Threatening,ery beyond a normal statement. Senator john mccain cautioned on the importance of a president talking about things they werent willing to do. I take exception to the comments because you have to be able to do what you say youre going to do. I dont know what he is saying up i have long ago given trying to interpret what hes saying. We are joined by kevin cirilli. Reporting from hong kong is our colleague who leads our coverage of east asia. I want to talk about what the president is saying in new jersey yesterday. Do we know whether general kelly said at this in advance . Invented this in advance invented that vetted this in advance . Administration who say that with regard to military strategy the president is making good on his campaign prominence in the sense that he is not looking to broadcast or forecast what his military strategy would be and that is why you are seeing him embrace this level of unpredictability. Yous very different to say are going to be unpredictable on the campaign trail versus what you do when you are in office. There is no question that all of the president s ability to deal with north korea goes directly through china. Chinas economic relationship with north korea in terms of trade is very much at the forefront and directly tied to this dictators ability to get any type of nuclear ambition. Thats why you saw over the weekend the administration looking to capitalize on the notion they had succeeded in uniting the world including china and russia with u. N. Sanctions. David you have taken us to east asia. Let me quote something that newsweek dug out. Its what president truman said right after the bombing of hiroshima. If they do not accept our terms they may expect a reign of ruin from the air the like of which has not been seen on this are as birth. Eerily similar. How is this being received in china right now . Have been pretty quiet today as far as their reaction is concerned. Over the past week they have made it clear they would support the u. N. Sanctions. They kept the oil lifeline which really keeps the regime afloat. That is still going on. China doesnt want north korea to collapse. They have strategic interest to keep a buffer state. They do want to calm down tensions. Theyre asking both sides to take a step back. How do threats of military action by the United States fit with the Un Security Council resolution that the u. S. The weekendover with china and russia on sanctions back of . China has dramatically the weekend with china and russia on reduced its imports from north response arguably to what we have seen with this dictator. That was a big win for the Global Community and for the administration getting russia and china to support you and sanctions. This is a situation where russia and china werent even labeling the North Koreans use of icbms Intercontinental Ballistic Missiles as such. They said that didnt even qualify as such. This is a stronger step forward. This rhetoric coming from the administration on the fire and fear he is a suggestion that one military action could be the way should north korea not take a look at itself and stop doing these missile tests. David thank you so much from washington. Alix that body language. David i thought it was really profound. I havent seen him all clinched up like this. It was enough to give the markets some pause yesterday. The riskier end of asset spectrum. Most of the initial reaction to the comments. Futures suffering a notable decline. That has carried on to todays session. Joining us is david kotok. I think so. Accidents happen. Bluster rises. You have people not talking to each other, threatening each other. Risk of threat rises. Markets dont like this. Economics dont like this. There are so many dimensions to rising militant rhetoric. I think anyone who is fully invested now is taking on great risk. We raise cash reserves. It has been a great ride in the stock market. We have a layer of gold stocks. And you take precautions. You change. Because we dont know how this dysfunctional chaotic washington gives us no comfort. Its a constant surprise. Alix whats interesting is we have charted what happened in the korean won as well as the s p during previous tensions. This was 2013. You have north korea getting more aggressive and detonating a nuclear device. A little bit of a selloff in the s p. This is 2015 on in order that the army is going to prepare for war after exchange of fire. Following a s p bit. We all recovered. Is there risk about taking this from market perspective to seriously . What do you do with an unfolding narrative, no numbers. Its narrative. And the narrative is playing day by day. Yesterday when we had some notes to talk about what we were going to talk about, one of those nodes was inflation in the fed. Who knew 24 hours later the top story would be a rising more risk . How do you deal with the unfolding narrative . You take defensive structures thenatch what happens and you decide are you going to redeploye . Market decisions are one thing. The same time, this is serious stuff. This is serious stuff. Shooting war is serious stuff. As an investor how do you tell which is a temporary summer squall as opposed to a force three hurricane . We saw it announced when miller was going to convene a grand jury. There was immediate selloff in stocks that came right back and ours. How do you tell which one is going to last . The truth is, you dont know. Thing, i find it easy when i talked to my clients , they said what do you think we should do . If you dont know, admit you dont know. Take a reserve. , wait. You can always realign a portfolio in a hurry. Take a reserve and wait. Otherwise take a speculative position on an outcome but you dont have a clue what the outcome is finally going to be. Alix there is rhetoric out today that by the dip wont prevail. People are on vacation. Transports are rolling over. Small caps rolling over. What do you think . Gone to flat. We dont