Transcripts For BLOOMBERG Bloomberg Go 20160922 : vimarsana.

Wasas the asset bubbles he worried about. We will continue to talk about that. Markets areow the reacting to this complicated decision. We of newsmakers throw the Program Including a Company Chairman and formal Federal Reserve chairman Alan Greenspan. And black rock ceo larry sink larry fink. It is quite a big program. First a check in the markets. Hawkish hold one hundred percent risk rally across the globe. Take a look at this it is green all over in europe. Telecom leading the way, euro stoxx 50 energy also moving higher. The dax now at a two week high. What does that mean for fx . It means a weaker dollar. You have the british pound up against the dollar. The one currently not in this is dollaryen, it is higher than you have investors digesting the boj decision from yesterday. Ng across theyi board. A strong rally in steel and iron ore. Those risky bases are seeing a huge move also crude is up. In the bond markey, i market, it is buying in the wrong end of the curve. Different 10 year yields and they low. I want to the could the short and we are seeing some selling as yields are backing up a bit. The story is getting into the market and go longduration. We will be addressing that move throughout the hour. Is that the right call, buying on this dip we are seeing . David we know it is a good day for you, alix, when copper is up. Lets check with our bloomberg team. With what is next with janet yellen. The fight of his life after the sec accuses Omega Advisors of trading. Alix we have to start with the fed, no hike about three members that descended. That is only the fourth time that has happened since 1992. Michael joining us now, overall you heard inflation was the key point in Janet Yellens testimony take a listen. Janet yellen we agree we are undershooting our inflation goal and want to make sure we stay on the course that raises that to 2 . We are struggling with the different issues with the new normal in this economy and the Global Economy or generally. That explains why we keep revising down the rate path. The dissent was the headline but janet yellen trying to paper over that a little bit. How confusing the economy is right now. Three dissents are rare. The last time was a fight over language. You can ask them about this. Involved in all of those dissents will be on the programmable to the letter. You have to go back to the 1990s to find any time there were three descents and how where is it there are three in favor of a rate increase . I went back to all the rate in which votes were recorded and could not find an incident of that. That is why theyre calling it a hawkish hold. That raises a question of how united is the fed on this hawkish idea. Youryou get to december three more jobs report three more manufacturing reports and three more reports on spending, three months of markets going up and down and the president ial election which somebody said could be huge for the markets. The fed will have a lot of data to digest. The rate increase might be a little optimistic at this point. It could happen but theres a lot of data for did a dependent fed. Alix how does this keep december a live when they are so much there is so much dissent . Situation since august . How do they manage that communication . See a lot ofwill reaction to the data. The markets will be driving this. Did a cominghe strong than the fed is going to be able to go along. If not you get this question of do they surprise the markets are not. Thet Pay Attention to beginning of december because a lot can change between now and then. Much, ourk you very economics editor. Another big market moving story of the day is oil. Up another 1 , james joins us from london. Is this another weaker dollar story for oil . James not purely, but there is oil has been quite volatile this week with people trying to figure out what is going on. We have been getting mixed messages so far with ministers from opec countries raising the prospects. Other people are saying these talks are just goggle they should perish just consultative just consultations. , theyhe next 72 hours could agree to have a formal meeting. That would be different from what the markets uprising in. Not pricing in any dramatic moves from opec. There is some skepticism they could overcome the problems that stopped an agreement in june. So, we surveyed a lot of tra ders, and the expectation is there wont be a major agreement. It remains to be seen. If the expected result emerges they just make plans for more talks in there wont be huge gyrations. Thank you very much joining us from london. We have these inventory numbers yesterday, sevenmonth lows to the some fundamental support to the rally nonetheless. Opec chatter always wins. Heard about these meeting so many times its a little comes out of them. What happened yesterday was the Hedge Fund Market was just wild, shaken because leons Omega Advisors was accused by the sec of Insider Trading. We bring in Peggy Collins now to talk about exactly what omega is accused of having done here. Peggy yesterday the sec alleges that mr. Cooperman and omega had inside information from Company Executives inside a Company Called atlas pipeline partners, an oil and gas producer. The charges relate to traits thend 2010 particularly summer of 2010 with the hedge fund had information and of time that atlas was going to sell an asset in july. When that happened the stock jumped 30 in the hedge fund made 4 million. That is the time period, and the single stock this is around. David Omega Advisors owned a fair amount of this company. Do you have any sense of what leon is defending himself with year . Peggy he came out and said with a five page letter saying he emphatically denied the allegations and was planning to fight. He followed up with a ten minute call with clients saying he will not let these regulators destroy his legacy and he will fight it. David peggy will join us later to talk about this more. But now you want to check out some securities. Alix that is an amazing story. This morning, the big mover, one shippersrlds largest in south korea. It can continue operation and totaleed 400 million in there were some stranded vessels now they can start offloading what was on those. This matter should the u. S. Because it will be a shipping Holiday Season as we get towards december. Also, i was talking earlier about the rally we saw in iron ore helping glencore. Up 5 , rebar in china up 3 as well. You had an upgrade in coal now. It is at the highest time for this time of year. At yahoo , itlook will report a massive data theft. They call it widespread and serious. Yahoo stockstill up on that risk rally. It is the same russian hacker as the linkedin theft. We are still looking mofr more into that story. David coming up, the fed and noteave the u. S. 30 year noting its biggest rally. The central bank doubleheader limit Downside Risk in treasuries . The head of global rich chatterjee joins us next with her outlook. This is bloomberg. Alix this is bloomberg, lets get update on what is making headlines out of the Business World. Emma the governor of north a state ofs defend emergency in charlotte after the second night of violence. Protesters protesting the shooting of a black man which led to Police Firing tear gas at protesters. City Officials Say they were not responsible. In the shooting the man they say refused to drop his gun of the resident say he was unarmed. Shows Hillary Clinton so leading donald trump. The survey by at msnbc has come than ahead 43 30 7 in a threeway race. Majority view clinton negatively but trump negative is even higher. Uk plans to hire 1000 more spies by the year 20 20 according to the bbc. The new intelligence recruits are needed because of the development of technology and the internet. They would work with the British Secret intelligence service. Alix it is a hawkish hold. In 2019, it is lower for longer. Citigroup saying buy the dip. I think the timing of a bond bear market has been delayed. Lets not be cherry about that. I think that in combination with what happened last night in japan was quite important in terms of bond yields and bond levels. Head ofe securities global rate strategy joins us now. An interesting 24 hours is buy the dip your call right now . Mores, for me the boj was important in the fed. It is been leading this entire bond route globally. The feeling was is a going to be some monetary action in japan . The abe government will increase. Pending, i was reading what we got from the boj was brilliant. Without hurting the life of the community, they will keep rates here for a while. We are back to the argument as to what we learn from the fed, for all the discriminant, ofagreement, there is a lot agreement at the base of normalization should continue. That was a bit of the field early on. Now what we hear from the feds ao want to normalize and gradually normalize. Cycle is of a hiking much lower. I think interest it is cheap here. Basis point. G 25 alix what kind of mood you expect to see . Will they be able to manage those expectations . They will have to sell and buy, and there may not be enough. Your confident in Central Banks ability to use your thesis . The boj has unlimited ability to buy bonds. My nervousness was 80 trillion buying. What if the liquidity actuallydried up . I am surprised they still talked about 80 trillion. I think that target is out the window. Upthe liquidity does dry that will be a lot less post of the market should not focus on how much they are buying but on their telling us it will be around zero. Invested, they just told me volatility will be extremely low. I will move globally. Ared put th e level we talking about and the slope of the curve. Wanted to steep in that yield curve. What is that due to the bond market . I think that steepening will happen. It means they will slightly rise, slightly higher premiums. Bond yield tells you is that it is effectively going bankrupt. The boj actions delay that. Prevent that te talk about this bond markey abe governmenthe issued fortyyear bonds . Without that, we are talking about and the five or 10 basis point it will be hard for us to steep and more because investors want the curve. Alix same thing here in the u. S. How much more can that actually flatten . In the lasteep and couple of weeks. Im looking forward to about 15 basis points appear. I think the big question is with the election how much of a shift will receive from congress around fiscal spending . Without fiscal spending that will flatten a lot more. Alix i love that boj and fed, were still talking mostly boj. David coming up, we discussed hittingeemonthlibor the highest since 2009. Leon cooperman finds himself facing a qs asians accusations of Insider Trading. Later, wilbur ross joins us to talk about where he is finding opportunity around the world. This is bloomberg. Go, thehis is bloomberg head of global ray chatterjees is still with us. Even his Interest Rate over all stayed lower your seen uptake in the rate at which banks lend to each other. What is causing this what is it doing to credit markets . We are putting of a chart right now to show that remarkable trend. I think this is very different from the increase weve seen in the past. This is from reform, less than three weeks our from that deadline. They have changed the rules for these funds. That has created a supply demand mismatch. If the rate is rising because there is less demand effectively also changes. It is creating a supply demand for front and banking. Doesnt reflect worsening bank credit but reflects higher funding costs. Numerous need to Pay Attention to that. Alix some analysts estimated could add three and 2 million in annual interest repayments because that goes up. David how much of that is already baked in . The market already placed it in . A certain amount of