dovish been on the outlook, the fed chair return to capitol hill for round two today. clinton-drop, that's more voters with a stake in the market said donald trump will be better for their portfolios. ♪ >> a warm welcome, 24 hours away from a historic decision in the united kingdom, the future of the european union at stake. i am from london and new york, this is bloomberg go, 24 hours away. hours over the next three , we will cover every possible outcome and market reaction. calm before the storm, we have great guess today.

coming up, the morgan stanley president. a bloomberg exclusive. david: steve ratner will be with us. first, you have a check on the markets. >> will there be a storm in the next 48 hours. volumes low. equities firm. 1%, theres up a 10th of s&p 500 futures moving in a similar fashion. euro-dollar heading towards $1.13. the fed chair and washington, d.c., a point lower in 1.7%, the rest in your yield. david: let's check in with our bloomberg team. guy johnson on the latest market reaction.

suzanne on janet yellen returning to capitol hill. >> a great lineup, a lot to look forward to. the referendum 24 hours away. let's bring in the team. guy johnson to talk about the market reaction. the poll say it is too close to call. spread, really wide between the bookies and he pulls. -- polls. >> different indications when you look at the polls and where the money is going. we aret for more polls, expecting to see more of those. we have the market reaction, the strength in the pound, all of that is something different. up with a holder of

--lsters and he talked about more on that in a moment. , we triede politics to get a gauge from our guest on whether this will set off a , if weeffect in europe do see britain vote for a brexit tomorrow, we talked to guests about this, including a member of parliament in the u.k. and a campaigner on the leave side. >> i am certain that we second-largest economy in the european union votes to leave, it will send a shockwave through the european union and that will be a good thing ultimately because i think the european union is going in the wrong direction. italy has not grown for 10 years, high levels of unemployment, youth unemployment in 40%, 50% in many countries, greece stagnant were not many

people can get health care. europe is not working and it needs to change. smith, aas ian duggan former cabinet minister in the u.k., a member of the conservative party. he was talking about what ramifications there could be. we spoke to a number of guests on this topic. we spoke to the ceo of a discount airline operator in he thought the whole european union project would be at risk if we voted for a brexit, he is campaigning for a remain vote. isthey were complacency tossed around a lot in london itay, the bookies have got overwhelmingly in one direction and the market are following the bookies. >> they should look more carefully at what happens with the bookies. --y are saying the date bet

they have to change their odds but they are also seeing small bets for leave. that is interesting. volume on leave that bigger size on remain and those remaining that's coming out of london. is london in a bubble? have the financial community judged what is happening in the rest of the country? >> volume versus value, a split. the polls, it they swing towards the status quo to remain. what do you make of that? conversation with john curtis earlier, a professor of politics, he normally runs the official exit polls of the general election, there will not be one this time, there will be private sector hedge fund polling during the day tomorrow,

whether that reaches the light of day after the event, we will see. it to be an interesting 24 hours in terms of what information from those pollsters. he was saying it is too early to call, he says in the one who can call this with conviction is lying. he says beware of the private sector polls, if we get those on the day or after the polls have closed at 10:00 p.m. u.k. time tomorrow, they might be using the same methodology the pollsters have been using and that could be equally as good or bad as what we have seen so far. for the markets, the shift towards remain following the polls, following the bookies more than the polls, what are you looking for any next 24 hours -- in the next 24 hours? >> it is very clearly off-limits. in the next few hours, the polls will be interesting, the idea

that we have these kinds of things in the u.k., undecided, you would normally sing a swing to the status quote. quoee a swing to the status but market positioning is interesting, the upside in acid that gas as it value of sterling -- the asset value of sterling -- going to be fascinating, market positioning important, the markets want a hair trigger, any kind of news. >> guy johnson in london, more from him and a special thanks to anna redwood in westminster. the polls have this net connect, the markets -- i petering complacency over the last few hours. -- i keep hearing complacency over the last few hours. david: the polls can surprise you, the voters have a different idea than what they tell you.

