s p market is resilient globally. Futures are positive. The s p 500 is negative on the year after the hawkish Federal Reserve minutes, no drama. At the moment. S p futures down six point higher. In europe, the ftse up 1. 3 . The stoxx 600, with every Industry Group gaining on the session. Switching out the board to the fx market. The euro at 112 point 23. Japan complaining and bit a stronger yen, but not today. A stable japanese yen. Disorderly is the magic word. That is not disorderly ahead of the g7. 86 julie, a lot of stocks, what have you got . Julie yahoo , declining. After the wall street journal saying it will not get as much for its business as it wanted. The journal, according to people familiar with the situation, says the bids will come below the expected range. More like 2 billion to 3 billion from parties like verizon. Those shares are down 4. 5 . An interesting report. The biggest maker of some conductor manufacturing equipment, earnings Beat Estimates for thirdquarter sales. It may be estimates in the Second Quarter. It got they . 5 billion worth of new orders. Machines that make flash memory in particular, a Strong Demand of orders. He 9 there is switching going on to a new generation of these types of memory chips. That is helping. Amongld say Ripple Effect chip makers finally, Campbell Soup out with numbers. These are trading sharply lower. Three quarters missing estimates, trading lower even after it missed its forecast. It was a weaker u. S. Soup season. The company seeing challenges in create. In v8 and there was a weatherrelated disruption to the fresh carrots supply. David oh my. Julie that was apparently an issue for Campbell Soup. David thank you very much. It is time for the three stories that matter in markets. With us is skybridge managing partner reynald managing partner ray nolte. The u. S. Dollar heading for its best month in the year versus the japanese yen. John deere cutting its fullyear profit outlook. The u. S. Dollar rising against the yen for the third week. The longest stretch since august. The dollar is getting a boost from expectations the fed will raise rates in june. Have your views on where the dollar will go changed this week as we have seen the fed minutes . Ray not dramatically. We have been looking for dollar strength. It caused on the back of the fed backing away from the tightening. Now they are putting tightening back on the table, you see the dollar pricing back in. David you expect the dollar to strengthen through the year . Ray i would expect the dollar to strengthen. You will not see the magnitude of moves we have seen over the past year. It will be a more gradual move up. Lisa what do you think is the red flashing light to the fed that it has gone too far . Ray i think the fed added a third mandate. Unemployment, inflation, and i think it is looking at a global stability and currency. That relates back to china. The chinese rmb. Potential for devaluation in the chinese currency. If the dollar gets too strong because of the peg, that creates increased problems. They are balancing that. That keeps markets on their toes. Jon how volatile do you think the space has been . Were looking at the g 10 versus the msx. How can the fed manage that over the coming months . Ray i think it is a difficult balancing act they have in store. That is why you get the rhetoric going one way, then they try to walk it back. The other keeps the market guessing and on their toes. Do we get a june, july hike . Do they go to press conferences every month . They will keep everyone guessing. Lisa we will discuss it more later in the hour as a number two, Goldman Sachs is holding it shareholder meeting. Goldman sachs has been the worst performer on the dow this year, which is incredible considering what a powerhouse of revenue Goldman Sachs has been. It will continue to shrink on wall street until it becomes a vestige of what it is today . Ray i think we are in a longterm cycle for the financial institutions. Prop trading is gone and has been wound down. The volatility in the environment, risk departments are telling people to take less risks. The volatility in markets has taken away a lot of opportunity, because they are not allowed to position for it. Across the board, not picking on goldman in general. Jon Lloyd Blankfein is speaking now. I can bring you one of the headlines that stands out to me. A refocusing on the cost of the economy doesnt improve. The banks struggling with a cyclical industry. Revenue is down. They cut costs. When you have the fat, you take it out. What they need to do. Investment banking business seems to be off. Ipo business is down. Trading businesses arent there. Over the last 30 years, when that happens you cut costs. David the question i have is triggered by jonathans question, he called it cyclical. If youre Lloyd Blankfein is the cyclical or a longerterm given what we have been through . Do you cut costs or consider a fundamental change in strategy . Ray it is a longterm cyclical situation. You look at the regulatory environment, the post financial have aworld you generational change taking place. We are almost 10 years since the financial