interest but i think it is going more than that. There is question of how much will happen between now and october 14. There is this view that it will come back into prime funds. I am not sure. Or six basis points above government yields. That pickup is incentive for anybody to move back in probably reputations. I think it will take a while. Demandrealize the cant rise. So libor edge higher. Look at credit interests, my question is as you have libor rising and getting that higher yield and wind up having yields continue relatively lower all across the globe is this a green light to go by u. S. Corporate debt . With Loretta Lynch say corporate debt make sense. Where think investors could look at is the spread curve. Because of libor rising, front creditdit front end has cheapened considerably. A begin your fed risk at the front end. Buy shortterm corporate debt that some treasuries you get the yield at the same time. Brilliant, thank you could to see you. Coming up, the sec accusing Hedge Fund Manager of Insider Trading. And it had an Immediate Impact on omegas equity holdings. The chairman joins us that is all coming up next. Emma it is 7 30 on wall street, he was what you need to know this hour. The ultimate fed rate hike are increasing. A 61 chance in move after december after the fed decided to leave rates unchanged despite three dissenting votes. Denmarks Biggest Company moves ahead with a historic shakeup of the conglomerate. Yahoo ising to rico, preparing to disclose a massive data breach of its main servers just as a land of communication prepared to take over the Internet Companies core assets was at that is what you need to know this hour. Isx here in the markets it a pure risk on rally continuing into the dax up by almost 2 . United utilities and telecom all leading the way. In the fx market and risk on rally means a weaker dollar. The dollar index down almost 3 10 of 1 of 1 to moving lower as the session continues. The topollar one of performers although dollaryen not participating in that kind of selloff. Movinghave the yen slightly lower against the dollar. In commodities its the after effects of that weaker dollar almost 1. 5 r up by the rally continues in oil as well. A lot of movement happening in those base industrial commodities. In the bond market it is green. I hate to be so simplistic but it is buying all across with the yields coming down whether you are in switzerland at the 10 year or hear the treasury markets. It is all about that curve particularly in the u. S. Continuing to flatten as you see that hawkish hold take root within the markets. Coming after the fed meeting that has to do with the new related interest versus the affective fed funds rate. That one line is the effective rate now down by. 56 . That neutral rate is basically at zero. The reason why that is so significant is yesterday in the conference janet yellen said the sides of a rate increase required to remove monetary accommodations may be small because the natural Interest Rate is so low. Think about a ticket from. 5 up to positive 1. 8 that is not a huge jump. Meansit overnight that the guidance of nine hikes from now through 2019 doesnt match up with this kind of accommodation, this kind of potential rate increase that we will see. Theoesnt jive with longterm growth forecast. That means perhaps the fed is still too hawkish beside the fact the broncos longerterm dots down. Fascinating take not that much room for them to hike if somehow we get to nine through 2019. David it seems like the fed cant get dovish enough as much as they try. Of theoperman is head Prominent Hedge Fund Omega Advisors for some yesterday, the sec accused them of Insider Trading. Didnt hold his punches in responding. He said this it may 50 years of hard work and playing by the rules to get where i got and i will not let these people destroy my legacy. Pretty strong words. For more we turn now to Peggy Collins who covers our investor area for us. Give us a sense of exactly what are the charges. Sentially, the sec allege that they had intended information from Company Executives in 2010 at a company that is in oil and gas producer. And they had information and a time that atlas was going to sell an asset, and loaded up on the hedge fund made money off of them. He vigorously denies this and says he issued a fivepage right after the charges were announced and followed it up with the conversation with clients yesterday Afternoon Voice and we did nothing wrong into the goes back to the fact that he was an oldfashioned stock picker one of the things that has been shifting in the industry. He said he believes in facetoface meeting to the executives and he really dug into the stock, compared with some of the computer based trading. David normally using this would get settled but he said they couldve settled but did not want to. Say that they offered him a settlement and he couldve paid easily but he didnt want to go down with these charges because he believes he didnt do anything wrong. This is really the arc of his career, he is 73. David put that in a larger perspective what to some like this mean for his fund . People yesterday said omerga is cooperman. The personality and made his way into wall street in many successful career out of it. He is known in philanthropy sparkles circles. He is the face. David given his position, are there shockwaves going to the rest of the Hedge Fund Industry . Is this a one off . Most it is the highprofile Insider Trading case since we had sec capital. The of seen some traders sell out. Industry ise fund under tremendous pressure. David omega has lost a fair ammount over the last year or so. Peggy the main fund is up about 3 . David thank you so much, pe ggy. Alix . Alix finding opportunities in distress debt. Companies are now junkies for 2009. You have 251 companies now have junk ratings. About 359 billion in outstanding debt. The man behind all of this stress debt is the chairman and chief strategist thank you so much being here. Look at that chart, that says a lot a risk in the market. You say awesome opportunity . That is the Shopping List. Alix what is on it . We have been mostly buying the broken down oil and gas funds. Harder because of the rally in oil prices. Selling some. Een characterizesat the market. It is harder and harder to find value even if you look at the dustbin. Theres that encompass the search for yield overall . Creating that yield, higher evaluation. Also, with the capital and trading debts, markets tend to be more volatile. There is in the trading desk now that has more capital now than it did two years ago. Second, investors in general are very nervous because theres a disconnect between the stock market and the real economy. David in the energy area has that bottomed out . We have oil trading around 455,0is it time to move somewhere else . Ur if you can find one, please let me now. I dont think it is over with but we dont expect going back to anything like 100 a barrel. Probably in the near term it can get much over 55 or 60. With all the new efficiencies theres a lot of capacity that would be economical in that range. I think the swing factor is becoming the u. S. With the amazing efficiencies youve seen a tremendous decline but production is relatively unchanged because of the technological changes that have occurred. Alix everybody is there. Valuations are superhigh. Wilbur the acreage prices have soared recently. Everybody wants to get into the that is probably getting late for that. Unless you do think oil has a huge move, which i dont see. Alix taking a look at the debt covenants, they are coming and light. What kind of stress is that creating when the cycle turns . Anythingarely does going to bankruptcy because of the violation of the covenant. They going to bankruptcy they can pay a debt or immaturity. Generally speaking, lenders will waive covenants. No fact that there are covenants tell you people are substituting yield for credit judgment. David you talk about china, particularly the credit situation is that an opportunity you are still looking at . Our problem continues to be figuring out of these are political decision or economic put them up to the big borrowers are state owned to prices. That puts it in the area of politics. Who at the main lenders the state owned banks . The ones that are not state owned, it is a high officials nephew. It makes it a political decision. We dont seem to be able to handle that. Thingshat are the three on your Shopping List . I want to buy stock in this company, debt in this chinese company. I dont think were that far in the process. We are in Marine Transport in a big way. The point where another the market value of the vessels is suppressed the stocks are trading a big discounts from distressed vessel now is. There is real value there. The question is what happens to world trade with china slowing down in europe slowing down. That is the disconnect between markets and the real economy. I dont see the big engine for growth anywhere in the world. Yet, the market goes prancing along. I think it is a little scary. You thates it strike we are a situation where the corporations are so highly leverage that a great opportunities for you . Is ratio of debt to earnings at historic levels. Theres a great opportunity for you . Looks it does, now it like many of the Machinery Companies are looking at tractors and other kinds of equipment. Corporate Capital Spending is still quite weak. That iseen the consumer led what little games there are in the economy. You wonder how long can the consumer keep leveraging up . Savings are under 6 now. David you look at manufacturing of capital equipment. Wilbur probably so, and metals and mining. Thank you so much, he is sticking with us. David coming up, the uk has handled the departure from the eu in stride. Chairman of the Federal Reserve Alan Greenspan will join us. He will talk fed and rate regulations and much more. Alix this is bloomberg go, here at the hewlettpackard enterprise screen room, the ceo of the approach largest asset manager will join us. Of the Worlds Largest asset manager, larry fink, will join us. A big announcement by the fed we are still sort of parsing out what it means. We have wilbur ross to help us with that. Wilbur, what do you make of what the fed told us yesterdayw . Areur they told us they still dithering. They made too big a deal out of 25 basis point. If that is all that keeps us from going over the cliff there is a real is it really worth doing anything . I think it has been a little silly. I think the danger is somewhere 18 or 24 months or sooner if Hillary Clinton is elected we will probably go back into a recession. The fed has no toolbox anymore. That is why they shouldve been raising rates earlier to get prepared for the next problem. David given what we are, is that recession inevitable . Think the sessions are inevitable. It is not possible that economies dont ever have interruptions. Think about it, this is been seven years of recovery. Very vague recovery and slipshod recovery but still recovery. That is a long time. Alix does that mean we are in the ninth or seventh inning in the credit cycle . Wilbur towards the end, that is why i think a program like trumps, it is time for that. I think Monetary Policy has outlived its usefulness. David youve been an outspoken supporter of donald trump post a list talk about that with events in the uk, you would outspoken leading into brexit saying it would be the most expensive divorce and histories what you called it. Easily could be as much as 50 of the net worth of some of the elderly britons. Since then, it doesnt seem to been that bad have you changed your view . Wilbur no, the currency has been weaker than it was before. What has held up so far is property values. What is really talking about was property values. A lot of elderly retired people buy