Aides try it to style them back. It happened yesterday. He was asked about north ring remarks, saying his remark. I dont ink they mean that. I think its the first time they heard it like they heard it and frankly, maybe it wasnt tough enough. David that was the president yesterday. This to sayis had about diplomacy. The americane effort is diplomatically lead it. It has diplomatic traction. It is hitting diplomatic results. I want to state right there. The tragedy of war as well enough known. It doesnt need another characterization beyond the fact it would be catastrophic. David to take us how this is playing out, we go to our chief correspondence. Lets start with you. How is this in asia . Reaction is one led by the australian Prime Minister who came out strongly to emphasize their alliance with the u. S. President ed with trump early in his term. The newspaper reported the moving interceptors and the place. China should stay neutral if north korea provoke the u. S. Into war. Andhe u. S. Were to try topple the regime in north for it, the chinese should intervene. Strikingght that was a morning. David we talked about the stock exchanges, they had all been down. How are they reacting now . Week. Is off by 3 on the selloff inr indexes australia. Investors are nervous because we have military exercise coming up with the u. S. And south korea. There is the anniversary. That is a concern or investors that it might create more nervous sentiment. I would when it to one little wrinkle in history, during the last missile standoff, u. S. Stocks dip before recovering in a space of two days in 1962. Investors are hoping it will react similarly. David thats a really interesting point. When you go back to 1962 to draw an analogy to whats going on right now. How is this playing out in washington . Kevin the response from republicans within the president s own party have 10 muted after the administration has tried to signal they will not tolerating any type of missile test. They pointed out the out that in the chinese newspaper, sending a signal to many throughout the world of the chinese are anticipating the north korea not be able to continue with its missile program. Of the u. S. Should not have a preemptive strike. The u. S. Is very much relying on economic sanctions in order to try and win over its message to kim jongun from continuing on. This all does come back to china. Whats going to be interesting in september is whether or not the u. S. Is going to be able to put more tough sanctions onthe chinese and sanctions chinese Financial Institutions in order to pressure north korea. David traditionally, when there has an International Crisis like this, our governments come together. Has he managed to do something the president do . Kevin we saw this with the president receiving a bump in the polls following the syria incident. He was greeted with praise by that. Right now, we have not a response or a bump in the polls. That is something that could be interesting to watch. He was criticized for fire in fury. The generals were not aware of that comment. It will be interesting to see if people rally behind the president. Many thanks for some great reporting this morning. To get a perspective on whats going on in north korea, we turn to the peterson institute. He is down there in washington. Take us through this. You are a student of korea. Take it to us. How did those two upset the regime . Kim jong noon has been pursuing a policy which means is developing both the military and the economy. This is in the top began the. This is what he is going for. It serves a couple of interest. When you look at the military advancements, is able to have a stronger capacity to deter against what he perceives as United States threats. Economics,ok at the he came in and promised he was going to improve the livelihood of regular people in north area. Legitimacy as a leader. For him, he is pursuing both of these. Its a dual track policy. It is somewhat of a balance. Alix when we hear from the Chinese State newspaper that they dont want north korea ramping up tensions and the United States doing it either, what does he think about that . What is his response . They have an agreement with north korea the they will defend them. This goes back many years. There has been some peculation thate last several years china is upset with north korea and they might not come to the defense of the regime if they are getting too aggressive. Or if they are the ones whos are some kind of war. This is a classic problem you have with military alliances. I think that china is saying they might get involved if north korea is invaded. Thats going to be a positive message received in north korea. Message it indicated to the North Koreans is if you ,tart some kind of provocation china is not going to necessarily come to your defense. As we have seen with north korean provocations in the last several years and china agreeing to more stringent sanctions in the unrth korea security council, china is upset with north korea. Its not like you have these great relations. They used to describe them as lips and teeth. That we are far from that right now. Alix thank you very much for joining us us morning. Coming up, we will take a deeper dive into the Top Performing sector, the Financial Sector. There is great potential. Is bloomberg. Alix speaking out, he recommends a hedge against Rising Economic risk here in he conflictpotential could go awry. Gold would benefit. If you dont have 10 as a hedge, look at this. Dont let traditional biases stand in your way of doing this. Michael joins us. Michael ive been constructive on old all year. As i break it down, i tend to agree with where his head is at. There are two things. One, real rates. When i run my models, you can look at gold when its in a strong up front. You can see it trading at a premium where it should we. Market is trading at a discount, i measure that discount. Thats a function of things like