we will continue our team coverage. belmont?he mood in brusselsreaucrats in are anxious and they have been for a couple of weeks. i spoke with the president of the european commission, he told me that the french should not do it. --said a brexit could and put an end to the western political situation. we know from the european -- they have this principle position they would not get involved, a matter for the british, the last couple of weeks they have been farming out commissioners, they are going to british media and delivering their message, a real shift and they are anxious. david: leaders in brussels have been reluctant about what would happen if there were a brexit, is there a plan in place? understanding, and we

have been talking to people in the french and german governments, there is no master plan. there is an agreement that there needs to be a show of unity. not really clear -- beyond that, not clear. if we do get a brexit, leadership within the european union comes to germany and france, the french, their favorite response or reaction would be to deepen integration among the 19 countries that use would likehe germans to focus on the political union of the european union itself. more concerned about the refugee crisis. those two countries, the would-be leaders of a pro-brexit european union are not on the same page. they are not convinced that even if they were, the other two dozen members of the european union would agree. david: thank you. it is day two of janet yellen's congressional testimony, this time the fed chair appears

before the house financial services committee, yesterday she was asked in the senate about the u.k. referendum vote. janet yellen: this is a unique event. that has no close parallel. it is hard to know what the consequences would be. there is always uncertainty when there -- we operate in an uncertain environment. david: welcome. what is the message apart from brexit -- what was the message that she was trying to send us between the lines yesterday? >> her message was eye-opening, not shocking but eye-opening, so dovish, a departure from what the fed has been preparing the markets for. she focus more on the less than robust employment we saw in may, focused on the reduction in productivity, she focused in a slow investment pace in the u.s. with all that, the market is

taking that as, we are not going to see rate hikes this year, we might see one rate hike this year. david: the reaction from the bond market? >> they did not react much because they are ahead of the fed and a price before. it did not come as a shock but cemented what they have been thinking. david: thank you. update on what is making headlines outside the business world. investort comes to confidence, donald trump beats hillary clinton according to a new bloomberg poll. they say trump would be better as president. the margin 50% to 33%. north korea has launched more ballistic missiles. their leader testfired to mid range missiles capable of hitting u.s. bases in guam or

japan, the pentagon says indications are that the first missile failed while in-flight. they call it a violation of u.n. resolution. have beenparis tomorrow's planned march against proposed labor law reform, authorities concerned the march would result in violence as happened last week. the dispute between unions and the president has led to strikes and public transport and garbage collection. news 24 hours a day powered by more than 2600 journalists and analyst in more than 120 countries. this is bloomberg. rates,ng up, negative central bank may him, a u.k. referendum, a wild year, we break it down and look ahead with a special guest, the president of morgan stanley will -- morgan stanley. ♪

jon: from london and new york, this is bloomberg go, the attention shifts from the united kingdom to washington, d.c. in two hours and 45 minutes, janet yellen will be testifying before congress. round two of her semiannual test, live coverage starting in under three hours. by human light -- volume light. ahead of a big decision in the u.k. let's go to julie hyman with stocks to watch. not necessarily big in size but big as an topic of conversation on wall street, tesla motors proposing to buy solar city, both companies

controlled by elon musk and the musk'ssolar city is elon cousin. visually $2.6 billion. says is he wants to create a vertically integrated alternative energy provider from electric cars to rooftops, solar panels. tesla shareholders are not happy about the proposal, solar city trading higher. looking at short interest in both stocks because it is darn high even know it has come down for tesla. the white light is the short interest at the percentage of quote, it has come down as the stock price has recovered this year, it has come down to 25% of the company's flow which is extraordinarily high. solar city, the short interest going up as the shares going down, at 40% of flow.