another property and rent it out. Those have held up quite well. Is overbilled but they didnt really vote for brexit it was the people outside of london. Those properties he to be relatively unaffected thus far. Alix take a look over could happen in 2000 20 2018 economists are much more much less optimistic post of the sect rate more distress opportunities when you see a slow grind lower growth . Wilbur sure, it also remains to be seen. Brexit hasnt happened yet. The real impact will be when it does happen. A cleverrs. May did thing putting Boris Johnson as the negotiator. He is the one who was one of the teurslock doors provoca for brexit saying it wouldnt be that bad. She said now you produce the good things you said would come from it. I think he is struggling. Onid we want to keep you because youre giving us so much good stuff. That is your problem. Let me ask you, big news today an, someonecooperm you know. You had your experience with the sec in a different setting. Wilbur i wouldnt david i dont mean to. Do you have any initial reaction to this . Wilbur i am pretty shocked. I have known leon for a long time and he is not some grubby, hedgy guy. That is not the leon i have known for decades. Whether something was wrong in this particular case god only knows we are not in that. But knowing leon, it would be very surprising. David how bluray does the line get when youre dealing with executives of the company you have a major stake and and talking to them about their business . How difficult is it become to draw that line when it is intended for mission or not . Is mainly in public securities that is where the problem comes. We are more in private investments therefore there is not an Insider Trading problem. We generally play an active role in the country company. Our role is different. We get into blackout periods when you cant trade at all when it is public. We are quite scrupulous about that. Guessing is good at what companies will do and just because you are clever and know the company pretty well and know the management you think about it most actions that managements take are logical. If you really know the company very well, you want to be able to put yourself pretty well in the managers head and say i think this is logical for them to do this. Then if you are guess your ight, that shouldnt be called and said information. In this case if there was some sort of supplement or somebody said something that they shouldnt have ive no idea and knowing to judge that. Leon is not a guy looking around for it Insider Trading. Alix does that mean there a minute you mightve related to 10 years ago . Being moreis aggressive than it has been for a long time. It is a question of finetuning have they gone too far . Is it just right . Was it to lose before . I think you need to deal with that situation by situation. I think everybody is shock of the allegations against leon. That is not where i thought there would be a high probability of something. Alix thank you, final thoughts after the short break. David this is bloomberg , some final thoughts now from wilbur ross who still with us now. We know you are an outspoken supporter of donald trumps. You are also a very shrewd businessman. Businesses based temperature debility, where do you think donald trump is wonderful or good or bad it is hard to pin him down over time. Where do you get that sense of certainty . Think hillaryt clinton is any easier to pin down. She was for tpp 45 times publicly, then she is suddenly against it. Plan,x lan, according according to the Tax Foundation is so vague they could not model it. That is why there is no real comparison of her plan with they modeled and they think dynamic scenario it is about a 2. 6 trillion shortfall. Peter navarro and i are about to put out a paper for the campaign that will explain that the interaction of this tax plan with the trading regulatory and energy will largely cover that deficit. David you promise to come back to lay it out for us. Our viewers would much like to see that. Wilbur we will. Ldavid we would love to have you back on. That is wilbur ross, alix coming up we will have former chairman of the Federal Reserve Alan Greenspan and blackrock ceo larry fink, it is a huge hour. This is bloomberg. A fed janeterved yellen delays a rate hike for the sixth straight meeting. A buried treasure difference in the outlook on treasuries as citigroup advises buying on dips. Alix leon cooperman defends his trading as the sec accuses him of Insider Trading. Walk into the second hour of bloomberg. I am alix steel with david westin. Jonathan ferro is off. Did did it janet yellen it with the help of her friends. We were expecting a curve steepening like we have seen the last few weeks. Didnt get it. All eyes on december, and how many rate hikes they can do through 2019. David the more the Central Banks keep the rates lower want to cut them, more people buy bonds. Ask we willask we will ask Alan Greenspan about that. As i just said, Alan Greenspan will be with us. Narayana kocherlakota, and blackrock ceo larry fink. First, a look at the markets. Alix if you are an investor, you have been buying the risk rally. It has been riskon since the fed came out yesterday with her hawkish hold earlier. You see that reflected in european stocks. The dax up 2 . Telecom utilities leading the way. In the fx market, a weaker dollar, picking up steam to the downside. You have the pound stronger. The real stronger. One area where the dollar is not weaker is dollaryen. You see the dollar move higher against the yen. The yen backing off. The dollar heavy and effect on commodities. Copper off by 1. 7 . Base, industrial metals, iron or, steel, moving higher as the dollar is weaker. Brent, crude, up by 1. 1 . In the bond market, by the dip across the board on the long end. Yields back down in the 30year. 30 year guild yields are down. Across the board, it is by the dip on the long end of the duration. The question Going Forward, what did the three dissents mean . We saw three in 2014, 3 in 2011, and three in 1992. Does it make the job of communication harder when that happens . The last hike was under Alan Greenspan. How do you chew your job how do you do your job when there is so much dissent in the race question mark david dissent in the ranks . Fortunately we have someone that can answer that question. Former chairman of the Federal Reserve, Alan Greenspan. Welcome to the program. Im specifically not going to ask about any decision that came out yesterday, but i would value your views on the role of the fomc you had three dissents, at least on one occasion. How much should the markets be reading into these disagreements among members of the fed . Chairman greenspan it is up to the market to make its judgment. Actually, i used to encourage dissents. At the one thing i did not want to convey, unless it really was the case, that the fed had a single point of view and there was no real discussion going on. So, i do not consider dissents negative. It is really telling you the process in the federal open Market Committee is working. Alix dr. Greenspan, you had a different fed than the fed is now a different type of communication strategy. Was it hard to get your word out there if there was a lot of dissent in the ranks . Chairman greenspan no, because press were very vigilant in trying to figure out what we are all about, and in general, they succeeded. David i want to move on to the general question about the global bond market, which is very much in the news every day, it seems like. Looking from the outside, it seems the more the Central Banks cut the rates or hold rates low, the more there is a bond rally bonds go up. Is this sustainable over the long term . Chairman greenspan no. David that is a simple answer. [laughter] alix when does it turn, then . David yeah, when do we see it turn . Chairman greenspan look, i like to think of the bond market, in its priceearnings ratio, if this was a stock indicator, we would be running for cover. I think this tells you there is a speculative element involved in this market, which cannot persist, largely because if you go back historically, Interest Rates have been remarkably stable, going back hundreds of years. You know, in the range of 5 , 6 , 7 , for marginally risky issues. We are at unprecedented, historic lows, and i like to argue, because i think it is the case, that we are working against human time preference, and it cannot go on indefinitely. In my judgment, it is just a matter of time before longterm rates go up. Shortterm rates are completely in the control of Central Banks, but the critical Interest Rate is usually the three to fiveyear, or the fiveyear. I like to watch the fiveyear and note as, sort of, a general view of the marketplace. That is something that cannot stay down at these levels and definitely, and i think it is just a matter of time before it moves. Not dr. Greenspan, you are alone in this view at all. Many have been calling for the first of the bond bubble. The dissent yesterday partly because of asset bubbles. What level should the fiveyear yield be at now, and what gets us there . Chairman greenspan it should be where it is. That is what the market is telling you. The question is where is it going to go, and i think, over fivelonger run, three to percentage points. The 10year note, i would say three to five. So, if there is a speculative nature to the bond market as he said, if they were equity markets, people would be running to the ends of. Exit. From your experience in the bond market, what sort of trigger event gets people running to the exits . Chairman greenspan it varies. You are asking me what engenders an irrational reaction. By nature, it is random, and there is no general proposition that can basically give it to you. Onejust say thats every and this whenever you have a bull market, it looks like it is never going to turn. The stock market, arece are a well below bids are well below. Bids disappear and markets go down sharply. Peakis a classic case of a in speculative security. I do not think it is going to happen in the short term. It can go on for quite a while, but it is, in the longer run, unsustainable. So, dr. Greenspan, what would be that trigger in terms of many say stimulus, inflation, perhaps, to unravel the bond market . What signs do you see of inflation starting to pick up in the u. S. . Chairman greenspan you are christ quite right. Inflation is the key issue here. What we are experiencing at this moment are two important trends. One is unit labor costs is definitely rising, going up more than 4 . The reason prices have not been going with it is that Profit Margins have been squeezed down so that the nonfinancial, have beenmargins falling for the last year, and i dont know when they stop falling. But i do know when they stop falling, and if unit labor costs continue to rise which is another way of saying wages are going to rise you are going to begin to get some real, upward pressure on prices. But, it is in the future. I do not know where in the future it is. All i do know is Profit Margins can not go down indefinitely, and when they just stabilized they dont have to turn. When they stabilize, and the cost flows through if you have, as we do now, a little over 4 annual rate labor cost growth, it definitely means that is where the prices are ultimately going to go, unless, of course, productivity picks up, and absorbs the issue of wage increases. Increasesber, wage are being pushed by the fact that the labor markets are getting tighter and tighter. And this is extraordinary because employment continues to rise, and the way i have been putting it recently, we need more and more people to produce less and less. That is another way of saying productivity is slowing down. David Alan Greenspan, former Federal Reserve chairman will be staying with us. Alix coming up, we will discuss regulation, including doddfrank, and what should happen with wells fargo. Later, the Worlds Largest Asset Management acid asset manager. Lack rocks larry fink joins us. David this is bloomberg. I am david westin. Lets go to what is making headlines outside of the Business World, and for that, we go to emma chandra. President assad is blaming the u. S. For the rejection of a ceasefire, rejecting claims that there was an attack on a aid convoy, and dismissed statements that an american attack on syrian troops was an accident. There were four airplanes that kept attacking the position of syrian troops for more than one hour. It could not be a mistake for more than one hour. It was definitely intentional. Enemiessad said his alone are responsible for the six years of civil war in syria. The second night of violence in charlotte, North Carolina, after the Police Shooting of a black man. Police fired tear gas at protesters. One man was shot and critically wounded, but police say he was not shot by police. The governor of North Carolina has declared a state of emergency. Police say the man ignored demands to drop his gun. Some residents say he did not that she was not armed. Siteding to the text recode several million yahoo accounts have been exposed as they plan to complete their sale of its core business to verizon. