>> from bloomberg world had courtesan new york, i'm mark crumpton. -- bloomberg world headquarters in new york, i'm mark crumpton. this is "bottom line." to our viewers in the united states and those of you joining us from around the world welcome. we have full coverage of the stocks and stories making headlines on this wednesday. scarlet fu will join me for a roundtable on china's economy. peter cook is on capitol hill with the fallout from president obama's state of the union address.

good afternoon. >> the afternoon, mark. the president from a confident president obama clearly energized by the strengthening u.s. economy 5% growth rate we saw at the end of last year. energized by the 50% approval rating he has gotten in recent weeks. he reflected that last night. he spoke with some bravado taunted republicans to some extent with his two presidential election victories. he outlined a number of ideas, many of them floated before he spoke that were quickly rejected by republicans. his plan to raise taxes on the wealthiest americans in order to provide tax breaks to middle income earners. john boehner called it fantasyland. >> all the president offered last night was more taxes, more

government, more of the same approach that has failed the middle class for decades. these are just wrong policies but they are the wrong priorities. >> john boehner might not have liked what he heard last night but the president's allies and energized themselves by the president's performance and the message he delivered. something that will resonate around the country and improve their leverage here. even some republicans talking again about areas of common ground, hearing more about cyber security and trade at the top of that list. >> lots of lines were drawn in the sand last night. did the president's address setback the effort to overall -- overhaul the tax code? >> john boehner suggested he did. the president's new proposal -- that was not the

message from the press secretary. he spoke at the brookings institution and filled in a few more gaps. remind everyone about the business tax reform proposal. it would lower the corporate tax rates to 28% by eliminating loopholes. an idea republicans have talked about in the past. exposing optimism today. >> in 1986 we proved when you get together on a bipartisan basis to do things where you were helping the whole country you can have a louder voice than the individual a voice to protect the status quo. i'm optimistic we can reach an agreement here. >> as optimistic as we have heard jack lew on the subject of business tax reform. he set aside the notion of anything doing with the individual tax rates. some republicans are still

optimistic that progress on business tax reform can happen. >> peter cook joining us live from capitol hill. jon huntsman is the former governor of utah and now chairman of the atlantic council and he joins me from salt lake city. welcome back to "bottom line." mohammed olli rehn is the chief economic advisor at all caps -- mohamed el-erian is the chief economist advisor at all you iant. >> what he is focused on more than anything else is laying a foundation for his legacy. he can use the words -- here we are with two years to go and not

a lot of common ground. the one thing i look for at the beginning of the speech last night and the one thing i wanted to hear come i wanted to hear what the president actually had common ground with congress. where he can come before the mayor can people and say we have met and put aside our differences and there are many but we have found common ground on the following issues. sadly, we did not hear that. >> for their areas of cover mice where they can get some things a couple -- areas of compromise? >> trade. i heard the president's beguiling cleanly last night about trade promotion. as a former trade investor myself i know how difficult that is and how important it is for future trade agreements like the transpacific partnership which is the most ambitious deal we have ever done. the agreement with all of the european union nations -- if we

can make any progress on either one of these or both of these agreements under the banner of trade promotion, this would be a huge deal for american exports. >> how do you believe the president framed the debate about income inequality? what would president huntsman have said about the widening gap between the rich and poor americans? >> we have to be mindful of that gap. it is real and must he addressed. we don't take care of that gap by taking proceeds that have already been earned and redistribute them. you fundamentally grow and economy when we went through the most copperheads of round of tax reform. -- comprehensive round of tax reform. we closed loopholes, we lowered the rate and give everyone a lot more opportunity.

that is the way you provide more in the way of opportunity for everyone. that is the direction this nation needs to go. it's a function of preparing for growth in the 21st century. >> are you saying that taxes have no place in the discussion? >> i say that taxes are everything when it comes to fundamentally growing and economic base. the president is not talking about tax reform. he's talking about redistributing income. he's talking about increasing capital gains taxes. that does not stimulate growth. the only way you get growth stimulation is by fundamentally reworking your tax code. we have a trillion dollars in loopholes and inductions. -- and deductions. until they take that part