a remarkably high number of investors are betting against these stocks. , the big, h&m retailer, shares down after the company posted earnings that missed analyst estimates, a victim of wet and winter weather, especially in germany, its largest market. watching those shares as well this morning. david: morgan stanley is among those who have concerned about a brexit, they have 5000 workers in london and has donated 300 $50,000 to the campaign in favor of remaining in the eu. let's go to erik schatzker who is with the president. >> good morning. a big day tomorrow in britain. here is where i would like to begin, you are not a numbers guy, you read history at oxford, give us a sense of historical

perspective. relative to the crisis, how consequences that consequential when it bridges exit from the eu -- what it bridges -- bridges josh brexit. initially, the fallout cannot be controlled, the political ramifications are profound. >> the most consequential thing in the postwar time, that is saying something. what about what the city of london? londone said before, cannot suffer in the event of a brexit vote and that is because london has done well by being part of the european union. -- exchanges clearing everything based in london, this

has been challenged historically by these other members. seed itss london power? colm: i do not think so, new york is bigger anyway that london as a global financial center. if there is a attrition of london's role in europe, then it will probably be a mix of frankfurt and paris. erik: if you took the total number of employed today in the city and envisioned a post brexit world, how many fewer wetherbee -- would there be? colm: a material diminishing. erik: what about for morgan stanley? colm: we have not gotten into specific, we hope the vote will listen to the economic arguments and stay. we are looking at our plants and what is not clear is what the

effect on the renegotiation would be in the event of brexit and what that means to the single market and britain's access to it. erik: let's talk about practical concerns, come friday, what do you differently than you are not doing today? assuming -- erik: we have contingency plans assuming a brexit and we'll talk with regulators and talk about having a european union headquarters somewhere that will be acceptable to morgan stanley and other regulators in terms of a combined -- erik: where would it be? colm: possibly dublin or frank bird -- frankford. world, what isit most challenging from an operations standpoint? colm: what will happen i believe is the euro will move in the exchanges will be moved and some

of the elements of the exchanges will be moved. there are practical things straightaway, longer-term, all sorts of issues, ease of travel and so on. erik: but one of the things we continue to talk about. it is bedeviling investors. the other thing is the outlook for interest rates globally, but particularly in the united states with the fed decision last week to stay where it is, they keep pulling back rate forecast, your economist have a view but what is the prudent course of action as far as business planning is concerned for morgan stanley? what do you bake into your planning process? erik: --colm: james has been clear on this, we have assumed subdued markets for the time being and subdued interest rates or the foreseeable future. if we get improvement in that scenario, we will benefit quite

well from an operational standpoint. we assume the world will be a flat growth world for some time, investment -- intro banks will be very active in intervention and rates will stay low. erik: is that to say that the idea that the benchmark interest rate in the united states, according to forecast, calling for it to be 2% by the end of i-17 is not in the cards? colm: i do not believe it is. the u.s. is showing good underlying trend growth. referring yellen is to external financial conditions, brexit would be a terms ofnge in external financial conditions and it is hard to see how central banks around the world would be anything other than a shock, we are trend growth 3%, that 3% being challenged, 2.5% is technically with a recession.

you may see a movement towards that. i do not see how central banks do other than what they are doing now. erik: in her testimony to the u.s. congress, janet yellen says low rates here and in the overseas are partly because of the market volatility and the sudden changes in investor appetite for risks we have seen, particularly in the early weeks of this year, what do you think? colm: low rates fourth people seek alternative investments and that creates asset bubbles and we have to watch out for those risks but we have no choice but for low rates at the moment. a necessary risk to take. erik: are we in an asset bubble? colm: certain asset classes you approach bubble type evaluations but no risk in those. erik: if we are in mobile light conditions -- bubble like conditions come the people who

choose to stay long, which asset classes are you talking about? the fed pointed to commercial real estate and said valuations and equities are stretch, do you agree? colm: equities is a global injure dynamic in terms of whether multiples are too high, probably not but can they expand, if you do not see an expansion then by definition you have a valuation bubble. erik: the election which looms months away here, it is affecting risk appetite and business decisions for sure. specificallyee among your domestic clients and among your international clients? colm: i will not comment on the u.s. election. as an irishman that would be impertinent. --t we have seen generally a lot of uncertainty. on the outlook in the u.s. it is brexit, china, oil, a