crisis. Here we are, 8 years, close to a decade. This sentiment is like it was yesterday. You have to get through, you are probably only halfway through. We call it post Financial Stress syndrome. Lisa do you think Goldman Sachs should go the route of Morgan Stanley which said the pool of revenue overall for trading has shrugged dramatically. Has shrunk dramatically. We will cut across the board. You think Goldman Sachs is headed in the same direction . Ray to a lesser degree that some of the other franchises. Lot of core businesses. The fact that the industry is shrinking and of the european banks are completely exiting, for leaves a bigger pie those that remain. Goldman has a stronger position to take their share of the smaller pie. You see a differentiation from the banks and which niches they want to go after. Jon the profit outlook on projections of weaker spending. A difficult one to answer, but there are companies you would look at two get a grip on what was happening in the world. And sectors do you look at to see what is happening with Global Growth . Ray i think Global Growth, it is in the same bucket. It is slow and sluggish across the board. We have seen that in the u. S. Since the financial crisis, growing at 1. 5 to 2 . The rest of the world struggling to get to that level, with the exception of china, which is a different story in the magnitude of their slowdown. Everyone has to adjust to the capacity in the system and a generally sluggish growth outlook. David another way to look at it is the commodity story, dealing with agriculture. It is a bayer issue with monsanto. Consent are commodities driving fundamentals within business in the downturn . Ray we had the commodity super cycle. It is deflated. We are going through a bottoming out phase in commodity prices. You will now build a base and slowly start to see gradual improvement. Dont look for the spike or the hockey stick. It will be a gradual move higher. Not dissimilar to oil, which is going through the same phase of bottoming out. We have had a bounceback. Trade toll struggle to much higher. People talk about 60 as being l. E top on oi when we were in the 30s, everyone thought we were going into the teens. Whether it is iron ore or commodities, they are going through a base building. The bases can last for a long time. David those are the stories that matter to markets. Searchers are looking for the missing egyptair and have clues. Wreckage from the airplane and passengers belongings have been recovered. They have recovered luggage and body parts in the mediterranean 180 miles off the coast of alexandria. The light was flying from paris to cairo when it vanish with 66 on board. They say it is more likely to be a terrorist attack than a mechanical failure. Underscoring differences that it has with european lenders over greece. Shoulds that greece not make payments until 2040. Supportedmp once restrictions on gun rights. Today the likely republican president ial nominee will address the National Rifle association convention. Gun enthusiasts will hear him speak in louisville, kentucky. He once criticized politicians that walk the nra line. Global news, 24hours a day, powered by our 2400 journalists, in more than 150 news bureaus around the world. Jon hedge fund outflows. Capital is taking on the volatility. Headlines from Goldman Sachs. 30 of shareholders voting to strip the shareholders. Chairing an independent proposal. That is coming up next on bloomberg. Jon good day, happy friday. A check on the markets, 15 minutes away from the open in new york city. Futures are firmer. Points. Res up 52 positive six. The ftse 100 up by 1. 4 . 4 percentage points. What a move on the yield curve. Shiftsen the curve higher after we get a hawkish tilt in the Federal Reserve minutes. The potential and prospect for a rate hike in the summer. June is live blackrock saying look out for july. Xerox ursula burns of came out with a statement saying shoe a become the ceo of the Document Technology company. Become thehe will ceo of the Document Technology company. We asked which company she would be likely to lead and she said it was too soon to say. She has decided to go with the Document Technology company, the company that is not a have the greatest Growth Potential for the future. Ton of volatility with market shares rebounding from a sixweek low. Futures are up pointing to the s p 500 trimming its weekly drop. Ray nolte of skybRidge Capital has shifted his allocations due to the current market volatility. Around what shifted you have been doing, and what do you make out of this turmoil . Ray there is a lot to talk about. We really started in the Fourth Quarter shifting out of eventdriven and activist isking ther portfolio into q1. We probably turned over 45 of the portfolio in that sixmonth period, a significant move. Of theix months, 45 portfolio. Was it a complete equity portfolio . Ray no. But we had event oriented strategies. Most of that we have taken off of the table. We have left a little in europe where some still look opportunistic. And a small piece in the u. S. Jon what are they . Mergers. Will see more you will see takeover activity taking