A half percent. Another thing i am watching as the rnc tax policy. Toer this hour, we are going look at taxes and how they play into wealth inequality. We are going to do that with Dorothy Brown november university. First, economic data. Confidence, 84. 8, the market was looking for 93. Ist is a week number that a weak number. This tell us something about the stimulus debate, the employment market in terms of the present situation. That has weakened significantly from the 94. 2. The expectation number has weakened as well from 91. 5. We have an 85. 2 this time around. Newhome sales continuing to drive onward. The Housing Market showing no respite. Look at the lumber prices. Sales, 901,000. That is a 13. 9 permit very strong number. Consumer may be starting to show signs of weakness and concern. Lets talk about the market today. We have already indicated what we are seeing is stocks, global stocks continuing to push on very strongly. What is the excuse . U. S. Chinese officials holding a routine call, both indicating they are satisfied with progress under the phase i trade deal. Who knows between now and the trade deal . Sharon steve chiavarone, yesterday it was the vaccine. Who knows ultimately what is driving things. What is your sense of where we are with this momentum we have got going on right now . Seems to be a lot of confusion in the marketplace with why the market has done well. I think more cynically, there are folks who resent the move which i do not understand. The big story is that the economy has exited on recession. We are entering recovery. That is why you see stock prices moving higher. That is normally the case. Daytoday, it may be one headline or another that is parking a temporary move, but the big push higher is that we are entering recovery which means higher earnings and better days ahead. I think that is what the market is reflecting. Kailey this market is very top heavy. Ofs than 60 of the members the s p 500 index are even though the index keeps pushing record high. Does that narrowness concern you . You are ing on where the business cycle. If we were at the end of the cycle and every company was at a 52week high and there were only two or three Companies Left performing well, that would worry you. Cycle,beginning of the exiting recession, entering recovery, those companies have done best are leading the way, that is dry powder. That suggests there are a host of names that will start to benefit from a pickup in Economic Activity and we will see their earnings go higher. The context matters. If it is the beginning of the cycle, not as worrisome as the end. Cell techcks stocks and by cyclicals. Do i actually sell tech stocks . If i have got them, chances are i am overweight. Do i want to rebalance . We made a move at federated andes to reduce our value go underweight for the first time in quite a while. This was a month ago. It is not that tech stocks are going to roll over and die, they are doing well because they grew their earnings 28 a quarter when the world was ending. As we start to price in the better growth, the improvement in the economy, we think value names are overly beat up. Be careful, not all will do well. You have to separate those companies who are going to survive from those who are going to lag. In the value space, you are going to see them start to get credit for an economy improving. How andwe have seen when are we going to get one that is sustained . Any time are making a value ,all given all the head takes it is a lower conviction call. The other way you can play this is small caps. Small caps are also cyclical, like value, but they benefit from lower rates because half of their financing comes from banks. Inflationo average targeting, which it looks like the fed may, that would benefit small caps. In the first year following a recession bottom, small caps tend to outperform large caps by 25 . They have pegged to the s p by 23 basis points. We think that is a way of playing a similar trend, but as a way that is more than just a value call. Guy if the economy is recovering and it comes back strongly, will beget inflation . Will we get inflation . If yields go higher, what does that mean for stocks . Inflation is not an independent organism, it is the product of population growth. If there are more people who want to tomorrow commit will go up. And innovation. If my land is a cornfield tomorrow commit will be worth more tomorrow. Exist the worlds economy in regions with negative population growth. Thes exhuming living inthe world is a structurally deflationary environment. That is the main reason you have a cap on inflation. Which got 10 of the population out of work. That is not a recipe for inflation. All the money that has been spent is not stimulus. We made it illegal for companies to do business, then replaced some fraction of the revenue they lost. That is not stimulus, that is bridge financing to prevent massive illiquidity and insolvency. We think the fed is right that you need to guard against deflation. Guy you were kailey you brought up stimulus, former vice chair and Jared Bernstein wrote an oped saying the fed has largely done its job. Congress cant expect the fed to keep everything together on its own, saying monetary power sets the table. Congress fiscal dollars are going to be what brings in the diners. If we dont next get robust stimulus . I think it is at risk of slowing. By and large, congress and the Federal Reserve have done a good job. 7. 