number of things causing people to be nervous. we have seen a follow-up -- significant falloff, a secular change because of the changes. erik: if the brexit issue is revolved -- resolved favorably, that britain chooses to remain a member of the european union, that does not remove the cloud of uncertainty, what will it take for client volume to return? remainf there is a rather than a brexit, a small relief rally, significant and just one thing we take off the list. for clients to come back, we need a normalization of economic activity, withdrawal of central banks. erik: how many years away are we from that? colm: a couple of years at least. erik: within your industry, at least overseas, there is a great

deal of turmoil i credit suisse, deutsche bank, instability in general in european banking, how is morgan stanley taking advantage of that? colm: first, yes, there is a structural issue, european banks have not dealt with the capital issue as effectively as the u.s. did and they are now paying the price for uncertainty about capital levels of valuations which is causing mayhem generally in the european banking sector. morgan stanley are getting increased market share in europe. what is not good is that the overall wallet is decreasing. on a relative basis, more shares, but the overall revenue in europe is smaller than it has been. erik: the cost of staying in the game climbs, is it a given that we will see one or more of the european institutions exit major

markets in the united states? colm: there are not many that are very big in the united states. it is the largest capital markets in the world, those who have a presence here will probably stay here. erik: they can afford to stay, deutsche bank, credit suisse colm: i will not get into specific names but if i were a bank ceo i would look to protect my u.s. present and you will see retrenchment in other areas of the world, in other activities, particularly in investment banking. erik: obviously, revenue is challenged and the other half of the equation if you're trying to make money as cost. your ceo talked last week about morgan stanley's brought extreme line, the opportunity to cut cost, how powerful a tool, particularly in wholesale, is automation? we want automation, the

sample i get, if you look at morgan stanley, the market went electronic in 2000. volume's up 12 to 15 times, if you are a significant player, automation is a great way of delivering to your clients and providing a good service. erik: any sales and trading business, hard on the investment banking side, how much of your business can be automated? erik: 94% of our domestic u.s. business is electronic, over 80% in europe, we are getting there, the big one is fixed income and commodities. that will take longer, fixed income you have to pass, he had the foreign exchange and rates. -- a muchyou know is more discreet market, less than 1% of corporate bonds trade more than once a day. erik: you joined dean witter in 1989, is the right? colm: morgan stanley.

erik: my apologies. we will have to make that takes in our system. -- fix our system, if you look at how many people into to run that, how many fewer people would it take to run a business today? colm: not sure it is about less headcount, about less cost, much less expensive people at the front end delivering product to clients and a lot more people supporting the business itself, programmers, i.t., etc. overall, you get cost down and by definition some headcount but i would not get too focused on headcount, focus on cost. erik: it has been a pleasure. he is a career man at morgan stanley, talking about the president. back to you. david: two things struck me from what he said, number one, this

could be the most important event in the u.k. history since world war ii. be looking atld dublin and fractured as possible headquarters. -- frankfurt as possible headquarters. jon: also a big falloff in client volume on uncertainty, i wonder if that volume comes back . this is a low-volume session if you look equities. looking for my head of the cash open in new york city about two hours away. single 500 is up one point. in london, up 610 of 1%. sterling strength through much of today, a strong pound for this week at one 46.79. in aboutlen route to 30 minutes. -- round two in about 30

minutes. donald trump is asking some of wall street's biggest donors for help. the likely republican presidential candidate held a dinner at a manhattan restaurant to try to kickstart his fundraising, among message showed up, carl icahn. -- he raisedump, about -- coalition said only one third of falluja have been cleared of islamic state forces, they held the city for more than two years before iraqi center pushed in last friday leaving the government to claim victory. another sports star is pulling out of the rio olympics because of concerns about the zika virus . rory mcilroy said his health and