place. They are not as crowded in trades as the u. S. Jon are you looking for a specific sector where you will get consolidation . We have been talking about banks forever, in the likes of italy. Ray i think it is a way off. People are concerned about the financials. Shore up their Balance Sheets. I think you are starting to see that. They relate to the table where the u. S. Banks were very quick after the crisis to recapitalize and we have stronger banks here. Lisa river to put that money into quest where did you put that money into . You saw a significant spread widening. We shifted to cash flow generative strategies. They throw off cash flow every month. You do not have to have a market to makeeasement money. The passage of time allows you to make money. If you have spread compression you can do even better. Some of that was a sympathy to the widening of corporate high yields. Investment grade and highyield junk bond markets, which was driven by the weakness in energy and energyrelated companies that were big issuers in those markets. It has build over into the clo market, structured credit market all of those widened dramatically. We focused on moving into those assets, which we believe were technically sold off, but still have underlying fundamentals as long as the u. S. Economy does not go into recession. We are not looking for the u. S. To go into recession. We are expecting slow bounce along the bottom growth. Call. Next, the big no rate hikes this year or next year. Details next on bloomberg. David we want to followup on breaking news about xerox. Yours will burns has officially said she will take over as chair of one half of the company. The Document Technology company. The other will be a business processing outsourcing company. The Document Technology company will have 11 billion in revenue from day one. Mrs. Burns says there is an ongoing search for leadership of her company. Market, more on that story as the market opens. Risk on risk off. Mark and currencies are moving with stocks and commodities. Paribas in north america joins us now. Ray nolte still with us. , they arep sterling behaving more like an emerging market currency. Risk on risk off theme. How do you read between the lines . I think it will be a choppy summer. The fed is trying to push us toward pricing more tightening risk over the summer and trying to see how the risk environment response. You will have a push and pull from the fed making a signal and the market pushing back by demonstrating volatility and stress. Jon 2018 for the next Interest Rate hike for the fed. How nervous are the economists at bnp . The comments were clear that he wants more tightening over the summer. It was also clear that financial conditions are important for the fed and data dependent. You have to have a view on how the market can tolerate pricing and a view on economics. We think it will be difficult for the fed to pull the trigger. How is the view for bnp paribas that the fed will not hike rates until 2018 . That means the fed has no credibility. Clear they are responding to data and conditions. If the conditions are not right, it is difficult to pull the trigger. Later in the year, the data and growth will be below trend, less inflation pickup, and it will be obvious they are on hold. Jon we will talk about the feedback loop. Everyone i speak to, in london as well, an equity investor, fx strategist, someone in the bond market, there is agreement the biggest feedback loop is the fx market. You agree . I think that is part of the third mandate the fed has. Looking at global strengths and of Global Markets. The interrelationships. They are taking that into consideration. I think they should go another round or two. We are closer to the next recession, not that we think that will happen in the next 12 months to 18 months. You need to get inflation modestly higher so they have the tool in their toolbox so they can cut. If they could build back to a 1 fund rate, they would love to do that. The market is not happy with that idea. If we get one or two rate cuts from now to the end of the year, they would be thrilled. Im not sure they will. Can do you think the fed move if the markets tell them no . They want to. The conditions we saw in february would be difficult to move. The market coming under pressure. They can look past the equity market saying it has been at high level and has corrected. I can look past the dollar and focus on broader indices, but it becomes difficult for them to move. David who was driving the bus . We have gone from a world with thousands of Market Participants think will they happen to a handful of central bankers . How much risk to we have that they might read the data wrong . Instead of drawing on tens of thousands . That is a risk they take. Never set in stone. They can stop, speed up, or reverse. That is the only thing we have going for us, that they can react to getting something wrong. Jon bnp paribas, the head of strategy in north america. Minutes. T is open in 4 the futures are firmer. We could finish on a high. Show me tonew artist. Ah, ha ha. Show me top male artist. My whole belieber fan group. Its not a competition, but if it was i won. Xfinity x1 lets you access the greatest library of Billboard Music awards moments, simply by using your voice. The Billboard Music awards, live sunday may 22nd, 8 5 pacific, only on abc. Go. This is bloomberg minutes away from the opening bell. Futures are positive. 