seriously and phase them out lower the rate and broaden the base this nation will have a hard time maximizing its growth potential. we have every advantage in nation could want right now. our export potential to asia and europe -- it's all there but our tax code is weighing heavily upon our growth prospects. >> who is in charge of the republican party right now? there is the ideological divide between different wings of the gop. are they as wide as we have been led to believe? >> it is very hard to identify who a leader of a party is when they do not control the executive branch. we have drifted as a party ever since losing the presidency and

are not likely to be able to the fine -- define a firm, optimistic confident republican agenda until we find a nominee who can win an election and get that person in office. right now, we are a bit divided. the debate that will take place in the months and two years ahead will be extremely important. in redefining what the republican party actually is. >> are you hearing any talk about whether mitt romney will formally announce his candidacy? would a third run harm his standing? >> i can't speak for mr. romney. we have heard from all the pontificator's out there on a potential romney presidency. the nation is young and energetic. we are still a frontier nation.

we are always looking for something new, bold and energetic. i suspect the republican party's best prospects going forward are somebody new and fresh. >> did you just describe yourself? >> we have tried that before. we had a great go at it. this go around -- i have been a lifelong republican. i'm not totally in sync with a couple of issues. i would rather work on the outside. >> jon huntsman joining us from salt lake city. always a pleasure to have you on the broadcast. up next, we go live to havana, cuba. a new chapter in u.s.-cuba relations. more state of the union reaction. "bottom line" continues in a moment.

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>> another big story where following on this wednesday, a new beginning in cuba. live in havana where the high level delegation begins today's negotiations to restorative o-matic relations with the communist government. what is the focus of these stocks? -- talks? >> the assistant secretary of state for the western hemisphere affairs touchdown in havana earlier today. both sides and say they want safer immigration. they will focus on things like reestablishing diplomatic relations. >> what does the united states hope to get from these talks? >> there's a whole range of issues. a lot of people are talking

about increased freedom for the cuban people. member of the u.s. state department mentioned even talking about immigration could provide better opportunities for cuban people. a lot of the focus will be over reestablishing diplomatic relations. things like converting the u.s. intersection into a full-fledged embassy. the first senior official here in 35 years. >> the cuban government has been quick to tamp down the expectations. they have been saying we welcome this dialogue but it's not a dialogue that is going to turn around our philosophy political or ideological. how is the u.s. delegation reacting to that? >> both sides are keenly aware. here in cuba, they don't want to make any concessions. they say you can't trust what

some of these officials are saying. the embargo being lifted as president obama called for is something cubans are key not happening. -- key on happening. >> is there any sense that maybe the u.s. congress could throw a wrench into this? >> i was just in a barbershop earlier. a lot of the barbershops's discussion was about that. whether they will be willing and able to work with the president. people here are talking about this nonstop. >> thank you so much. coming up, the shanghai composite recording some violent booms. could new margin trading rules

put an end to its record run? a roundtable discussion when "bottom line" continues in a moment. ♪

>> stay with bloomberg on thursday. bill gates sat down for an exclusive interview with erik schatzker. we have highlights of that interview all day tomorrow. it has been a bumpy and wild week for china's shanghai composite. the index plunged nearly 8%. as after regulatory efforts sparked concerns that traders would pull out from the world's best-performing stock market. today, shares soared. recording their biggest one-day percentage gain in more than five years. hasn't been recovered or could

the shanghai composite finally be running out of steam? joining me with answers is scarlet fu and tom warlick. he joins us in new york this week. thank you both so much. 4.7% rise today? what happened? >> it's a bit of dead cap bounce. that does not necessarily tell the whole story of what's going on in china. >> a lot of this rally has to do with expectations. the central bank took the markets by surprise with the rate cut in november. that is when he took off. it seemed at the beginning of this week there was a real loss of momentum. it seems to have given the market -- shifting from a market obsessed with using to a market

that is taking a bit of comfort in the stronger rates. >> sounds party familiar. i want to bring in a chart. -- sounds pretty familiar. the amount of shares purchased using borrowed money has surged more than tenfold. that is equivalent to 3.5% of the market cap. the red line is the confidence index. the question here is does the crackdown on margin lending a larger effort to put the brakes on the stock market? >> that is certainly a possibility. the underlying factor is really this is clearly a speculative rally. it is being driven by momentum. if you look at expectations on china's gdp growth expectations on corporate profitability, they have not changed. we have a lot of investors sing

the market when up yesterday, i expect it will go up today. i will put more money in. that kind of rally will always be vulnerable. >> what is still left to do this year? i was reading your columns and you said one of the things is to deal with the contracting real estate segment. start the painful process of deleveraging. >> the big story in china for the last decade was investment and credit driven boom. banks were lending and real estate developers were building. they overdid it and built to many homes and the banks extended themselves too much. china's new leaders have realized that enough is enough and they have started putting the brakes on it. >> up until then, there were no warning signs? or were people just not paying attention? >> it's a combination.

