Transcripts For BLOOMBERG Bloomberg Daybreak Americas 201703

BLOOMBERG Bloomberg Daybreak Americas March 28, 2017

Has not had much luck with Health Reform i doubt they are talking about moving onto tax policy but there is the deregulatory portion of the president s agenda that could go ahead without congress. Today, you will be signing an executive order to roll back obama era energy orders. Here is kevin cirilli. First and foremost, President Trump is going to completely reverse the former administrations Environmental Protection policies. Has approved he several pipelines that he says will create job growth. However, he also has upset the environmentalists. Al of that said, it has been busy week on capitol hill as the investigation into the potential russia meddling into the u. S. Election continues, particularly in the senate. Officials are going to testify. David as much as we would like the president to be focused on tax reform, it seems like he is distracted by russia repeatedly. The honesty tax reform issues, there is another deadline looming. Markets may have to react to that. Tell us about that deadline . That april 28 is the date the lawmakers have to pass some kind of government funding bill in order to avert a partial government shutdown. Steven mnuchin and has said publicly that they are hoping there will not be too much political theater surrounding that deadline. At the bottom line is this. There are so many divided republicans right now on a host of policy issues and the tea party particularly the house feeling golden after last week they were able to stall the development on the health care policy. So it would be devastating to republicans and the republican administration, should there be any type of drama, so to say, surrounding a partial government shutdown. David is there any real prospect that the Republican Congress could shut down a republican government . That sounds unthinkable. Kevin it sounds unthinkable but that is the washington we are living in. You would also think that after campaigning for seven years to repeal the Affordable Care act that they would not be able to do it. Who knows . Has been an exciting time in washington, to say the least. David thank you. This is nothing to do with politics, remember . Joining us now is Isaac Boltansky. And here with us for the full hour is Mohamed El Erian. Lets start with the market reaction. A reaction that was dramatic. Futures down over 100 on the dow and we came back rapidly. Mohamed markets have been conditioned to buy. I was listening this morning to someone who used the phrase cash trapped on the sidelines. You normally think of cash being trapped in the markets but now it is trapped on the sidelines. Cash engages. David in the longer term, what are the real risks now of the Trump Administrations policies getting badly off track . D. C. Does two things really well nothing or overreact. And we are in a place right now where the markets are intensely focused on the shutdown date that kevin mentioned. If a 28 will be telling, not just because of the government shutdown, but also because it is ofng to be a telltale sign how this government is going to run for the next two years. And i think investors are going to be incredibly skeptical, regarding tax reform or Infrastructure Spending, or really anything else, if the Republican Party cant keep the lights on past april 28. David what is the chance of the markets are overreacting, once again, on the downside . Or perhaps, the upside after the election . Mohamed we have hardly had any reaction. Not even 2 down on the dow. Way around. Other that we have priced in so many things happening on the progrowth legislation, pricing in the reflation trade, and we need to see things happening. Is morning, there are indications that the Trump Administration wants to move quickly with infrastructure and tax reform. And the big question we have heard is whether congress will come along. Jonathan another narrative out there and head of all of this is that maybe some of the optimism in the price is divorced from anything that will happen in d. C. Do you buy that story . That a lot of the price doesnt have much to do with d. C. So it doesnt matter whether they get the agenda through or not . Mohamed i think it does matter if you look at where the valuations are. We need higher growth and inflation and corporate earnings, otherwise we cannot validate what the market has priced in. Policy does matter. But also, markets have been for aed from reality while. There is so much liquidity in the system that people are being pushed into taking risks rather than being pulled into taking risks. To risk you going events like the French Election later this year, and then the italian one on the agenda that could come as well. We have been conditioned by those events over the next 12 months to not take protection out anymore because you keep buying. How do those kinds of things play out . Think of a sand hill where each additional grain of sand doesnt change the shape until one does. And it is difficult to figure out which one that will be. Political risk is mounting and we have policy risk. Central banks are stepping back on their support for the market so it will be interesting to see what the ecb does. I think right now, focus on the lagging sectors that is why europe is doing better in the u. S. And that is why the nasdaq is doing better than the dow. The lagging sectors have paid off for investors. Jonathan that is the market story and i want to talk to you about politics. What is apparent over the weekend events and since friday if there is a significant divide in the Republican Party. Talk to me about the divide in the white house . The nationalistic tones of the Stephen Bannons and liberal tones of gary cohn. How do they reconcile their to have a