6p 500 futures positive points. We are poised for a fourth straight week of losses on the s p 500. That is the volatile road to nowhere, as you hear the opening bell. High about 52 weeks ago. We really have gone nowhere. The yen is going into the g7. A weaker japanese yen. Thosech happening for complaining in japan, who would like to intervene for a weaker currency. About 20 five seconds into it. Lets get to julie. Julie we are about one year from our records we reached for the dow and the s p. The dow, we are about 4. 5 below that level. With the dow, the s p, and the nasdaq all in the green, the nasdaq leading the gains. Losses are accelerating since premarket trading. John deere cut its forecast for its first full year. Much asll not fall as was anticipated. That does not appear to be helping the stock, nor does the fact that we have seen a rebound in grain prices. We are looking at candor morgan, the pipeline operator. The company is trying to triple the pipeline with pacific markets. It got approval from two canadian regulators. It only rests to Prime Minister Justin Trudeau to approve the plan. Shares are up by about 1 . It looks like this is getting closer to that approval. In retail, we heard from foot locker and ross. Them disappointing in terms of what analysts had been anticipating. Comparable sales missing estimates. Foot locker is still confident sales in 2016 will gain, but investors do not appear reassured. Much, julie. Ou so we are going to focus on a stock that has performed the worst this year that is Goldman Sachs. It has reaffirmed its commitment to its trading business. How long can it stick with this strategy . For more, we turn to sky bridge moore, who joins us from london. Today is the Goldman Sachs shareholders meeting. Clearly, this is a concern. Up the factought committedare staying even though revenues fall . Mike you are certainly hearing that from some investors. It is interesting to note that the pay plan for Goldman Sachs, it was 66 of the vote approval, which is much lower than in past years, even though they cut the pay awards for top executives for 2016. You are starting to see a little bit more pressure from shareholders. That probably goes to your point. Lisa there was a headline out of the meeting that lloyd blank committed even though revenues fall . Mike you are certainly hearing that from some investors. Fine says they may refocus on cost if the economy does not approve improve. Is this a concession that Goldman Sachs may make deeper cuts if the tech shop does not improve . I think he has giving himself some flexibility with that statement. They have already cut more than is typical for them in this type of year. They have cut 10 of the trading staff. I think you are starting to see them make some concessions that trading is not going to bounce back as quickly. Analysts are expecting a rough Second Quarter, as well. Starting to be some acknowledgment that they have to keep returns high during this period. David w. as i look at Goldman Sachs and think back about the last turning round, the banks that tended to do better where the wells fargos and jpmorgans that have standard Consumer Banking operations. Goldman sachs does not have that part of the business. Ray i think that is where the regulators are trying to push the banks. To get back into more traditional banking businesses and out of the risk tanking businesses risk taking businesses. I was was struck lisa struck that there was a study that fixed income trading will come down by 14 . What is behind this . Is there any chance this could rebound . Ray i think some of that is driven by technology. Whether it is robo trading or online trading, you are taking it away from the purview that used to be the big banks and the Investment Banking firms and you are shifting it to the exchanges and onto these technology platforms. Jon investors cannot be happy. The question we just asked wells fargo is trading at 1. 5 times. Goldman sachs is trading at 0. 8. Our investors hitting back . What is going on . Years,ver the last few you have seen investors not give strong valuation to trading biz says businesses. Ein would argue that they are not giving them the same business. While they are not as big, they are steadier. Investors have not really bought into that theory. They continued to discount the trading businesses and put a higher valuation on the consumer businesses that have a steady your revenue stream. David w. michael, you reported on Goldman Sachs and Lloyd Blankfein several times. Is there anything that will cause them to go back to his Management Team to rethink some of this . Mike i dont think so. He is pretty confident in his strategy of what he likes to refer to as maintaining some option alley optionality. If markets rebound, he wants to be able to jump onto that. While the stock has not done well, they have maintained returns