there were strong fundamentals. it is an urbanizing society. there are some fundamental drivers. there was this over layer of speculating. >> i'm wondering if you could fuld in your observation -- fuld in your observation -- fold in your observation. >> the issue for the regulators is the stimulus which they intended to help main street is in fact clearly helping whatever the chinese equivalent of wall street is. they wanted cheaper corporate credit. all of the money has flowed onto the s&p market. the corporate are having to pay more for the capital. >> what role does conception play in all this? >> consumption is the latent

force which china's government wants to see. china's government thinks consumption is the story for the next 10 years. the positive for the equity market rally is the chinese -- those funds are now increasing in value. there is a bit of a positive wealth effect. >> any exposure is not done just through the stock exchange. you can buy it through a hong kong stock. the shanghai price-earnings ratio is at 15 right now but 15 versus nine in the middle of this year. they have a p/e ratio and -- there is this link called the exchange link. give us an update on that.

>> china has a -- it is difficult to bring investments on and offshore. one of the big things in 2014 was the government opened the ties between the hong kong and shanghai market. international investors were going to try to increase their exposure. domestic investors tried to get ahead of the game by buying stocks. >> thank you both so much. u.s. conference of mayors meet in washington. we'll talk to mick cornett about what's on the agenda and get his reaction to last night's state of the union address. stay with us. "bottom line" continues in just a moment. ♪

>> welcome back to the second half hour of "bottom line." i'm mark crumpton in new york. it's take a quick check on crude oil come up nearly 3%. we heard from opec secretary-general saying no one is being targeted by low-priced oil. >> we are not targeting the united states or russia where anybody. it is an economic decision. >> the 83rd winter meeting of

the u.s. conference of mayors is underway in washington. which were the health and a chemical recovery of america's cities. mick cornett is the mayor of oklahoma city. he joins us from washington. welcome to "bottom line." >> good afternoon. >> let's begin with last night state of the union. did you and your colleagues hear anything from president obama that leads you to believe that washington is a sympathetic to or paying attention to the needs of america's cities? >> what mayors want is action out of washington. i saw another partisan pep rally . the executive branch has a response ability to step in and try to bridge that partisan divide. all we are seeing from the president is a wedge. you saw it on the looks of the republican spaces last night. the 2015 congressional session will be a lot like the last two.

american cities need something to happen. >> is the federal government an impediment or partner to transform the nation's cities into places where commerce is thriving? >> it is generally hurting it. we need a transportation bill and help with our infrastructure. we need less regulation and more money and more decisions being made at the local level. i would say it's largely an impediment. we need the main street fairness . that would help cities more than anything else. >> how would you define a main street fairness bill? >> it is to address the idea that municipalities and states have taxes due to them over internet sales. congress can close that loophole and allow municipalities and states to recoup the money due to them. it means public safety. >> in your city, what are you

hearing from elected officials about income inequality? what are they saying needs to be done to address the issue? >> everyone is aware of it. one of the things we can do is support manufacturing jobs. that is thought of as a way to bolster the middle class. the suspense of energy is a good start -- less expensive energy is a good start. that divide between low unemployment -- it's a big issue. it does not seem to be getting any better. >> let's talk about corporate tax reform. have you and the officials in your city been hurt by the fact that corporate taxes are so high

that may be some businesses might not want to locate in oklahoma city or elsewhere? >> we try to have a very business friendly environment. the whole idea that wealthy people are not paying their share in taxes is crazy. you see so much of that in speeches like the state of the union last night. we need tax reform, among a lot of other things. that is an example of the partisan divide that washington is facing right now. i saw the looks of those public and leaders last night. -- republican leaders last night. >> if you believe the president drawing the line in the sand and the republicans will not move off their position, where are we? >> it leaves us with an ineffective federal government. if you look at the poll results more and more people are wanting local officials to be making decisions. we have been pretty fortunate in