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 150 news bureaus around the world. 120 countries. I am emma chandra. This is bloomberg. Is whetherquestion all the regulation is making the Financial System any safer. Former treasury secretary Larry Summers has his doubts, as expressed in a paper and told to bloomberg tv last week. Secretary summers we thought if the banks had become far less levered, as the Regulatory Community says they have, we betated to see beta see go down, and that is certainly not what we saw. That is why without reflection on what was going down with Financial Regulation was appropriate. David back with us is Alan Greenspan, former Federal Reserve chairman. I want to put to you the question Larry Summerss address are we safer because of the regulations . Chairman greenspan no. In fact, i would say the opposite. I commented very early on, after the bill was passed that it cannot work, and in fact, the way i put it, it would cause as much problem as wage and price controls did back in the 1970s. I think it is pretty much on line, and the one area that i approve of is the significant increase in Capital Requirements. Even had stopped there, or made the Capital Requirements higher, i think it would have been a very effective bill, but now it is a mess. It is very difficult to convert the text of the legislation, which is essentially the government telling the regulatory agencies to solve such and such a problem. Tois very difficult implement such instructions, and i dont think this bill is working at all. I would like to see it repealed, but i must admit that the politics are such that that is called wishful thinking. David lets be wishful in our thinking for a moment lets say we could repeal doddfrank. What would you put in its place . You say you like increased reserves. How far would you go . Chairman greenspan i would go anywhere from 20 to 30 of assets for your equity. Im for pure equity. I know everyone says that will shrink the Banking System. Extent, to a certain but it will be for the loans you should not have made in the first place. If you go back historically, you find going all the way back to 1869, when the first data were collected by the newly minted office of the comptroller of the annualy, and we have data all the way back from National Commercial banks what those data show is that the ratio of net income to assets has been remarkably stable, between 5 and 10 . And when it went off for a year or two, it came back to medically. , we had hugeeriod changes in the ratio of equity down, but both up and that did not change the rate of return. See, ifar as i can history is going to repeat itself, and it almost surely will if we were to raise regulatory requirements on capital, i do not care how much you do it, actually we will end up with a far more stable system. They are,e problem is basically the best way you can describe why the markets it is is that the out the me to figure best way of putting this without getting into technical issues, but what we need to recognize is a contagious default process out stop, weich, unless we are going to run into all sorts of problems. And what doddfrank has left us with is a system in which contagious default can still occur. And if that is in fact the case, it has done nothing. But, if you have a high enough ratio of equity to assets david right. Chairman greenspan you get there is no way you get contagious default. There are no contagious defaults in a nonfinancial spectre sector to speak up. Sector to speak of. David thank you for being here, and for not getting too technical. Alan greenspan, former Federal Reserve chairman. Liftingming up, currencies worldwide the dollar extending declines, as it heads for its first annual drop in four years. We have Morgan Stanleys hans redeker with his post fed and boj trade. This is bloomberg. Is bloomberg. I am alix steel. The dollar having a big effect on currencies that is not my terminal. There you go, you have the big jump when the fed delivered the hawkish hold. The dollar declined. Emerging market currencies popped up, now up more than 1. 5 over the last two days. Germany, hans redeker, Morgan Stanleys head of global fx strategies. How long can the trays hold on after the hawkish hold from the fed . Mr. Redeker we think the decline has more weeks to go we think about to months. We suggested the u. S. Dollar could find index wide between 4 and 5 . Many look at what it means for the highyielding, emerging market currencies. In some cases, you can make gains up to 8 , 9 . A significant move to come. Favoredat is the currency emerging parks hair you look at to distinguish if the risk valet risk rally is still on watch mark still on . Mr. Redeker you have to look at the story brazil. The turnaround situation, we would say there is significant inflows into indonesia into the fixed income environment there. There is no spilling over into the equity environment. We think indonesia has a leg up in this and has good potential. You look at the russian currency, that has a lot to do with the dynamic of the dollar, oil, and politics. In turn, a decline in the russian economy one and a half years ago, there is now a springboard effect taking place. So, that means constructive miss on the russian ruble is pretty much warranted. Then, of course, you have the exception to the rule, the mexican peso, and very obvious reasons. Alix of course, the u. S. Elections. Another interesting pair is the aussie dollar. I charted versus the msi global equities, and they seem to track each other well. As you see the aussie dollar rise the white line there any increase you see, you see the world index follow it. Do you feel the aussie dollar is a good correlation to Global Equity appetite the riskon we havent seen . Mr. Redeker you would see it that way, but the question is what is the end, how are you trading risk appetite, and what does lead . Alix right, right, right. Mr. Redeker you need to look at a different punisher. The way i see it if the u. S. Economy in this quarter has been strong. 3 . Our economists are expecting the economy will slow down to about 1 in the Fourth Quarter. Again, you have the willingness interestd to hike rate. That could create a situation which is actually quite constructive for the risk market, and the reason it is constructive for the risk market playing in. Have data might come in weaker. Data might come in weaker, people have to question the willingness and likelihood of the fed to hike in december. You have no more than 60 of a probability priced in that they will hike in december. The communication point in that direction, but its data is going to come in weaker, as we are if data is going to come in weaker, as we are suggesting, at the end of the day, the fed will not pull the trigger in december. You have risk taking place, and that is currently driving the dollar. Alix and my favorite, dollaryen. yesterday. He see a little weakness today interesting yesterday. You see a Little Movement today. What happened what is your call . Mr. Redeker for the last recorders quarters, we pointed out this would be the year of yen strength, and we were suggesting in the coming quarter we should bottom out at 97. Is thisstart to think the time to continue to be bullish on the japanese yen, and the answer to that is clear and loud no. And the market is now on the other side. When i was in this country in november of last year, marketing for a stronger yen what was the reply . You have a central banking United States keeping the Balance Sheet stable, and there is an expansion in japan, therefore the yen has to weaken. Alix have to leave it there. Great to see you. Hans redeker, Morgan Stanley global head of epic strategy. David . Ix this is bloomberg i am alix steel. It is the risk on rally from the hawkish hold from the fed. S p futures are around the highs of the session. The ftse in the dekes much higher. Utilities, telecoms, leading the way. Weaker looking at a dollar. It is the story. Except for dollaryen the dollar eking out a gain there 10year yield, you see buying along the long end of the curve to you see the yield come down by about one basis point, as we do. In crude, it is a stronger crude market there by about 2 , as you wind up seeing the dollar, off. It is more positive for commodities. We have breaking news, david. David initial jobless claims the estimate was forced to 61. It is lower it is 261. 252. Lower, 254 better than the consensus on the estimates. Alix that raises the question for the fed if you focus on employment, employment improves, and inflation is picking up, how do you justify not hiking . Yes and peace still around the highs of the session. The futures market up eight points in terms of the twoyear yield. You see a Little Market buying come into the market. Yields coming down just a touch. Really a story of a higher yield, sell the shorterterm market. In terms of dollar index lows of the session, down by. 3 . David we want to put it in a Historical Perspective but the line chart knowing all the way back to 1967, we are well below the numbers historically that is encouraging. Not as many jobless claims. People are getting jobs. We did see the fed raise the bar lowered the bar, looking for 4. 8 percent unemployment as opposed to 4. 7 . When do they feel the hike the squeeze and have to hike . The data keeps Getting Better. David and when do we get the full employment . For more reaction, we bring in narayana kocherlakota, former fed president , and professor at the university of rochester. Welcome. We just got the jobless numbers in. Tell us how this fits with a series of Economic Data that the fed is looking at. We areherlakota continuing to see improvement in the labor market. That. S reflective of as the chair sat at her press conference yesterday, i would agree, we have more room to run recovery,bor market but it is good news we see the labor market continue to improve. Alix if i would have sent to you a year ago, 4. 9 on employment, the fed finance rate would be 25 basis points would you have thought i was crazy . Mr. Kocherlakota [laughter] mr. Kocherlakota that is a great question. If i go back to a speech i made in ironwood, michigan, in september, 2012, i was suggesting the fed should keep the fed funds rate low until the Unemployment Rate fell below 5. 