his family's health come before anything else. while the risk of infection is low, it is a risk he is unwilling to take. global news 24 hours a day powered by more than 2600 journalists and analysts in one that's more than 120 countries. away from the big boat in the united kingdom, the referendum and the future of the eu is what is at stake. our morning must watch on brexit. >> what strikes me is that i have never in my life seen such a consensus among major respected institutions across the world and in britain about the economic negative effect of leaving, short-term, but also longer-term. i do not understand why it is not being addressed. how do you see where the growth will come from, how do we survive, how do we get food into

years of uncertainty in the longer term when so many respected institutions and the opposite -- think the opposite? >> let's be clear, if you are an there was you know enormous consensus that if the u.k. did not join the euro, our economy would tank, massive unemployment, the financial services would move, that is what the last bit of consensus was about and i bet you anything you like for everybody is ashamed of themselves. another consensus, the failure of any economist to forecast the biggest depression since the 1930's, worldwide financial crisis. do not talk to me about international consensus, economic forecasting is an honorable profession but only as good as the assumptions you put in and when you put in ludicrous forecast that we will fail to negotiate any free trade other

than a modest agreement with europe, that we will not be able to keep any of the agreements we have as members to eu and therefore our productivity will drop like a stone, and evitable yes you get miserable forecast. another very important point, the institutional bigwigs who do not have to compete for a place in a good school, who do not have to wait for a doctors appointment, who do not have to try to get onto the housing lever, they have no skin in the game, people in this country whose lives are being affected. >> i think that is a bit unfair to come up with an example of where the professor has maybe been wrong before, not true that there was consensus about the disaster of not joining the eurozone, not accurate because i can tell you -- the imf questioning the wisdom of from an economics point of view from the eurozone, a divided issue at

that time but there is complete consensus among respected institutions and economist get it wrong sometimes, but it is not a good argument in my opinion -- i will save many economists saw 2007 coming because i interviewed them. jon: tom keene at breaking up the fight, sandberg -- sometimes on bloomberg tv you only need the guests. i guarantee you next five minutes will be calmer. cap the ubs head of u.k. strategy. an impassioned debate, the polls are tight, i look at the market, the market seems to have made his mind up, you have seen complacency ahead of the vote? >> perhaps, though it is

difficult to get a full handle in terms of what the actual brexit risk is priced into the market, over the last couple of days and last week, the last of the short speculative position had come into play the markers on the assumption that the plan would go lower into the event have cleared the decks and liquidated those positions. very little appetite for running risk through such a binary event like this. that explains the move back up but you have to take into context, since the focus came into play last year, a grim time for the dollar generally. the idea that cable is back where it was when brexit became the focus does not take into the account the folk -- the focus it 1.55, 1.60 at the time, you cannot say for sure where we are. jon: does that resonate with

you? >> yes, an increase in is not fullybut priced in, there will be a reaction on either outcome on friday. no doubt more violent in the event they leave because it is not anticipated and the consequences thereafter or more serious. we are back where we were in cable -- ground for the town to make up. thisyou can capture all of on the bloomberg. look at the g 10 space. the only currency still down year to date is sterling and it talks to what you are talking about, the idea that the path got significant catch up. the idea the pound has to pay catch up with a rally against the dollar, do we look at the rate of change and say we are neutral position ahead of the vote?

you can see it on screen, it catches how much of a valley be count has missed out in the g 10 space against the dollar. should we think about this as a neutral thing and not a lean toward tremaine -- toward remain? >> the scope among a remain is much less than the other way around. we have been talking the last 152h of a rough range of 130. 130.50 to i would be happy with that as a broad range. speaking, that is a reasonable range and overtime that is where we will settle on the vote tuesday. jon: one where that stands out is gappy markets -- let's a you

get a leaf, you will be up all night, in the city, working through the night waiting for these votes to trickle through, how do you price the first-rate when the first -- first trade when the lead headline comes over -- leave headline comes over? >> the idea of getting involved in trading during the asian trading session, i think that will be very little liquidity and volume going through. a lot of the real money players, the corporate will sit back and avoid trading on the flow of results as they come in. very speculative short-term driven. in real volume may not come for a couple of days, very choppy markets based on thin volumes before we get the real money float starting to come in after time. >> i think the markets to fly