5 on ae up yeartoyear basis. Mortgage delinquencies are up,loor foreclosures are down and the 200 bankruptcies we saw on the Second Quarter are only one fourth of what we were seeing in 2008. They have done a good job bridging it. It would be unwise to fumble the ball in the red zone. There is probably one more package needed to get us toward a vaccine and allow this recovery to solidify. It is important that we do it. More than likely, we will. There is a posturing game. I expect we will get something done, but there is risk to the consumer as you saw in the Consumer Confidence number, if we dont get the last bill over the finish line. I am hopeful congress will get their act together. Kailey your football puns are not lost on me. [laughter]. Thank you so much for your insight. , exxon, pfizer, we take a look at the dows biggest reshuffling in years. This is bloomberg. Kailey live from new york, i am kailey leinz. Alix steel is off. Reshuffling ofst the dow in seven years. Oversees the that Dow Jones Industrial average has replaced exxon and raytheon with honeywell. Another show of dominance for u. S. Tech. , the longeston living member of the dow. This was the worlds biggest company, talk about a fall from grace. 1928 is when exxon joined the dow industrial. It is a sign of the times when you have the clouds replacing energy. The newest members of the dow all popped at the open gap in higher. Which is making its return to the dow after getting dropped 12 years ago. Companies getting the boot are declining. There are about 20 billion in index funds. That is a drop in the bucket compared to the 4. 6 trillion dollars that tracks the s p. We know the dow has trail because it is not as tech heavy as the s p or nasdaq. That also cant include amazon or alphabet which are part of our economy because their share prices above 1000. This comes about because apple announced plans to split stock. We talked about how stock split does not affect the value, just the price. The dow is an oddball, it is price weighted, not market cap waited. When this apple split takes effect friday, the representation of tech in the dow gets cut. This is a remedy to that. Apple was the single most influential contributor to the dow so far this year. Almost three times as influential as home depot. Microsoft adding 392 points to the dow this year. My producer looked up the last change to the dow. It was walgreens that was added in june 2018, replacing general electric. At has not been a big hit, down 40 . Kailey back to you. Guy thank you very much. The conversation and talk about what matters. More on the reshuffle, Howard Silverblatt joins us now. Ctia. Howard, why does this matter . The changes are significant. Apple andghting of the impact on technology. The overall take is the change in representation in the dow. From 27 y will go down to 23 . Health care will go up. That will change the performance. Over time, the dow and s p very well. Shortterm, not at all. As you mentioned, one is market waited the other is price weigh ted. The apple changes significant. The apple change in itself would have taken down to 20 . Significantly under. [indiscernible] apple, because of the split [indiscernible][indiscernible] [indiscernible] if it goes down, you are only going to take one quarter of the hit. So, you reallocate and lock in some product. The issues we put in, the substitutions, we believe will influence what the higher end of the market is. Of thisobviously, a lot is about balancing more toward technology with the apple stock split. What can we glean from this about your attitude toward embracing Technology Going forward . [indiscernible] this is market weighted. [indiscernible] the makeup is going to be different, but the apple contribution, plus or minus, will be that will be a major force in their. [indiscernible] guy what do investors gain from benchmarking through the s p rather than Something Else . The s p is a more energy t into technology is up significantly. Index [indiscernible] we have emulated the markets. What would be the advantage of following the dow . I am trying to understand why this is important. This feels like it is creating a lot of headlines, but from an investment point of view it has no bearing. Most people track the s p, you laid out some reasons why. Why what i want to track the dow . Why is it useful to me as an investor to pay any attention to the dow . Is easyoubt itself enough to understand. [indiscernible] youve got to adjust for index shares, the dow was very recognizable and therefore an accepted benchmark on the broad population. [indiscernible] there is a very big social element to that. As far as money against the dow, that is very small compared to the 500. The 500 is broader. [indiscernible] manage iflly you want. [indiscernible] from a money managing perspective, the s p 500 index, the dow has interested is broadly accepted because it is so widely understood. Kailey i think what you guys might be trying to get out was the dow index is arbitrary. It is not a like the smt the s p 500. For you, youre making decisions with guidelines. Can you give us insight as to how those decisions are made . [indiscernible] youve got to meet all of those criteria to get into the dow. ,ou have to be a little quicker you have to deal with the profitability of indirectly, the dow does have all of that methodology. Once you get to the actual selection, it is different. Emulateuse you the actual market itself, but the leading issues, the recognizable ones, the ones that are setting the trend and are companiesen as the that are running the country. [indiscernible] there is slightly different intent. [indiscernible] 125 years old. Adding of companies was the easy way to do it. When we launched the s p 500 ex in 1957, it you had 500 issues to add up. [indiscernible] adding machines back then [indiscernible] the ability to use Current Technology in 1896 did not exist. Kailey thank you so much. Howard silverblatt, thank you for joining us. This is bloomberg. The bloombergfor business flash, a look at the biggest stories right now. Best buy is flowing after Quarterly Sales soared. The Electronics Chain benefited from americans splurging on household upgrades. The company says the boosted god from reopening stores wont last. Otis in aeed to buy deal valued at 5 billion. 4. 