5 . And then, only then, start to talk about raising rates. I guess i am a little surprised by where we are relative to the four years ago, but we just have a lot of downward pressure on Interest Rates out there in the world, and the fed has to be responsive to that. David does it also surprise you the relationship of this to wage prices, and for that matter, wages overall . If you were told we would be at 4. 9 , what would you expect to be going on with inflation . Mr. Kocherlakota i think we are seeing that unemployment is not as solid a metric in terms of where we are in measuring labor markets lack, as maybe we might have thought in 2008 or 2009. Even by 2012, frankly, it was becoming cleare and clear that we wouldr have to look at a broader notion of what labor market slack is. The fraction of people aged 25 to 54 who have a job remains noticeably below where it was in 2007. You know, i think those people who are not in the labor force, 54 are continuing to put downward pressure on wages, and that is translating, i believe, as well, to downward pressure on inflation. Alix im glad you brought in brought up Labor Force Participation rate, because janet yellen keyed on that we sell we have a chart that shows the precipitation rate holding steady. The campt yellen is of there is more room to run in the labor market. Professor, what about the other beingnt that slack is eaten up, and we are much closer to full employment than we think because growth will be better today than, perhaps, three years out . Mr. Kocherlakota you know, i think all of these discussions are too much based on a test framework. We are not talking about being so close to the zero Interest Rate. 4 and thinking should we go up by. 25 , were down by. 25 , these would be the right kind of conversations to be having. What countries have found is the zero lower bound is very hard to escape from in a Sustainable Way. You are going to need to have the fed is talking about the balance of risks being balanced. You want to be waiting until the balance of risk is to the upside. You need that kind of clarity about being able to escape in an effective way. I agree, there are risks to both sides, but i do not think you want to be moving when the risks are balanced. You want to be waiting until the risks are to the upside in order to escape in a sustainable fashion. David if we are dealing with an old framework, how do we get to the new framework, and do the three dissents we had yesterday indicate that maybe the consensus is breaking down . Yeah, i thinkta you know, i think the committee should do more to reflect on why it is since over 2016 they have not been raising rates. I think it has been fear of Downside Risks that became closer and closer when it seemed like the committee was going to raise rates, something appeared in the global environment, the domestic environment, that made them pause. That is how we start to build toward a better framework. In terms of you know, i think the dissents signal there are definitely some people on the committee who think we are closer to full employment, are more worried about Financial Stability risks, and my own counsel to those folks would be if you want to get back to the zero lower bound in a Sustainable Way you will have to take on the upside risks in your strategy. Alix take on rosengrens view where might those in balances the if the fed stays lower for longer . Mr. Kocherlakota yeah, i think it is i personally do not see the risk that president rosengren does. He has been talking a little commercial real estate. I do not see the spillover from that into the Global Economy excuse me, into the fuller domestic economy, affecting the mandate of variables of an planet and prices. I do not see that spillover going on. Andink there are other ways that the fed could dampen down those risks and using the blunt tool of Monetary Policy to go after those. That would be my own take on the Financial Stability side. I just dont see when you look at the more you want to if you are the fed making Monetary Policy, you want to see risks that will spill over into inflation and employment. That is what you are charged with focusing on, and i just do not see those kinds of risks at this time. David narayana kocherlakota, former indianapolis fed president. Thank you for joining us from rochester. Alix coming up next, ceo of the Worlds Largest asset manager, larry fink will join us. Look at the 10year yield, now in session lows, take a nosedive as initial jobless claims came in at 252,000. A lot of buying coming in at the long end of the curve. This is bloomberg. David this is bloomberg. I am david west in the hewlettpackard enterprise room. Coming up in the next hour, Tobias Levkovich. Blackrock is holding its Second Annual Conference Today in midtown manhattan, and Erik Schatzker is at the event. We will go to him now for a big, special interview. Erik i am here with larry fink, the chairman and ceo of blackrock. Good to see you this morning. Mr. Fink good to see you. Erik lets start on Central Banks with the caveat you have been vocal on central policy, and critical of negative rates. Here we are eight years in the bull market. The fed held rates for the sixth consecutive meetings meeting, and what is happening stocks are up, bonds are railing, the dollar is weaker. What is wrong with this happy picture, larry . Mr. Fink well, we are just continuing the same environment are beings savers harmed, Pension Funds are having serious issues related to their and the gap between their assets and liabilities are actually increasing. So, the problems are getting more significant. Insurance companies are having a very difficult time now, and now they are going back to their insured and asking them to pay more. So, we are seeing the real impact of low, and persistent low and negative Interest Rates on savers. We are benefiting debtors, and my view is this is one of the big reasons why we have such anger in the world anger related to brexit, the anger in our political process. Because, from my perspective, as you said, equity markets are up. I am sure the Real Estate Market is doing a little better with the persistence of lower rates. So, people with r really enjoying this environment. And people who are just saving are really enjoying this environment. And people who are just saving every day to help them build a nest egg for retirement, or a nest into building up to buy a house, rina a nested for their childrens future they are being harmed or a nest egg for the childrens future, they are being harmed. We see a division. Erik surely the fed sees what you see and understand what you understand. Mr. Fink i do not think they truly understand this. Erik really . Mr. Fink i actually believe these are smart, articulate bankers who are trying to stimulate the economy. I would also say they are the only bold characters in the whole economic scheme because we have seen an absence from politicians to reengage in some extraordinary fiscal measures to get this going again. Erik we are going to get back to the physical side of the debate in a moment. Mr. Fink right. Erik what is it that you do not believe janet yellen, her colleagues on the federal open Market Committee, and central bank is in europe and japan dont understand . Mr. Fink i will not identify one banker or another banker, but i will say generically i do not think they calculate the whole cost the global cost of the impact on savers. Erik but the congressional mandate does not tell them to does not tell them to. Mr. Fink you are asking me what my view is i understand what the mandate is. You are asking my view on how this is intact in the economy, and i think this is a component of what is creating the anger. Membersll, maybe some of the Federal Reserve are beginning to share some of these concerns. You might say the committee is beginning to split appeared we had three dissents yesterday splinter. We had three dissents yesterday for the First Time Since 2014. What does that tell you . Mr. Fink i do not know what it despite my that longterm views, we have to be theied about the value of dollar the dollar is weakening. That is the desired outcome at the moment. 2isheconomy is growing at percent and we are struggling with the strength of the dollar. Two, our biggest trading partner, mexico, the peso is the dollar. To just a few months ago, it was 17, 16. This is all in anticipation of higher u. S. Interest rates. So, it is having an impact in some parts of the world. I really think it is hard for our central bank to be so asymmetric versus the continuation of aggressive Monetary Policy in japan, aggressive Monetary Policy now in the uk, and aggressive Monetary Policy in europe. I think and this is why you are starting to see the dissent. You are seeing the dissent because we are doing better than most of these other economies, but we are not doing well enough. And i do believe if we are too aggressive in raising rates in front of all of this unrest of this aggressive policy elsewhere, i think it will be destabilizing in the long run for our country. In addition, we have a lot of Political Uncertainty Going Forward between now and our election, and, my gosh i met many people at the you when the last few days. The Political Uncertainty in europe is only growing. Erik before we get to that point, let me finish on central banking. Do you believe central bankers get the idea, or perhaps even agree with the supposition that unconventional policy has reached its limits . Mr. Fink i think privately most of them would say it has reached its limits. I think they are in a trap. Erik a quandary . Mr. Fink not a quandary. I think if they said that the market would collapse. They cannot say that. Erik they cannot say we have run out of ammo. Mr. Fink because we know what the outcome would be the outcome would be we need more ammo. What i would like central bankers to route world, not just our central bank that bankers throughout the world to say not just our central bank that it is time to do it alone. If they do that, i believe the statement is saying we are witnessing this division economically with the families that have all of this capital, the families that dont. Willgh fiscal policy, you help a broader component of our economy. Erik you said you were not surprised the fed didnt move yesterday, and the market was not surprised. That was priced in. Mr. Fink yes. Erik today it is a different story. Yellen all but promised we would see a rate hike in december, and probability0 plus this morning that will happen. What if it does not . Mr. Fink if it does not, that means the economy is much weaker, where we have another circumstance politically or economically that becomes unsettling. The circumstances you can find them. The fed has done that on several occasions. Mr. Fink i think there is still not the economy is operating as well as they would like it to, and janet yellen has been consistent that we will be data dependent. One interpretation might be different from another persons interpretation, but we would be at the cost. I would be surprised if we did not tighten in december. Erik lets get back to Political Uncertainty you do not think investors are paying enough attention to politics, and in particular, elections. Why question why . Mr. Fink they dont look that far. Far hey are not that an election here in november, a referendum in italy in december. Mr. Fink december 7, yes. I think Political Uncertainty is getting larger. The uncertainty around brexit, from my perspective, is only getting worse. Erik arent the markets telling us brexit is not a big deal . Then, thei think, market is not focusing on brexit, or you could interpret it is not a video. It will be a big deal. Brexit will be a big deal. Erik define big deal. Mr. Fink initially, the uk has benefited the weakening of the sterling. We have not even begun the whole concept of brexit. The Prime Minister suggested that she may apply for article of the first quarter, second quarter. There is time. There would be a lot of noise around that. From what i