around on very thin volumes and that is one reason -- so -- it will be hard to get out of positions if it starts to go wrong, it buys them time to wait and see how the market settles down after the result before they start to react. jon: you follow reaction of the governor of investment coming on next do not know where the moves would be. have we developed a consensus in your mind as to whether the bank of england will be leaving? >> we don't speculate anything policy,k on monetary and sure the banks are cushion from the immediate impact. they are on record saying they expect it to take a turn for the worse and that creates sufficient worry about some

policy and they will cut rates. they will -- jon: conviction trade ahead of the referendum, is there one? >> looking at the way the market is, not much in terms of speculative position, makes complete sense to me, if there was a vote to leave some of the japanese yen based on trading the last couple of weeks, intervention is a high risk in the aftermath. it is fair difficult to pinpoint a good speculative trade. jon: good to have you with us. good to see you again. next, moreng up brexit versus remain, will britain's call for independence, more go on deck. ♪

david: i am david westin. hour, thein the next writer will talk brexit, the fed, and politics. -- steve ratner will talk brexit, the fed, and politics. jon: an historic decision in the united kingdom, from london and new york, this is bloomberg go company brexit referendum less than 24 hours away. and redwood is standing by with a guest. with a member of parliament and a leave campaigner. you have been campaigning or decades on the subject.

yesterday i was listening to someone talking about the possibility of independence day. >> i have sympathy for the sympathy -- it is about historic moments in our relationship with the european union. independence is the key issue, we will be independence, if we win, we will also have to negotiate our relationship with the rest of the european union on the bases of trading corporation. >> you have been campaigning for many years, other people have said that the u.k. has the best of both worlds, access to the single market, opt out on various social legislation. not in the euro. why not stay for those reasons? market, according to the asset comments library,

real figures, our trade deficit in goods and services with the 27 member states is 67.8 billion a year, it has gone up by 8 billion last year alone. our trade surplus with the rest of the world is now running at 31 billion and accelerating at the rate of 10 billion per year. surplus has a trade with the same 27 member states in goods and services and 82 billion a year, that puts the single market in a very different perspective, the single market is not good for us, very good for germany. that is why the chief executive of the biggest trade federation in germany has said that if there is a leave vote, they will want to continue to trade with us as is the case and a lot of saying theing

opposite by the germans could not afford to take a different view. >> what if the politicians say we take a different view, we see a breakup of the single currency, we will make an example of britain and not do a deal we like to discourage other countries? >> that was the take last week but they are talking in softer tones because he thinks they will have a leave vote, i think we will, not in germany's interest at all, whether we have a leave vote at all to talk to threatening language to the united kingdom, it does not work. >> this is a battle for the soul of britain. you talk about really big, storage events over the last thousands of years, do you see it with such significant, if you awaythis, does this put this question for a generation? >> this is a historic landmark, in europe, we have always been,

the prime minister was talking about being engaged in an issue , this is notrope about europe as such, about the european union, mike position is for the european union and the way is operated, in fact, we have been locked in to a framework of laws and treaties which are not in our national interest and we are caught up in the problems that come from the riots,n union -- massive unemployment, youth unemployment. >> how long does david cameron last in office if you are victorious? >> my belief is he will be evaluated -- he is being evaluated as we speak, the syria vote, when he lost it, he said i get it. this is a difficult situation for somebody in downing street having to deal with 20 or so

departmental select committees at all the government departments as the secretaries of the cabinet, the whole cabinet structure, very difficult for someone to run it on a leave bases having campaigned. >> thank you. we turn to tesla, tesladay elon musk's wanted to buy's oldest city in a deal that could be worth $2.9 billion, the announcement has both sides moving, tesla falling and solar city jumping. elon musk said this was a no-brainer. not seemreholders do to agree, why is this a good deal for tesla? musk owns 20% of solar city.