better than their competitors. That has given them a little more flexibility. You may start to see that change. You have seen some acknowledgment with the cost cutting. David w. thank you so much. Bloombergs michael moore. Ray mcnulty, what is the future for a bank such as Goldman Sachs . Ray i think goldman will figure it out. They have been a real around for a really long time and i think they will do just fine. David w. thanks very much. E. At is rate nolte ray nolt a debt deal ahead for cashstrapped puerto rico. David w. this is bloomberg go. Im david westin. Up vonnie this is bloomberg go. Deere has cut its fullyear forecast. Industrywideys sales may be done as much as 20 this year. Xerox says that ceo ursula burns will become chairman of the Document Technology company when the company is split in two. Xerox is on track to complete the separation by the end of the year. Birdss of the angry the angry birds movie will revive interest in the games. They have been downloaded more than 3 billion times. Interest has been waning. Jon thanks a lot. I want to cross over to abigail doolittle. Movers to have a look at. Abigail thanks so much, jon. A better than expected outlook being driven as new orders surge Ceo Gary Dickerson of Applied Materials thinks the trend is likely to continue. Faring less well are the shares of yahoo the wall street journal is reporting that bids for the company are likely to come in 4ow the expected range of million 8 million. Verizon and others may ceo garyd bid 2 billion 3 billion, only a fraction of what Ceo Marissa Mayer initially wanted. We do have the stock back below the moving average. This could be some more mean some more nearterm weakness is ahead for shares of yahoo david w. House Republicans and democrats have reached a deal on 70 billion of debt. It calls for a control board to manage the financial obligations. Kate smith joins us now. We have been waiting for this for quite some time. Take us through exactly what this deal will do. Kate one of the most important things is that it sets up the financial control board. It is something that politicians have been hotcold about. Rico actually have the wherewithal to be able to handle this . I think we are hearing loudly, no, they dont. David w. how many people on the board . Who appoints them . About hows unclear money people will be on the board, but it will be up to the people in congress to determine who has the expertise to get that experience in dealing with Public Finance distress, which is a very unusual area of expertise. Lisa walk us through where we are in this bill. It did get some support from republicans. It did also get support from the Obama Administration. But it is not a done deal. Kate it has to pass the house. And that is not a given. For puerto rico and a lot of other situations in d. C. Some of the critics of the bill do bring up very important problems. One that i thought was particularly interesting was representative jordan of ohio, part of the House Freedom caucus he did bring up a really important point. He is concerned that this will push pensioners ahead of bondholders, which is legal precedent we have seen in detroit. Educated some very concerns surrounding the bill. Certainly not a done deal. David w. the bill has the support of paul ryan and Republican Leadership in the house. Kate that is correct. That has not happened before. This is really what makes this particular bill a milestone. Lisa your concern you brought up is very interesting. What is more interesting, possibly, is that the general Obligation Bonds are rising. Why do creditors seem to be optimistic . Kate i think it is just any movement. At this point in time, just to see that d. C. Can come to a deal at this point is such an improvement on what we have seen i have been following puerto rico for five years now. Nothing fundamentally has changed on the island. , how do politicians want to deal with it, how to investors want to deal with it . It is a clear signal to the bond market that people are willing to compromise. David w. what is the time horizon if it is passed . It untilwould not see midsummer july at the earliest. David w. is that coincidental . When is the next big payment due . Kate it is july 1. [laughter] david w. what a coincidence. [laughter] kate it is like they did their homework. avid w. some of the creditors representatives have been talking about this in favor of it. Is the governor of puerto rico . Kate unclear at this point. All Public Finance becomes so politicized. The governor of puerto rico has become very hedged as to who he wants to support at what time. He does not know what he wants to do with his career and a couple of years. He is trying to figure out how the island feels about the control board. David w. that is bloombergs kate smith. Jon coming up, it is Bloomberg Markets with mark barton. What is on the show . Mark the chief Market Strategist at jones trading is going to answer the question we have had a year since the s p 500 reached that record high does that signal a bear market or are we about to enter a period of consolidation . The chief executive of richard ellis, we are going to look at