hear, talking to ceos in the uk, they are not incrementally hiring. They are not incrementally planning to invest in the uk until there is more certainty. So, i do believe that brexit will be a big deal. Consequences big consequences in the u k, depending on how the negotiation goes. You suggested the italian referendum. This is serious for europe and italy. If the referendum goes against the Prime Minister, and there will be greater uncertainty with Prime Minister renzi, which, in itself, is destabilizing. We witnessed in germany, chancellor merkel losing some of her power. I think she has regained it in the last few days. Obviously, her coalition has changed quite a bit through these elections. So, i would argue we are in more dangerous water in europe than we have been in years. Erik so, if you were to again, you just said you were less optimistic than the market about many of these things, and we are talking about Financial Markets broadly stocks, bonds, currencies, etc. Where should things be . Mr. Fink here is the problem if we have more of the same for the next year, the markets will be quite a bit lower. Erik they will be quite a bit lower. Quite a bit means what . Mr. Fink 15 . Erik 15 , if we have more of this unconventional policy. Mr. Fink and no policy changes, results politically with a referendum, things like that in europe. Erik with fringe parties getting bigger. Mr. Fink if you have more after novembery if whoever wins the presidency focuses on fiscal policy. If the Prime Minister of the uk, as she understands brexit could be a big problem, on more fiscal policy, you could find ways of reigniting the Economic Conditions of the world, which will help the capital markets. Erik people have mr. Fink we are at this pivot point that is quite binary. My worry is the market is more binary than the market is trading. Erik in other words, we do not bump along with the s p at 2150 or 2200. It is either down 15 , or mr. Fink up 10 . Erik the pivot point happens when . Erik we will learn more on november 7. Mr. Fink there will be more certainty regardless we will learn more november 7. Erik there will be more certain tv got us wins the election. Mr. Fink anger does not go away with an election. We have in many countries brexit was 52 , 40 . Have divided governments 52 48 we have divided governments. Countriesave divided governments across the board. Erik that is the demand on the street level. In also mentioned ceos britain you are talking to are not hiring. Mr. Fink let me restate that in the United States, i think the Fourth Quarter will be slower than the third quarter. There is no reason to invest until you have more certainty. Erik were talking about revenue, productivity, gdp growth . Mr. Fink gdp growth. Gdp growth will be weaker until we have more certainty. Second, as we enter the realm of the sharing economy if you are manufacturing, you do not have to buy the equipment. You could rent it. During this uncertain period of time, i think you will see more even if you have demand, you will be renting until you have greater certainty in the future. I believe across the board whether it is buying computers, buying the tractor, or something related to construction, you are renting. I hear this across the board that the decision for Capital Expenditures has been slowed down, but that does not mean they are not adding capacity through renting. Erik bad for hiring, but good for productivity . Productivity is going down worldwide. In one of my conversations with one of the leading finance ministers, for two hours, that is all we talked about this week productivity in every part of the world is going down. It is the fact that we are underinvesting worldwide, and it is that great uncertainty. Whys that uncertainty businesses are not investing as much. Erik if investors agree with you, larry, that there is this binary outcome that hinges on uncertainty, what should they be doing right now apart from buying ishares. I see that fish easily. Facetiously. Mr. Fink you continue to do what you are doing slowly add to your pension fund. Erik even if the returns are terrible. Mr. Fink i am saying you buy equities on a 30year liability. If you are looking to do something in two years, i would be investing probably keeping more money in cash. It really depends on erik your horizon. What your horizon is. That is something we keep in mind we spend too much time on should we buy or sell. That is not the first question we should answer. What is your time horizon . Do you need it in two years . Then this is really important, but if youre horizon is in 30 years your horizon is in 30 Years Commission have a systematic approach to investing. It should be a necklace. Erik good to see you this morning. Good advice from larry fink, the man who built the Worlds Largest Asset Management company. We are talking about blackrock. More coming from the blackrock fixed etf conference here in new york city. Alix thank you, Erik Schatzker, and larry fink, ceo of blackrock. Coming up, the citigroup managing director and chief strategist, Tobias Levkovich joins us. How much can we rally . S p futures are around the highs of the session. Up nine points. The dow, up 78. David just about 30 minutes away from the opening bell in new york. Jonathan ferro is off today but the markets arent off. We havebelievable moves seen risk on rally continuing overnight all throughout europe as well. We got those better than expected initial job claimed on the market. Also have the nasdaq closer to record highs yesterday. Ftse, dax, still around highs. It is a different story taking a look at the dollar. That is at session lows. A little bit of strain in dollar yen. The story of the day has been the rally in the back end of the curve. The 10 year yield down after better economic and a. Better news is better for the markets now where are we at . Crude and commodities all across the board flying on that weaker dollar. Talk about flying commodities, freeport copper and gold responding to extremely big and iron ore. Copper at its highest level since mid august. Really hoping that as well. At 5 you name it that industrial metal was popping. For more on what is happening under the part of the market, Abigail Doolittle is joining us and mark barton in london. On distillate abigail who is looking at yahoo maybe ok, go ahead what are you looking at . Atgail we are looking Herman Miller the which sells Office Furniture. Share are tanking after they missed estimates. This is the third Office Furniture company to disappoint this week so bit of a trend that post a popping higher, study showed one of the Companies Drugs reduced liver proteins a big factor in cardiovascular disease. The stock a be highly prehours but theyre probably pretty disappointed overall. Alix peggy so much. Barton over in london. Energy industrial really popping higher. Yields are coming down. it is a gift the fed staying on hold, the biggest gain since september the second. Conglomerate,nish shares up by 3 spilling into a transport and energy. Theyre getting value today. Shares are up by 3 . The french utility cutting. Theyre citing safety checks keeping the Nuclear Power plant shut for longer than expected. Shares are down in year one third of 1 . The british Education Company is being cut to a now the press target cut 10 after its 2016 estimate was cut by 6 . 2017 eps estimate cut right 5 . Shares were lower earlier, a lovely chart this is sterling dollar. Julius baer one of the most accurate forecasters said sterling dollar will be 129 at the end of the year. Longterm it says sterling will fall to 121 by the end of 2018. Nearterm less dovish longterm certainly dovish. Alix great distinction, thank you. Chiefg us now, tobias, equity strategist. It is like the markets of lasix or eight weeks never happened. The global bond fell off the pullback in equities are we back july playbill of july . Theas i hope not, over back to october of last year most the time our panic euphoria model was an panic territory. That tells us investors were not position for the market. When that comes out of panic weve had the reversal of the negative sentiment. Sameont get quite the positive push. I will read the people of gotten too excited. Alix fair point, one reason that is risk because you have these parity funds and then they have to sell everything because they are also over leopard. What is the correlation situation look like today . Top 50 we track the names, three weeks ago it was under 10 . Suggesting investors had gotten very comfortable and theyre now great stock pickers. That is honestly not the reality of markets. That send a signal through weeks that we had a violent reaction a couple of weeks back and have had this uncomfortable situation was suddenly fed said dont worry about it and everybody ran back to stop we have seen that bounceback it is the high 50 range. You should begest stepping up and buying when it does but it does suggest that we will meander for little bit. David put aside the fed for just a minute. Lets talk about tobias i am canadian, that is ok. David larry fink to said the earnings in the first death for Fourth Quarter will do earnings for the Fourth Quarter will be worse than the first quarter. Why i donthere is necessarily agree with that. Debatable of this point is that oil prices are higher than they were in the Fourth Quarter last year. You will be comping against that. For an energy company. Number two, the dollar. In the Fourth Quarter last to the tray dollars up 14 . He dont have the drag of the dollar hurting earnings. Alix fair enough we get deeper into your earnings now as is and what sectors will benefit later on in the program. Move, you are setting a little bit more constructive and i feel like you usually come in we be ok. Ay no, this is different. A moderateall myself bowl. Ithink bull. I think earnings will be fine next year. It will not be up 25 and rocking. The staples, utilities, and stocks were you have had this dividend chase people desperate for yields. As a result you have valuations that are telling us be careful. David you have it pretty bullish in tech. How mcuh that is driven by one or two big stocks . I cant get into stocks because it dont have any actual disclosures i said that we havent changed. Weve moved a little bit of round and taken software down and hardware up. We like semis and tech hardware more than software. Capital spending is exceptionally strong. We track5 based on companies Capital Spending plans. Media is expected to raise their funding this year. That supports tech investment. As a result we do see tech is one of the strong beneficiaries of demand. Alix you brought up the dividend proxies being overvalued. As we see today were seeing a isnt it fair for investors to make the case as long as the s p yield will be hired the 10 year yield. Tobias i have no problem awning stocks is what you own within the stock market. Here is the biggest problem, theyre called defensives when you overpay for something it is no longer defensive. If you want to say it is defensive that is safe and ok. And then it is not if you overpay. When they become higher data stocks they are not defensive. People want to but that term around it and it presume safety. You reach because youre desperate that is a problem. That is what we saw over the last couple of weeks with a shakeout in the bond and equity markets. We saw the low volatility high dividend stocks great the most volume and that is not what youre supposed to do as an investor. David if those are overpriced what is underpriced . Banks, semiconductors the munich won distinction with the mimic one distinction with a good valuations we dont is something is cheaper and more expensive. You get too much into a confirmation by his argument. We look at which valuation metrics have been the best predictor of stock bys performance looking