plan money to get through congress . The president s leadership style, historically, has been somewhat chaotic. And it set up his advisers, in order to fight with one another. And i think that out of that chaotic destruction that we have seen in the headlines, were decideo have to really which side will win. And whether it is the naturalistic side or the Goldman Sachs side my bed, personally, is on the Goldman Sachs side influencing the tax reform debate. It is in the houses hand over tax reform but i believe that the white house is going to take a far more active role in trying to craft an overall package that they think can get through, even with moderate support. David there is a significant difference. Does the president need to decide between going to the the Freedom Caucus or going to the democrats, to try to bring them in, particularly as you come to the things like the resolution of april 28 . Isaac the mass is tough. Freedomit is the 3540 caucus votes or the moderate democrats that everyone is talking about in the house but there are not really moderate democrats in the house. There are only 12 Democratic House members who represent districts that President Trump won. So im left with the belief that there really isnt a whole lot of leeway for the president to move to his left. Furthermore, i am concerned that paul ryan, after the past week, doesnt have what is necessary to navigate the upcoming funding deadline. He is facing barrages from the tea party on his right and the herbal tea party on his left. Mohamed if you look at the specifics that the markets are interested in it, if you look at how they will finance the tax cut and how much of it will be in a deficit and what happened the border adjustment tax where do you think they will come out on these issues . To resetthink we have our expectations for tax reform, overall. It will not be the broad reimagining that we saw in the house gop blueprint. Those 35 pages are still incredibly important, that ultimately, we have to believe that there will be a narrowing in terms of scale and scope. So we have advised our clients to expect tax reform to go through this year. It will pass in the house before the august recess. It will go to the senate and it will go to a committee by the end of the year. But i dont think the top corporate rate will be anywhere near the 20 that we have seen. We have been advising our clients anywhere from 20 2 8 . After the blackeye that the speaker got, it is difficult to have belief that anything else will come. , greatn Isaac Boltansky to have you with us. Mohamed el erian is sticking with us. One of the men you call if you want to know more is ian brenner. And on thursday will be joining the program as well. From new york city, a softer tone. This is bloomberg. David this is bloomberg. In his book the only game in town Mohamed El Erian look forward to the day when he market would be driven more by fiscal policy and many thought we had reached that day with donald trump. It now after the failure of the health care legislation, we are not so sure. And this week we hear from a slew of Federal Reserve members. Mohamed el erian is still with us and we are joined from madrid hadike mckee, who yesterday the exclusive interview with charles evans. To the extent that i gained i gained more confidence in the forget that i had, that would be a good toicator that i could go three. Two might be the number if there is more uncertainty or any modest concerns about whether or not we will get that and if things really take off, if we get continued strong growth with underlying inflation picking up, we could get for this year. Mike mckee is joining us from a dread. Nice and sunny . We are jealous. Mike yes, it is. He said, where should we go to do this interview and he said madrid. [laughter] david the interview sounded like he is paying attention to what is going on at the white on thend depending uncertainty there, it may well affect what the fed does this year in terms of a hike. Is that what you took away from the interview . Mike yes, absolutely. He had put some measure of stimulus into his forecast for 2017 and 2018. And that was one of the reasons you could justify three rate increases this year and next year. But he says now he thinks he might have been too aggressive. He movedrch meeting, the stimulus into 2018 and after obamacare, he thinks maybe it has to come down more. Which leaves she was where the economy is right now. With current Economic Conditions saying you could do it two more times this year. From a policy makers perspective, it is about keeping options open. From a market perspective, it could be interpreted as you know what, the fed is our best friend. They will be there and we will adapt. You think the right interpretation is . Mike i think you are right to a certain extent. It is in the way that then officials would put it. But he did Say Something interesting last night, and that as that 2 is not a ceiling, many of the markets interpret it as. We could go well over that for a little while and it wouldnt be a problem because inflation is so low now that it isnt like it was in the greenspan years will we were at 4 . So the fed may not be in such a hurry, hes adjusted, to raise rates. As it would have been 10 years ago, and that would have been interpretive positively by the market. From a so we will hear whole slew of fed officials today. What you think they will be telling us in terms of where they see the economy going and whether the dollar has allowed them to be somewhat more hopeful that they can normalize at the pace they signal . We are getting a lot of fed officials speaking but most of them are not talking about the economy. Robert kaplan in dallas is the best shot at that. And maybe jay powell. That they will be saying pretty much the same thing. Disagree