oklahoma city. our citizens are willing to fund our infrastructure ideas. we are not incurring a lot of debt. a lot of highly educated twentysomethings are gravitating to cities like ours. there are success stories out there. washington could be a partner in the success if they chose to. they are just not choosing to. >> your unemployment rate is below the national average. how have you been able to keep the rates so low? >> we have created a city where people want to live. the key to economic development was not seeing how many incentives you could throw at big businesses. it was trying to create a place where highly educated twentysomethings would choose to live. the kauffman foundation noted we were the most entrepreneurial city and the nation. the human population coming into oklahoma city is allowing entrepreneurs and job creators

to be successful and that is driving down the unapplied bit rate. we had the lowest unemployment over the last 30 years. >> it has been nearly 20 years since the oklahoma city bombing. oklahoma city can relate to the recent events in paris. her american cities doing enough -- our american cities doing enough? >> the examples of oklahoma city and paris you can only do so much. tweezer extent, we have to be more vigilant. that is one of the lessons learned. if you suspect something, you need to tell somebody. -- to an extent, we have to be more vigilant. >> mick cornett joining us from washington. thank you for your time today. we are getting some breaking news on on barclays.

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>> we have breaking news. let's go to the breaking news desk. scarlet fu -- >> new york's attorney general's expanding the dark pools complaint against barclays. he alleges that barclays misrepresented the algorithms used and falsely represented how client orders were routed. dark pools are private stock markets run inside large banks for the clients. the beef against these dark pools is they give unfair advantages to high-frequency traders. this is something michael lewis highlighted in his bestseller. bringing to light the unfair advantages that wall street traders have over investors.

the attorney general expanding the dark pool complaint against barclays. >> scarlet fu, thanks. it is time for today's latin america report. human smuggling is big business. gang smuggling route $10 million a year from 3 million illegal border crossings from mexico. these coyotes cannot do their jobs on their own. they need to employ u.s. banks. walk us through this. how do people wanting to get into the u.s. without proper papers set of transactions with these coyotes? >> there is a whole infrastructure built around this industry. it is a huge industry. my colleague michael smith and i

followed the path of pinnie cvs -- bennyicio diaz and his nephew coming to atlanta, georgia. they found out who come which smugglers other people have used in the past. they connected with them and got some loans from family and friends to pay for the journey. they hired the smuggler and it was a whole network of people who brought them from guatemala to atlanta by way of mexico arizona. a torturous journey. this was not a fun time for them. the smugglers held them captive. >> let's talk about the angle involving the banks. how do they get involved? >> they are the financial conduits for the smugglers to

make money. this is something relatively new. there has been an evolution of how clients have paid smugglers to take them to the u.s.. back in the day, it was cash. with a lot of people getting robbed in the desert by the time they made their journey, they do not have money to pay their smugglers. we saw a move to money transfer business is like western union which made it pretty simple. we saw government regulators cracking down on western union companies. we have seen a shift in the banks. we are talking about bank of america, jp morgan, wells fargo. names you've heard of and you see every day. that's why smugglers like them. they like using the big banks because everyone knows who they are. you have a local branch you can go to and the smuggler can go to his local branch and get the money on the other side.

it's a very simple transaction. >> have the banks responded to this? >> the banks say they are cracking down on this. government regulators have tried to crack down on this and have gotten banks to change their ways. the banks have told us they are doing their due diligence with monitoring suspicious activity. big banks have sophisticated monitoring systems set up to catch terrorist financing and tax evasion. the our systems in place but we found that people say the banks are not doing enough. >> if the banks are not doing enough, what about regulators? the smugglers seem to be outwitting the banks. >> the absolutely have. regulators have asked banks to crack down. we saw bank of america require

photo identification for cash deposits. we saw jp morgan limit the cash deposits as well. who can deposit cash into your account. 10 some random guy do it? -- can some random guy do it? no. they are saying hopefully this will make the banks do more. >> we have less than a minute left. how does this play into the broader debate on reforming u.s. immigration policy? >> in some ways, it doesn't. in the u.s., we've been focused on what happens to undocumented immigrants. what we should do with them once they get here. we are dealing with the problem on the back end. if you stop the financial pipeline at the beginning, you would be able to put a dent in illegal immigration if you can

make it so that it's hard to pay the smugglers. this is a ruthless, big violent business. they need the money to continue operating. washington has not really focused on that, stopping it from the beginning before the people get here. >> the story is entitled "gang smuggling." thank you so much for your time. that is the latin america report aired middle class economics. what president obama plans to do in his last two years in office to help the little class. ♪ -- help the middle class. ♪