back over 20 years. How have investors reacted in the past to these valuation levels. Not an argument about something cheaper or expensive. You know i had a fun exercise with one of my children who bought a pair of shoes she towered cheap as they were 50 off. Thought the really expensive and she ended a pain for more than she thought. Alix theres a whole different dynamic going on there. David underperformance that will we said . And expensive is a subjective term. Will be staying with us. Now an update from the news outside the Business World for that we go to emma. Emma thank you. The governor of North Carolina has declared a state of emergency in charlotte after a second night of violence. They fired tear gas at demonstrators. City the officials a police were not responsible. And tuesday shooting police said the man refused the demand to drop his gun. Some residents say he was unarmed. A new poll shows Hillary Clinton still leading donald trump. Aheadrvey has clinton 4337 in a threeway race. Trumps negative is even higher. Also, yahoo was the victim of a massive data breach which is the company me at revealed details of the us of the attack this week. Yahoo is about to close a sale with the internet assets to verizon. Global news 24 hours a day powered by more than. 600 journalists in 120 countries. There was some breaking, mario draghi is speaking as we talk right now in frankfurt. This is the european Systematic Risk board. There are some headlines coming they are converting to lowlevel profitability which a think its a way of saying consolidation would not be a bad idea in european banks. More broadly, not a surprising evenings many will have to review their Business Models in europe which i think some are doing already. David that is the theme the european Banking System is on a different plane than the u. S. Banking system having nothing at their books as much. Deutsche bank stress was already there before the last scandal broke. You had the equities fall and the debt follett is to pretty ugly. The idea that you will have to consolidate to rebuild at some point. David there has been a lot of retrenchment already. Youll get the information as we get it. You can want that at live go. Coming up, apple is raising questions about a potential investment and a highend sports car manufacturer. What type of automobile could they be designing . I literally have no idea. I just got my drivers license. David this is bloomberg go, should we be worried about stagf lation . Earlier today we spoke with Alan Greenspan on why we havent in a rise in inflation. Unit labor costs is now rising going up more than 4 . The reason prices have not been going with it is that Profit Margins have been squeeze down so that the nonfinancial corporate margins have been falling for the last year. I dont know when they stopped falling. I do know when they stop falling and of labor costs continue to rise which is another way of you willges will rise get some real upward pressure on prices. Us is tobias,ith the chief u. S. Equity strategist. Is dr. Greenspan right . That unit is right labor costs are going up at a think he is wrong on the margin story. If you look at the s p 500, i am more focused on them as an investor than u. S. Gdp because Companies Operate in the u. S. And outside the u. S. If you look at s p 500 Profit Margins, x energy which has ,uffered a depression almost Profit Margins will be flat. The only area that is pulled it down for the entire area has been the energy sector. We know what has happened there. So, Profit Margins are down but why are they down . The energyabout sector. Having said that the pressure to raise wages is perceived as going to be very negative for margins. In the past when labor competition has gone up, for the earnings there are grow faster. You give somebody a paycheck instead of an unemployment check they spend more on top line for companies. David you and if that is true, if it are more and more wages chasing the same services what is the risk of inflation and what does that do to your Investment Strategy . Start inflation would pushing up on yields. That means do you want to be in these proxy defenses or on the once more sensitive to bond yields going higher which are ones like banks etc. And the more cyclical sides of technology, it is moving away. I dont know if the market is running away from us right now. Having said that lets go back , why arente thing we Getting Better productivity. That is the issue. Ive talked about the do this for a living and to understand the metrics better than i do. Many of them say were measuring productivity incorrectly. We are not capturing in the traditional widgets per man hour talk cap galatian some of the thef happening automation factors going on if you and i stepped out of an uber, there are many transactions occurring in the cloud behind us including is getting an email of that hill we just paid. David how do you measure the productivity without getting into the government of mouton wutan, which measures happiness. Tobias you and i know we are seeing these but it is just not showing the data. The question is how to the adjust that data to encompass that technology. What he is saying. Somee pure math is right of the ways would you capture that in the map might be the problem. In fact i remember in 1990s people were saying we were becauseing productivity all of a sudden we had cell phones and blackberries and things like that and were respondingger hours to an email instead of looking at the window enjoying a spring weather. We were doing it on a 4445 mile per hour work week and not capturing the extra time that invaded our leisure time. Alix 25 hour work weeks . I will take it that sounds awesome. Is sticking with us because coming up analysts have high hopes for earnings over the next year. Will the estimates actually be met 13 Profit Growth we discuss. Are past the boj, now it is all about earnings. The fastest expansion since the bull market began. These are earnings expectations for next year. Would be ae now it 25 increase in profits. Is this at all achievable . As probably not, were looking for 129 which is probably about 6 . Always have the topdown versus bottoms up out of sync with each other. Usually about 400 basis points this is a bit lighter. I think a lot of that this happened because have trimmed back some of the address the 2017 numbers. Thisprobably will they year into the early part of next year when they get better guys for management teams coming in Fast Companies can tell them because they havent done their budgets yet. Then they will try to bring the analysts down a bit and say i am an individual company we want to 20 . I think analysts have been so focused on the nearterm talking to investors another people believe 13 anyway. That is not embedded in the actual market. Alix cannot valuations hold of we get a rating of analysts expectations . Yes, we have been able to get that for a couple of years. What is interesting to me and there is an element of hypocrisy in this will people worry but multiple of the market but dont worry about the multiple of some of the stock that are above the market. Withhey try to justify it bond yields but they dont work. If the stuff youre overpaying somehow isntket expensive but the market is expensive how do you get there yields and Interest Rates are how they try to justify it. David do you the 6 of the 13 . Does it mean a big growth in revenue or more layoffs . Things i ame looking for one is the easy comps in the energy sector. The currency issues that have been dragging even this year. Thirdly, we do see some improvement in industrial activity is companies have been taking got inventory and will continue at a slower pace which by virtue of that means that action moves up a bit. It has to do with fixed overhead cost absorption variants. That a nice big managerial accounting term. You have 1000 to 68 fix a car it is one dollar per unit. So, as they bring a production margins come up as well. Alix scope and scale. Tobias absolutely. Thanke seeing something you so much are being with us. The opening bell is up next on bloomberg go. David this is bloomberg we are Just Moments Away from the opening bell here in new york city on this all important day after the feds decision and the bank of japans decision. God doware up by 11 jones up i93 and up crossing marketplace in europe overnight. You can see both the pizzi end the other assets if we could we look at the dollar is actually weaker against all currencies except the yen, the yen is the exception and all this. We have this move on the 10 year yield for u. S. Treasuries down two basis points. Finally, commodities are up across the board. Xou can see nine at nymbe crude oil. Nasdaq at an intraday record it closed at a record high yesterday. At 5322, that is a new intraday high for the nasdaq. The nasdaq up by 5 10 of 1 it was the risk rally that spread from europe to you in the u. S. Futures close right around session highs upward movement continuing into markets. You have a big buying rally into the long end of the curve as well. Flat. Rve continues to the of the story is the Commodity Markets where you have been weaker dollar. There was a boost and base metals like iron or and copper. Alibaba a different story about 2 , that price target raised is see upsideying in ecommerce for the company a strong mobile monetization i should point out you market are said that alibaba may surpass lead to leave china china. The story yesterday was about the neutral race neutral rate of interest for the fed. It will affect the fed funds rate right now is that white line coming in a 56 basis points, the blue line is the neutral real rate right around zero. The key to me with janet yellen talking about this that the size of the rate increase required to remove monetary accommodation from the system might actually be small. You can see that at the far righthand side of your screen. Billy at city says at that gap is so small how can the guidance be so high . At ninetill looking hikes trot 2019 but not seeing gdp growth of over 2 . How canlly moved lower, you continue to increase rates. This to me was the big . In the market that perhaps the fed really wasnt longterm dovish. Theres to longterm hawkish. David exactly, compared to where they will end up on this track. We need more softening yet believe it or not. Now we are joined by dan, Morgan Stanley wealth management. Theelieves we are late in u. S. Cycle. Tell us what that means for you in equities. Jeff first off, happy first day of fall. History atin , stocks and act fairly well at the end of the cycle. There is a huge misperception out that i want to address because everyone is so myopically focus on the fed and people think that the fed officially raise rates in december 15 which they rather the overriding the is the fed has been tightening since the fall of 2014. What happened since that point the economy has continued to expand and grind higher albeit stocks have reached postbrexit catalog reaching new highs. Will iphone is focused on it be this december yet to highlight the fed has been tight and financial conditions for the last two years. The economy any market has done just fine during that timeframe. David just fine, it will grow as an unlike 1. 