political risks. The discount increased. Now it is narrowing again. Forhave two things going gold. Rates are not probably going up. Inflation is starting to stabilize. A it is interesting to see when this tension disappears. Alix you bring up an interesting point. Is the call for caution just because were so overvalued and so many sectors . Moving to safety because we do start something . Michael if we go to nuclear war, all bets are off. Alix are we seeing the selling because of that lesson mark we had some overextension of some classes. Michael its a great question. Bitmber, when we have a spike . Probably we would if you start looking. If you dig into some of the volatility metrics. Of volatility sectors out there looking at the vix futures curve. If you look at the next chart, every couple of months you have a spike. I suspect we would have had some of this anyway. You are seeing signs of risk off. What should the price be given the real rates. What is your model . Michael its one of those things that is tough the value. You can go through a lot of different mental exercises. A 0 discount, it would get you to 1400 or so. Thats not a massive move higher. Into ifs getting it starts doing that, the price action can be very powerful. That, as isd something you do longterm. Would you sell the golden go back into the market . Michael that is another a question. Because its a hard asset the value, you have to look at the technical. Trend, it was three steps forward and one step back. About longterm aboutg, you are thinking this being high right now. As it gets to a premium where it should be relative to real late rates, you can bring that back down. Its a lot inflation. Equities, what do you do . Ishael the signal right now this is probably a natural cleansing like we were just talking about. The basics are strategic factors. They are still in play. The earning seasons are respectable. To step back. Ve you watch this play out. Once that starts going the other way, you start to see some support. There is some are term trading violence. You probably want to buy the same steps. The long tech trade is going to work. How do you interpret that . Michael its a natural function. Alix is it a turning point best mark rk point western michael the latter. I think its important to look at it. Credit spreads have gotten really tight. Everything has gotten supported. 1964, backack to then you had volatility half of what it is right now. Long amount of time, credit spreads tightened much more so than today. Ceiling goes away and we have this backdrop, there is a reason to think you cant tighten further. David what happened before 1963, the cuban missile rices. I hope we dont get that far. Michael will be staying with us. Next week, we will be joined by some important guests. Live from new york, this is bloomberg. Alix in germany, the pain trail itself is merkel has a 16 point lead. Tomorrow, she will begin a tour across the country. With us is Michael Purves. Michael its something you have me monitoring. We had the death of euro populism. That in austria. In april. Pen you never know. It could come back. If it does come back, this concept of repairing the new European Union political condition could be a challenge. Macron workingin together, that could rate. That can be something to be watching or. Alix we talked about the potential for what it means. What markets will focus on his this idea that at the core of europe and between france and germany, this idea of working for a stronger European Union. A push towards reform we might not have seen in a way that we have a number of years. It that has been one of the key calls of our strategy. The euro remains very undervalued. Michael i think i could not agree more. The euro has gone three regime change. It has been defined by rate inferentials. Its arguably increasing in the u. S. And decreasing in europe. That is a huge factor. Even though the positioning shows everybody is in the euro right now, the charts are telling us something. The dollar is not dead. The euro has been really resilient. What is happening is there is a regime change underway, which is really important. Becoming a key factor. David you mentioned the surplus. Purchasing power would indicate the euro should be higher than it is. There are various reasons. Is reform the major Thing Holding back euro western mark michael its been a strain on growth for a long time. Honeymoon a be over. We will see if he starts getting into their reality of dealing with french unions. The bar has been so low for so long. Specific . Want to buy michael as it relates to the equities, the first part of the year you saw the euro getting strength. Now you are starting to see some divergence. If you are long european iies, these might be think you have to be careful. European banks are interested. Alix good stuff. Michael will be sticking with us. Later today, the bank analyst from wells fargo will be here. This is bloomberg. Got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Find your awesome with the Xfinity Stream app. Included with xfinity tv. More to stream to every screen. Alix this is bloomberg daybreak. A few hours before cash in the u. S. , futures up by 17 points. S p 500 headed for its worst week of 2017. The ftse the weakest dragger. You wound up having a lot of minors hit on issues miners hit on issues in china. The dollar trading around neutral. Sterling slightly higher against the dollar and the euro weaker, relatively flat. 10 year yield goes nowhere. Crude down by. 4. David besides everything else, a big week for earnings in the retail sector. We are waiting for jcpenney earnings and we will bring them to you soon as we have them. Lets talk about the sector in terms of spending. Alix jcpenney coming at a loss lossne cents a share, the estimation was for four. Slightly below estimates. The nine cents a share was adjusted loss. We will see how that stacks up against estimates. It is down. 13 . The