>> in his first speech before congress were both chambers are controlled by republicans, president obama zeroed in on bridging the income gap.

the president outlined the rationale for an agenda that reflects a shift in the final two years of his presidency. trish regan joins me now with more. so much for lame-duck. >> the good, the bad and the ugly. the good news here because i like to emphasize the positive is that he made an overture towards bipartisanship. it takes a whole lot more than a speech. he did say we have to work together and he put together a good rallying cry for that. you have to take it forward and you have to extend yourself. he needs to extend himself because he has a republican-controlled congress. the bad was that i did not hear enough specifics. we tend to want details. we did not get a lot of details. got big broad proposals but not a whole lot detail.

>> they need more meat. they need to know where this will go in terms of how it will help the middle class and cities. >> this is a policy speech. he is setting forward policy he would like to see enacted. you can't put it all out there and see what sticks. it sounded to me a lot like a campaign speech. >> lower the corporate tax rate to 28% lower the rate on manufacturers to 25%. isn't that something that democrats and republicans can get together on? >> corporate tax reform, they can get together on that one. the ugly part of this, we still heard this class division theme.

it's a populist theme and very much an us versus them. if you are successful, you are not successful because he worked hard and got there. you are successful for some unknown set of reasons. that kind of attitude and mentality is something that is very much a political play looking forward to the democratic party in 2016. >> google, the next frontier. >> we are taking a look at google's next frontier. the announced a $1 billion investor in a company that makes 's. -- makes space rockets. we will talk about the state of the union. >> "street smart" at the top of the hour. think you so much. -- thank you so much. we will have another edition of off the charts on the other side

of the break. ♪

>> will come back. cold is finally trading like a precious metal once again -- gold. paring gains after two ecb officials -- scarlet fu is back joining us from the breaking news desk.

gold has been hurt by the surging u.s. dollar. >> gold does have an inverse relationship with the u.s. dollar. it is from the commodities team at capital economics. we try to show the relationship between the two. gold has been recovering. that is the yellow line, of course. the white line is the dollar. when the line goes down, it means the dollar is strengthening. starting in 2009, you can see the two lines moving in tandem. the far right side of the chart you see the relationship breaking down. we have seen the dollar building on its trade but gold has not. gold is up almost 9% this year. you have a situation where they are both increasing in value.

>> what are analysts saying about this? >> remember that gold is often seen as a hedge against inflation. we have not had a lot of inflation in the developing world. that led to a plunge in gold prices. gold fell 28% in 2013. more recently, gold has been seen at the ultimate safe haven against pure and uncertainty. that's what the swiss national bank created last week. there was a massive flight the west dollar strengthened and gold among the big beneficiaries. tomorrow is the ecb's turn. we know that we are expecting 50 billion euros in monthly bond purchases starting around may. there are so many question marks

. whether they will be purchasing bonds or sovereign debt. all of that is unknown. we have the greek elections on sunday. that could prompt a flight to safety. there might be more demand for safe havens after that. >> has the rally prompted analysts to change their forecast for gold? >> they raised their year-end forecast by $100. by the end of 2016, they see gold rising 21470 an ounce. -- rising to 1470 an ounce. expecting gold prices to fall -- even though we did get about $1300 an ounce, there's a lot of movement towards the end of the year. >> thanks. get the latest headlines at the top of the hour on bloomberg radio and streaming on your

tablet and on bloomberg.com. that does it for this edition of "bottom line." thank you so much for joining us . i will see you tomorrow. ♪ ♪ >> hello, everyone, and welcome to the most important hour. 50 minutes ago before the close. investors speculating the ecb may roll out stimulus measures tomorrow. there is said to be a 50 $8 billion a month bond buying proposal on the table. we will take a look at what the market wants to hear with author of "the death of money. so we will have every angle covered for you. "street smart" starts now. ♪