5 , it is not going negative but is that just fine for Economic Growth . Given where we are in terms of the u. S. And the other factors, we will not be growing a and repeating the three or 4 we had in the 90s. This is more like normal growth. It is lucky longterm historical growth rate. One thing i would add related to that is fiscal policy. We focus so much on the fed is that the weakest factor to think about today is that we havent done much fiscal stimulus in nine years was at that is really the change agent or the catalyst to get growth of above that trend growth rate. Alix doesnt that cause a big like that in the bond market . That is what everyone says foot of the bond market sells authentic wood markets go with it. I think because positioning has been so negative in equities at the people would love to see a little bit of inflation. Level ratesn what in moving up from. Rachel at the data, when modestly low levels to modestly , equity high levels values expand against that backdrop of them equities and times of rising inflation and real rates is a time when equity valuations historically have that hasx part of already sort of occurred to take a look at the chart it shows all worlds to cool cyclical equities. Taking a look at the terminal you can see theres been a slight rotation over the last month or so, does that wind up continuing if we do not get the stimulus . Given how one side of the trade has been in terms of the defense of trade when you look at utilities, the valuations have expanded. You will still see some rotation out of that because people even if we dont see the fiscal stimulus a will still be valuation cognizant and not try to overplay these riches sectors. I do think the rotation continues. Sectors hit hard in recent months energy and financials. Energy is coming off of a pretty iod. Seasonal perdi i think we are coming into a demand. Period of titans, adn the earnings picture doubles, the low x patients can do pretty well. Is it any pricing to beg with over 60 . Fair point, that is why you want to be focus on the quality news. I dont think you wanted a cute risk. Alix will quality be in the iocs . Or the specialty shale guys . Both. I would look at submitteds god the decimated and is starting to expand. Are you willing to pay him for that good kind of quality asset. This patrol, this goes back to the broader point we were talking about earlier. Given the rotation coming out of highyield defensive sectors like utilities and telco which i think continues people will focus on cyclicals that have a year less well. People will still want dividends in this environment. It is ok to pay up for some highend dividends in the attractive places. David what about financials, what you like there . Chubb, that is one of our preferred names. This is a very high quality franchise. That is bringing together a legacy strong franchising and personal as well as a commercial line for some commercial line. They year be selling opportunities as well. We think that is another good attractive dividend paying name. Alix great stuff, thank you for a much. Morgan stanley wealth management. Car,g up, and apple sports a potential investment has investors wondering what type of car the iphone makers are actually working on. Take a look at where stocks have opened there is an s p up by 6 10 of 1 and the nasdaq of 6 10 of 1 . All of these in a positive for september, the risk on hawkish rally continues. ,avid this is bloomberg go coming up later today on Bloomberg Television david abney is the ups ceo. The risk rally continues to the afternoon. The nasdaq is not far behind hitting an intraday and closing high the nasdaq cut a record a little bit lower than those record levels but nonetheless it is risk rally continuing throughout the day in europe and now into the u. S. As well. You also have the u. S. Dollar now declining to if you can do to board here there are two other Asset Classes youre watching the composers and about almost three months down by 10 as that market euphoria continues in the market. The fed is going hawkish shortterm dovish longterm bringing those longterm dots down. You can see what is happening to that in the 10 year yield now down by three basis points. The 10 year note rallying for the third day. It is the longest stretch of more than three months that is the market,undup in stronger equity stronger mark market we you yields weaker yields. For more logical to go to Abigail Doolittle joining us from the nasdaq. And of and of the day the record. The nasdaq put in a record closing high right now on pace for a new record closing i. Atticipating in this is the tech company that went public yesterday and finished up 67 of the birds today. From yesterday, the folks released it were very happy with it. At fearing quite as well as company that sells Office Furniture shares are down 10 . On pace for the worse drop in five years. This after Herman Miller missed firstquarter and misguided the second quarter. Earnings play as much as 13 in north can demand america although approved a little bit at the end of the quarter to take guidance higher or make it the same. Interestingly, this is the third disappointompany to this week. There is a bit of a trend going there. Indeed, think is a much. Apple to be doubling down its ambitions to build a car. Consideringaker is a strategic investment in high end auto manufacturer mclaren. Of the british Prime Minister este dying. The tech giant is said to be considering Autonomous Car startup lit motors. This would be part of the Companies Plan to release a car design as soon as 2020. For more were joined by a tech analyst who has a buy rating on the company. Whether or not they are even or potential acquisition, that is a different apple that we saw a year ago. When you look about people spending 3 billion, youve also seen the r d budget at 10 billion which is up from 2. 5 billion only five years ago. They have been trying to develop internally youre now looking to do acquisitions is that maybe some type of admission terms of the internal development. Done ahis point theyre lot of small acquisitions. Itll be interesting to see how they move forward. There is a ton of interest on the automated cars. A notch what a car Company Offers to that. There are more important things the company should look at but it will help them in the endeavors you can see how this latest rumor pans out. As apple becomes more of a software and ecosystem company, what would an economist car or apple car do for them. Revenue, the use this great brand. People are more settled about the phone business just this morning verizon cfo said growing. Ne business is our ball is looking for incremental Revenue Opportunities to the phone business. It is not that they are leveraging the car on your phone it is just a great tech appleunity and selling at could excel at. David i keep hearing about them and i believe it that theyre coming. Alix i just got my license. David as you say it is a crowd injury already. Many people in Car Companies in tech companies. The little late in. To your point why do they need to build a car. When i just provide the operating system. 150 billion of cash. They are in a unique position where they draw a lot of talent in the valley that is working on these things. They have the ability to find the Small Companies in the cache capabilities to buy the Large Companies if they need to make a stronger push into this area. Apples brand of making a life easier there are pain points now. They have obviously try to do something in that area havent really done much yet. That could change also. Termsis this a shift in of them allocating less money for purchases and more to acquisitions and tieins . David the r d budget is again 10 billion their spending 35 35 billion on share purchases. You will shifted to spending 1020, 30 million in is a change a much larger than even the r d budget which is up in the last five years. Alix the nasdaq is not sitting at a hive. This mastec feel free . Talking about how sales were rising heads their comments below days ago. The coo clean that up today out of competent said sales were up. Im guessing these it is a activity even outside the United States. That is what is reraising the stock up. At a 13 times pe multiple. The stocks socks are still cheap. That theyoint out catch 81 of their kids at the high school. David coming up, it is bloomberg markets. What do we have to look forward to from you today . Mark the fed chat the central with thek continues chief monetary economists at Cumberland Advisors looking forward to hear his thoughts on what the fed will do next. Lloyds of london released firsthalf profits that increase today. To know is what is the contingency plan for the Center Services if this happens. Finally, the latvian farm them. Er will join what is the thin line when it comes to latvia. I cant wait. The most influential men and women today. Lumbar annual list is out. That is next. David this is bloomberg go. Bloomberg is out with its annual list of the 50 most influential men and women in Financial Markets. This weeks Bloomberg Businessweek it has some surprises. The magazines editor in chief joined us now im delighted you are you now. Tell us about this list to comes out every year, who comes out with this list . Forhis list will been doing six years it is the first time it is appearing in business week. A panel ofed by senior editors and reporters a bloomberg news. It was every year, basically were looking for people who we expect or have really affected the market. So, this year there arent a lot of Hedge Fund Managers. But there were some surprises. David number one is interesting. Theresa may. David someone a year or two ago we wouldnt even know her name. Decisions that will affect the weather london remains the Financial Center of europe. David maybe one of the most shipsntial Prime Minister ever. Two and three an injury no. Hillary clinton and donald trump are both ranked 2, i think. They are obviously going to affect what happens in the next four years. One of the Big Questions is if hillary is elected will she be kind to wall street . Will she be leaning towards the bernie supporters . Fund one have one hedge which may indicate where the market has shifted. He is the ceo of vanguard and says a lot about the way people invest because vanguard is known for its index funds. This year so many investors have pulled out of that managed fund and gone with index funds. Like 600 billion or some extraordinary number like that. He is not a name people really know. David finally, john oliver, a favorite of mine. Does sof the things he well is explain complicated Business Issues to his viewership were basically tuning in for comedy. This year he talked about puerto rico is dead and that a very well viewed segment on puerto rico debt. I am sure a lot more people understood it after he was done with it. He is teaching people about the market. David a remarkable combination of substance and attitude. He is a comedian. But he has a lot of researchers and they are really delving into things to try to explain them. David thank you so much for being with us. She is the Bloomberg Businessweek editor for some you can read more about that list on the latest issue of the nag is in and on your newsstand. You can also he from the magazines reporters every saturday and sunday on Bloomberg Television. Alix 25 minutes into the session we can take a check in the markets nasdaq sitting at a record intraday high continuing to climb higher. Energyty producers materials real estate all those things leading the s p higher a similar story over in europe. In the currency markets it is the story of the bloomberg dollar index at a twoweek low. Dollaryen bucking that call a little bit. The story is the rally in the bond market coming down on this 10 year. Happy thursday. In new york. A. M. I am vonnie quinn. Mark i am mark barton. Welcome to bloomberg markets. Vonnie we are going to take you from new york to berlin and cover stories in new york, washington, china, in the next hour. Lets go straight to our markets ru, julie hyman. Julie existing home sales fall a month over month, 5. 30 3 million, a decline of. 9 . The estimated number had been 5. 50 4 million. This adds to the weakening data we got earlier in the week on Housing Starts and building permits. 0. 9 decline in existing home sales, by far the largest part of the Housing Market to the annual pace of 5. 30 3 million