Company Reaffirms its forecast. We will follow those headlines as you wind up having khols and macys having a solid quarter but those stocks hit in the premarket area i want to come premarket. David i need to talk about our president for a moment, he just tweeted military solutions are in place, locked and loaded, should north korea act during hopefully, kim jongun will find another path. Locked and loaded, which is not reassuring. Joining us is bloomberg correspondent mike mckee. Lets talk about the consumer. Where the consumer is now and how that affects retail. Mike i found jcpenneys results interesting because it was the Company Everybody thought would go out of business but it is still there. All are reporting trouble. Does that tell us about what the consumer is doing or the Department Store space and the idea of the generalized store where you can buy everything . They seem to have fallen out of favor. We will find out next week when we get overall Consumer Spending figures. We have seen a jump in thatdence fall off, but does not predict about what will happen with retail sales. Consumer confidence, along with the s p index, and i will reverse the and employment line to see the match, and Consumer Confidence is driven by headline about the stock market and unemployment. If we have any geopolitical tensions, that will affect spending, but it isnt a good indicator for Consumer Spending. It follows the headlines but does not lead the numbers. David i am told jcpenney is down about 5 in free trading. Explain the state of the consumer. They are confident. Particularly, look at the extension to which they take on debt. It is not related to retail spending but others that is encumbering their money to spend at the stores. Mike confidence is up and rolled over in the last month and they are waiting for raises. They are nervous about what is going on and they have been directing their money towards things like student debt, darling money to try to keep spend borrowing money to keep spending, but we are not seeing a major rise. That is where the economy has been. David we want to turn back to jcpenney for specific information. We will go over numbers with our gadfly colleague terry what do you take them them . Calling. But do you take from them . They are similar to macys and khols, which is butment that a lot of not a lot of clarity. Is enough of the change for it to be viable down the road . We do not have a lot of answers. Alix the distinction between macys and khols, where macys has done the right things but it isnt enough, versus kohls, and where does jcpenney stack up . Jcpenneys has not been as aggressive in closing stores. They are closing 138 this year, which is more than macys but a smaller share of their fleet. They still have over 1000 stores. Jcpenneys is making more active moves, expanding in the appliance category and they smell blood in the water there. Sears is having trouble there, and they think that is a good highmargin area to get traction and that seems smart. Alix we have Michael Purves here, as well. Talk about underperformance, value. You will say, retail sounds good. What do you think . Michael or is it . A lot of value guys are looking at macys now, which is a retailer with a stronger position. Had amazon not existed, jcpenneys would still be there for a lot of folks. I think there are a couple of to pull away. One, look at jcpenneys stock price chart. It dies a slow death. A lot of people three years ago that this stock was going to zero and it does have some there, so if you are short the stock, be careful. The broader news, the amazonification of the retail space does not seem to be stopping anytime soon and the course analogy of, it seems a lot of these retailers that states to cancer and has gone to 2 cancer and ite has gone to stage three. David we usually talk about amazon, but how is jcpenney doing in their move to order things online and they can be picked up at the stores question mark stores . They are seeing Good Progress and excited about buy online, pick up instore because of attachment spending. Retailers are finding when you place that order, surprise, you buy Something Else when you come to the store and they think that creates a chance for them to build brand engagement to make you more loyal to them. It is true that would amazon is doing is putting enormous rush on them in other ways. Amazon is ramping up in privatelabel apparel, trying amazon wardrobe, where you can order close to your home and only paid clothes to your home and only pay for the want to keep area my has keep. Alix my husband would hate that, a box of clothing that i am too lazy to return. How do retailers try to monetize parts of their business that are working . Because medics in real estate like cosmetics and real estate . Jcpenneys has had a andtionship with sephora that has been a strong strategy for them. They have stronger sales per square foot than the rest of the jcpenneys store and it gives what is goingto on in the retail space. Ute has been a bright spot in a gloomy retail environment, so it gives them entree there. Sephora is experiential. We keep hearing about how Consumers Want and experience and not just an errand and sephora provides that. Alix great stuff from bloomberg and Michael Mckee and Michael Purves. You are sticking with us. Melenchon to see with emma chandra is here. Emma north korea has sounded off with the u. S. Their News Agency SaysPresident Trump is driving the Korean Peninsula to the brink of nuclear war, after President Trump warned korea not to conduct a missile test area President Trump they can be nervous, and they should be very nervous because things will happen to them like they never thought possible. Emma the president tweeted military solutions are in place should north korea back, adding, hopefully, tim jon kim ongun will find another path. According to abc news, there is part of a probe into the meeting with Trump Campaign officials and a