the commercial market, the commercial property market, with her. I will be asking her whether International Property investors are put off at head of the u. K. Referendum. We will also be speaking to the of bernard arnaud. He is the man behind lvmh. His son antwaun will speak to us willsively antoine speak to us exclusively. Some think he is headed for the top job. You are already there. You are toorton, much. You are too much. What is the story you are seeing, mark . Mark shares are down. Look at burberry. Look at the other luxury retailers. Look at lvmh. It is the slowdown in asian spending. It is a luxurywide phenomenon. Burberry does not have enough japanese stores. Many of the chinese shopping in hong kong and moved to japan. Wristwatches, Leather Goods it is an industrywide phenomenon that is not getting any better. We will be asking mr. Arnaud what he is going to try to do to turn it around. Jon im looking forward to that. Ugly, ugly, ugly. Lets get a check on the session. About 18 minutes into it. Stocks open higher. We are higher on the year, too. The dow is up by 76 points. Over in london, heading for a day of gains. Up 1. 5 . We will get you the other board. The fx market ahead of the g7. What a move in the bond market. We will talk about it next. Resetting, recalibrating expectations. The Federal Reserve may spring june. Blackrock says july. Jon good day to you from the heart of new york city. What are we . 21 minutes into the session. Markets opened a little bit higher. We are up over 100 points on the dow. In europe, it is a similar bullish picture. Dax is up by over one full percentage point. David w. it is now time for bloomberg trends. The top stories the terminal readers have been reading. Go to read and press go. Deutsche bank is back in the news. Lisa this just shows that the 20082009 period has not ended for these banks. Deutsche bank may punish staff for personal trades with the firm that have to do with differences between credit indexes and the underlying debt they referenced. This goes back to an era of a lot of loose and fast training trading. How much can banks get back money that some of their employees used to have . How much have they gone back into those dates and have yet to dig up . David w. it also raises for john cryan the legal and compliance issues. He cant get these behind him. To get these seem things behind him, but what i thought was critical is that he has the investor backing. 98. 5 backing in the vote. That is absolutely critical. That is what toppled anshu jain last year. Investors were not behind him at all. If you have a strategy, that is one thing. If you have lost half the market value of the company, that is another. If you want to get a strategy through, you need that backing. David w. good for him. Mine had to do with cars. It turns out that a third of people trading in their cars, the car is worth less than is owed on the loan. Which is a big issue. This is a big issue for car companies. It affects demand for new cars. Lisa this is fascinating because a lot of people say, car loans are better than mortgages because people will pay them off the four they pay off their mortgage debt or other debt. They may have less recourse to resell their new car. David w. in order to get people to buy the cars, they have stretched out the payments for a longer period of time. Jon it is a recalibration of expectations. The fed has something to prove. The minutes did just that. What i wont say is that there was a radical reaction in the markets. Yes, the curve recalibrated to some extent. Im not looking at a market that is rattled. David w. then you wonder whether there is a feedback loop. Maybe we can go up. Whereyou have bnp paribas their house view is, we dont believe you, whatever you say, fed. The market is dubious. Jon im going to guess that there are some economists at bnp paribas staying up very late. They are going to stick with it, from what they said today. Coming up, a look at what is later on today. We will get a read on the housing market. Existing home sales for april will be out. Faber will join betty liu and mark barton for an exclusive interview later on. That does it for bloomberg go. We are 20 minutes into the session. We close at these levels, we will not be in the red. Points. Is up by 106 a really strong session in london. Up 1. 5 . Copper is on the front foot, as well. Switch out the board quickly. I will get to the other asset classes. This is how we look on the bond market. 1047. Yen at 1 westin, im jonathan ferro. Thank you, lisa. Bloomberg markets is next. From new york, i am shery ahn in for betty liu. Matt mark i am mark barton. This is Bloomberg Markets on bloomberg television. We will take you from new york to london to washington in the next hour. For 30 minutes into the trading day into new york. Stocks are rebounding as investors shrugged off concerns that a potential fed rate hike could weigh in on the u. S. Recovery. Well impact, how it the London Real Estate market. A behind the scenes look at the luxury shoemaker early. We wont hear from antoine arnault. From antoinear arnault
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