4 billion will be paid in cash. The british firm was funded in part through a issue. The software is based in california. What could be a recordbreaking ico in hong kong and shanghai. [indiscernible] guy thanks indeed. It is fascinating. They could potentially go for a 10 listing. If they go for more, that could put them beyond what saudi are an ultimately ended up raising. A hongcided to go for kong listing over a shanghai listing. I wouldve thought three or four years ago, this would be something that would have come to north america. Kailey i thought the same. It is clear that with all the scrutiny chinese listed firms are under from the Trump Administration its like yeah, maybe we do not want to get into that. Guy it is going to be amazing to ultimately see how much money they raise. Think it is worth remembering just how much Chinese Tech Companies have come up and how much of a driver they are. Brown, emoryrothy university. We talk taxes, the white house, the rnc. This is bloomberg. Businesses are starting to bounce back. But what if you could do better than that . Like adapt. Discover. Deliver. In new ways. To new customers. What if you could come back stronger . Faster. Better. At comcast business, we want to help you not just bounce back. But bounce forward. Thats why were helping you stay ahead and adapt with a network you can count on, 24 7 support and Flexible Solutions that work wherever you are. Call or go online today. Live from london, i am guy johnson. Kailey leinz in new york. This is bloomberg markets. Day two of the rnc, the Republican National convention. Bloombergs Kevin Cirilli spoke to the chair of the rnc. Here is what she had to say on the message the party wanted to drive home. This isverall theme is the greatest country on earth. We love this country and we went to have the opportunity and freedoms that we enjoy as americans available forever, and that is at risk if we choose a joe biden or a kamla harris. Us, Kevin Cirilli, bloombergs washington correspondent. Is that the message being put across. Kevin it is. I just spoke with donald trump, jr. They feel on the issue of law and order, as well as school choice, that that is going to help them in the swing districts and the suburbs. That is going to be incredibly important if republicans want to build back the coalition. Kailey all right. Thank you. Tune into our coverage of the Republican National convention tonight at 9 00 p. M. Eastern in new york. Speakerst, several portrayed President Trumps tax plan is something that will benefit the middle class. Joining us is someone who has studied these plans extensively, Dorothy Brown of emory university. Thank you for joining us. Dorothy, i want to start with this narrative that is coming out of the rnc this week. Is there any truth . Professor brown absolutely not. For example, President Trump said, if elected, he wants a tax cut for Capital Gains, a 5 thecut, which basically, richest americans are the ones that predominantly own stock and take advantage of the tax benefit. Planas joe bidens tax wants to tax Capital Gains income the same as wages, but only if you make more than 1 million. There are lots of people with less than a Million Dollars of income who own stocks and get a tax cut. Kailey what is the right solution, then, as far as taxation goes, to make a dent in this wealth gap . Professor brown it would go back to the reagan tax reform of 1986, where wages were taxed at the same rate as gains from stock. That is the only right answer. There is absolutely no justification for giving a special break to capital that we do not give to labor. Guy how do you tax dividends in that scenario . Professor brown well, before the bush tax cuts, the dividends were taxed the same as a savings a tax break w gave that was absolutely unheard of in unprecedented, and taxed dividends the same way as Capital Gains. Kailey lets talk about bidens policies. You alluded to only raising taxes for people that make more than 1 million. What should that threshold actually be . Professor brown we go back to the obama tax plan, which is 250,000 or higher. Would say lets talk about what an equitable tax system will look like, but if you want to talk cut offs, the obama tax plan was to under 50,000 and higher. Was 250,000 and higher. Kailey real estate is another area where we have seen inequality pop up. What type of taxation would close the divide in that asset class . Professor brown you are correct. , weownership in america have always had a higher percentage of white americans than black and latino homeowners. One would be to increase the homeownership rate, which has nothing to do with taxes. Economists agree that tax breaks do not encourage anybody to buy a home. At the margin, it could encourage you to buy a more expensive home, but it does not encourage you to buy a home. What is really needed would be down payment assistance. If you want to increase black and latino homeownership, you would have proposals, a plan, that deals with down payment assistance. Bit ack up a little guy lets back up a little bit. Carryon. Professor brown you could also taxes toabout limiting firsttime buyers. The stock market, Capital Gains, etc. , what has a bigger impact on inequality, the tax code, or the feds decision to support the stock market . Professor brown you know, i would not pick those two against each other. Pitt those two against each other. Dealant to do with with inequality, you do not pick the tax code or the fed. You do it all. Stock market assistance will have benefits to people who own stock. Whereas tax policy does not impact retirement accounts because they are not subject to the preferential rate. It is not either or. It is how can we get federal tax policy, the federal government, trying to decrease this inequality. Kailey lets go beyond taxes. What about tax credits . We know from the fcic that between blacks and whites, there and lot less credit usage the black community. How do we go about fixing that . Professor brown it would start. Ith the banks so, the problem in my view, and we have seen this in study after study, that high income black americans get targeted for subprime mortgages in a way that low income white americans do not. To me, it is a problem of banking. How do we get the Banking Syste