know what the other Central Banks are going to do. You no longer have this cushion of unlimited liquidity. Its a new game. Its a dangerous game. Kotok will be staying with us. Coming up, Kathleen Hays will be talking with st. Louis fed president James Bullard at 1 00 eastern time today. Live from new york, this is bloomberg. David this is bloomberg. Im david westin. Disney reported revenue slightly below forecast and earnings slightly above. The stock moved down over 3 on the news. Netflix shares traded off substantially. Maybe because of the other announcement that at long last disney is going to go over the top. This may prove more important for the company. They will have direct streaming services not only of espn but also of disney product. Potential he bypassing cable providers altogether. Him just after his earnings yesterday and how the Cable Companies would respond. We will continue to distribute the espn linear channels. They have been good partners of hours over the years and we have managed to create a highly profitable business. The distributors and the programmers alike have been experiencing the disruption that the whole market is seeing an multiple businesses are seeing from advances in technology and changes in Consumer Behavior because of that and we feel we have to react accordingly. Guess is distributors will look at this probably more as a threat than anything else. Its not intended to be that. We are reacting to marketplace conditions and taking advantage of the quality of our brand. The passion and the product we create and the technology that enables us to reach consumers directly. David is this the beginning of the end for the bundle . I think thats maybe a little bit too strong. We have seen erosion of the bundle. It is still highly profitable. Good consumer proposition. There have been in persons on the bundle whether it is for new overthetop providers. So we an owner of hulu know about that. Theres more competition to reach consumers with multichannel services. I dont think this is the beginning of the end but it represents a continued shift in Consumer Behavior and the opportunity the technology provides. Cbos ceo makes a decision like this they have to ask, did i build it or did i buy it . Did you consider buying netflix . Why did you decide to build . We are buying a technology muchorm thats enabling us faster than if we had built it. Im not going to comment whether we looked at network netflix. We honestly have the financial wherewithal to do a number of things. The best atto be for not only the Walt Disney Company but shareholders in terms of creating growth strategy. View which isterm really important but also addressing nearterm issues which is all about the disruption created by digital technology. Was disney ceo bob iger. He talked about the erosion of the bundle. Cut cable to save costs. Now i have netflix, amazon prime, hulu, hbo now, showtime, now and that to 150. Whats the point . Starting next year greg is going to say, lets get espn. Joining us with his thoughts on disney, paul sweeney. Kotok who us is david knows a lot about everything. What do you think about the effect on cable . Bob said they are going to regard it as a threat. Is this part of a slow demise of cable as a provider of content . Companies,ook at the they have been losing video 5, 6,ibers for the last seven years. The Cable Companies continue to areery well because they gaining broadband subscribers. Highspeed internet access. Those subscribers are much more profitable for the Cable Companies in the video subscribers are. It is a change in Business Model for the Cable Companies. Well becauseg very they are the best broadband pipe into the home and as long as people continue to consume content over the internet they need to come to the Cable Companies. Espn is down 3 in subscribers. Is this implicitly a recognition that they cant stay at this dance much longer . Theyve got to move on to the new world because the platform is essentially burning under them . Absolutely. Its mostly viewed as a defensive move. We will see if they can make a big offensive play. For two years to the day almost we have seen an increased erosion in subscribers to the mighty espn. They have to pivot to the digital world. Thats whether consumers are going. Alix better Earnings Report shouldve catapulted the leg lower. You just made the case as a consumer of one. Are we going to get compression of margin, is Earnings Growth rate shrinking. Is that whats coming out of these types of changes. You just described a household. Add 10 million other case studies. Do we get margin compression . We have seen it certainly at espn. The media economic models built upon the bundle. Everybody makes money. Make money from us paying 200 a month for the big bundle. If it phrase than the economic get a little bit more difficult and distributed and people like espn with a fixed cost base in programming and sports there are seeing revenue pressures and fixed costs. David living make the case on the other side. I used to work there. Full disclosure. If any but it can do this, disneys got the brand recognition. Opening up newe vistas. New people that can reach through broadband. They have a direct relationship with the consumer directly. They can sell a lot of other things with those connections. When we think about going direct to the consumer, there arent many brands that can do it. To break through the clutter. Disney clearly is one of those companies with the brands. The disney brands, pixar, marvel, lucasfilms and espn. There arent many others that can do it. To the extent there is a profitable pitch it to the pivot to the digital world. David kotok of cumberland, youre sticking with us. Later in the program, brian wieser of Pivotal Research group will be visiting us. This is bloomberg. This is bloomberg daybreak asia im emma chandra. There is a huge deal in the ecommerce payments business today. U. S. Payments process has agreed to buy the u. K. Group. Pointal is valued at 10 4 billion. Consolidation has been increasing. Blackstone group agreed to buy taste safe group. Softbank is close to making a billiondollar investment in the Online Sports store fanatic. The deal would increase the value to about 4. 