about the second or third rate move this year. That will be data dependent, they will say. That all of them will continue to reemphasize the idea that they can be slow and gradual. You need to move rates up that you dont need to do it quickly. Jonathan you used the analogy is a friend and a lot of people lookingd it as a parent after the toddler. Always being there. Is beginningeserve to lead the market. And are not taking the parental tone towards Market Participants as if the market is a toddler. Will that continue in the coming months . At a time when peoples ambitions and optimism about fiscal stimulus coming from d. C. Ways a little bit . Will they continue to move . Mohamed my gut says yes. It continues to move. You want to go from following markets to leading markets. The only thing that would stop that would be a significant slowdown. We also have the ecb in a difficult situation because they are promised qe until the end of december but now there is reason to be less stimulative. So what will they do . Will they push on the excel a writer and the same time . It is a hard time for Central Banks. If you dont get the policy breakthrough in the united states. David in your book, i took it as warning as saying dependent on Central Banks. He needed the governments to step in. What is the danger here in that we may not make the transition after all . Mohamed if we do not make that transition, we will find out a few things. That Central Banks are less effective at repressing volatility and promoting growth. The political system will get more complicated. To askkets will have themselves does it make sense where valuations are, and even the economic and political background . The important thing is that the road we have been on for such a long time, the new normal, is coming to an end because it is being eaten up by its own contradictions. And the good news is that we pivot to recovery in growth and a boost in earnings but if not, we go the other way. David how long do we have . 60 days, a month, a year . Mohamed i think we have a couple of years. There is a lot of cash out there. This is a powerful notion that tells you what the mindset is that cash is trapped on the sidelines. As long as there is cash, it will limit the market reaction. But there will come a time when that no longer will be there. Jonathan Michael Mckee is in the dread, having a good time with charles evans. You know we will not let that drop. Mohamed el erian is staying with us. Tesla announcing a 5 passive stake. We are up by 3. 2 on the session. Of by over 2. 5 Percentage Points in a green market. Coming up, two more exclusive interviews this week. Wednesday, we speak to the boston said president and on friday, said president of st. Louis. This is bloomberg. Jonathan from new york city with the eyes of the political world on the city here london in the next 24 hours of the British Government gets set to trickle article 50 and trigger the process of exiting the european union. At onerning is unchanged to 5. 58. Credit suisse is saying capital budgets are Strong Enough to consider exchanges beyond thet ipo. Take a listen. , we were clear about that in february. It has really helped us. Both in the restructuring time. Made so muchave progress that we can consider other options. Jonathan lets discuss the state of the central banking. Still with us is Mohamed El Erian. There are two stories here banks needing to raise capital at the second is the Market Access issue. And there isnt one right now. They can raise capital by offering stock. What does that say to you about how open the market is more european banks . A reason for them to come to markets. They can just issue equity. Mohamed it is open for business because people are looking to take on more risk but the problem with that approach is that it lessens the pressure on asking yourself the most important question which Business Model makes sense now . And you have seen that with several european banks going from fundamentally trying to rethink Business Plans to seeing that they can waste capital they can raise capital so lets go that way. It is less pressure on them to think of the fundamental issues. David what effect does this have on the european economy, overall . Companies are much more dependent on the banks in europe than in the u. S. News. D it is good it is a part of the picture that suggests that europe is doing better than it has before. Banks will be able to lend more. They are strengthening their Capital Position and they are able to do so at relatively low costs. That means they are more able to lend and more willing to lend. That is good news. However, the longterm issue remains which is you need the banks to decide which Business Model makes sense in the long term. And we havent seen that happen quickly enough. Jonathan what kind of Business Model does make sense . Credit suisse has the ability to fall back on the heritage and Deutsche Bank, People Struggle to see what that bank will be. If the question on wall street is, can you have a big European Investment bank compete with the likes of Morgan Stanley and Goldman Sachs . Mohamed that is the big question and so far, the answer is, it it is tricky. The retail sectors are not big enough so they have to look to something else. David as a practical matter, will be say world in which this retracts and they become specifically defined players . Mohamed i think that is exactly where we are going. And i think there will be issues as to whether to big to manage is still on the table or not. Jonathan Mohamed El Erian is staying with us. We counted down to the cache open. Futures are stable this morning. 11 points on the dow after an eightgame losing streak. No drama in the total sum. We switch up the board and

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