5 billion. It sells licensed sports apparel. In germany the countrys Largest Renewable Energy generator underlined its fullyear profit outlook. It also posted Profit Growth that beat estimates. The company said financial Debt Reduction will allow more spending and substantial growth. Tomorrow we will hear from new york fed president bill dudley. We will get ppi. Cpi all aboutet inflation. Still with us is david kotok of cumberland advisors. Your take on the inflation story. There isnt any. Its interesting. We had 50 people in maine last weekend and everybody is talking about inflation between one and two. And is 2 too high a target . Imagine the conversation. Inflation is not an issue in the put folks we gathered with. And we dont think so either. Alix we had a really strong twoyear auction. If the auction was so strong it means the market is now discounting no rate hikes for the rest of the year. Or at least no more than one. And it looks that way to us. Theres a message here. Why are the Interest Rates the way they are. There is no fear of inflation. Theres a question about a big debt expansion in u. S. Dollar terms. Credit spreads are tight. Is verydudleys message important now. Hes the one who introduced the betweensed pause trying to get the Balance Sheet down a little and trajectory and Interest Rate hikes. What he says is really important in this new message. Our guess is they Say Something at jackson hole which is we are going to shrink the Balance Sheet. They have sort of told us baby steps on how to do it. We will start later in the year october and there will be a pause before we raise rates again. This word is the new Monetary Policy tool. David if the discussion is 1 to 2 inflation, why . Trillions of dollars chasing around the same set of goods and services. We have not increased Production Capacity very much. We dont have a lot of democratic demographic shift. So whats gone wrong . If you take a look at the 90 ofory of employment the fall of the Unemployment Rate is the shrinkage or decline in the participation rate. We have not had robust recovery. Mild tepid recovery. You dont have systems that come out of robust recovery. Alix you were taking on more safety because of the geopolitical risk. Are you taking on more risk to compensate for lower rates for longer . On the bond side we have had a marvelous run. On the need of those municipal bond, doubly so. At this point we are becoming a little more defensive. We are changing things. Because how much good do you get and at what point do you start to make transitions . The answer is we are changing in anticipation of more difficult times ahead. Alix david kotok of cumberland advisors, great to see you. Coming up, jeff currie global head Goldman Sachs global of commodities to we are talking china. This is bloomberg. Whoooo. Youre searching for something. Like the perfect deal. On the perfect hotel. So wouldnt it be perfect if. There was a single site. Where you could find the. Right hotel for you at the best price . There is. Because tripadvisor now compares. Prices from over 200 booking. Sites. To save you up to 30 . On the hotel you want. Trust this birds words. Tripadvisor. The latest reviews. The lowest prices. Alix this is bloomberg daybreak. I am alix steel. It is a safe day trade across the board. S p futures down. The eurodollar weaker on the day. It is trading on a soft foot. Dollaryen getting a nice move on the upside. Trades,ad on the safety you have money coming into treasury, the vix, going into the swiss franc. The dollar swiss down by. 9 crude. 9. 5. E is up by lets get an update on what is making headlines outside the business world. Emma chandra is here. Emma President Trump is warning north korea it will face fire and fury if it keeps threatening the u. S. There is an unprecedented level of more threats from north korea. They say they now consider the missiles attack in guam. Rex tillerson said he does not believe there is any imminent threat from north korea. In france, counterterrorism prosecutors are investigating an attack on soldiers. Six soldiers employed were injured when a car rammed into them. Police are searching for the car and driver. [no audio] they say they will not recognize any decision it takes. The assembly will strip a Legal Community from congress and established a truth commission. Global news, 24 hours a day, powered by analysts. I am emma chandra. This is bloomberg. Alix thank you. Take a look at oil. Not on the back but, despite the move to safe haven assets, up 5. 9. Joining me now 5. 9. Joining me now, jeff currie. North korea. 9. Joining me now, jeff currie. Jeff if you look at geopolitical risk, they will put a bid in oil but when we think about other places, atypically impact old because they end up recurring in the basement. This year. When you have zero medical issues, trading closer to 1200 and max political tension, like with north korea, you trade closer to 1300. We are about number six now. Alix seven years ago, we would be talking about 2000. Jeff that segues nice into talking about oil and commodities. In that time period, we developed this feeling that when markets reprice, they will reprice big. About metals and energy. They are playing out today identically almost everyone and what they forecasted last october. Only difference is oil is trading five dollars lower. For the most part, the fundamental story has played out. Why was it painful over the last nine months . I think it is because expectations were for large reprice things. Gold will go to 2000, oil to 100 and copper traits that 10,000. The reality is you were talking about a move at 10 to 15 . They played out but they d