is elon musky it interest versus shareholder because he is the biggest shareholder. a lot of the investors we have spoken to in tesla are unhappy about this plan because they think it distracts the company from its number one goal which should be, as you well know, to boost production of model threes, they have half a million orders for this new car, the more affordable tesla and it will be difficult hurdle to achieve. this kind of takes their eye off the ball. elon musk, on the other hand, says this brings everything under one roof to a tesla customer, you want to be driving and environmentally friendly car, you want to be using a battery to store the power of that car and you want to be charging the battery with handles on your house from solar city. he is a visionary but first you have to make the car before you have the car with the

house, will this help them make the model threes? it helpsannot see how them make the model three but it leaves them with $3.2 billion in debt which is difficult to stomach after they just asked shareholders to pitch in another $1.5 billion in capital. an expensive deal and a lot of the analyst we are talking to say it could be more expensive, already at 35% premium at $28.50 a share but if it climbs higher and some analysts that we are talking to says it has to get below-$30 before it makes sense for solar city shareholders to close the deal, it will be a more than $3 billion purchase and that does not count the assumed the debt. david: talking about the balance sheet, they are raising capital to try to ramp up for this model three, how will this help them or hurt them and raising more capital which they need to produce all these cars. a good question

being put to elon musk on the call that started 20 minutes ago, investors and journalists are grilling the board. it should be mentioned that elon musk is recusing himself from voting on this issue. while he is the one who has had vision, i am sure he has been behind the planning. because of his controlling stake -- or i should say, large stake in both companies, he is recusing himself from any board vote that solar city on this and that might make a difference. on the other hand, you are right , it does not look like it helps them build the cars which is the most important goal according to shareholders that we spoke to . it out some offer their customers what they think they will need and what they want. yellen has a cautious view of the economy in front of lawmakers yesterday, we highlight her rate concerns next. ♪

-- david: janet yellen gave her semiannual report to the senate, julie hyman is here to walk us through key talking points. julie: the language was changed just slightly, it tends to be a big deal, she talked about the fed looking at whether the u.s. economy will improve, not when it will improve. there was not a huge amount of market reaction yesterday but she was reflecting the ongoing change that we have seen. we are looking at wirp, this is for the december meeting, this reflects the pricing.

our probability model. david: overtime, what will happen in december. >> focus on the change this year, the change we have seen, the drop in expectations, well below. something else that was brought ,p yesterday, the taylor rule developed by john taylor, a stanford economist, a model for interest-rate. david: inflation goes with employment and the rule does not work. coming up, will -- steve ratner will join us. ♪

david: we are less than 24 hours away from the u.k. historic vote. the polls in market disagree as we enter the final hours. jon: the fed chair offers a

subtle change to our outlook . electrics let makes an did for solar city, looking to form a one-stop shop for renewable energy but hazlett shareholders do not appear to be enthusiastic. -- but has lot shareholders do not appear to be enthusiastic. left =-as lot -- has tesla shareholders do not appear to be enthusiastic. david: welcome back. london is gearing up to hit the polls in less than 24 hours. jon: the polls are split but the market is maybe telling you a different story. we will dissect the different scenarios and market reactions. david: we have special guests. as well asr is here john writing and see how they think brexit will impact the markets.

jon: treading water is the correct phrase, futures are not changed. up marginally. in london, the rally continues tthethe footsie up -- ftse up. pound strength is the story of the week. secondet yellen's day of testimony on capitol hill, yields are a little it lower. -- a little bit lower. it's a brexit story. vote,ow's referendum let's go to westminster. somethings telling me ies are telling me something different. what message are you getting from the polls? >> the polls are too close to

call. that's the message i get. i spoke to a strategist and he said anyone who thinks they know the which way this is going to go, you cannot believe them. the models don't work for an exit poll. this is a vote share decision the rich people have to make tomorrow. -- that the british people have to make tomorrow. we have to be skeptical and ask what methodology is being used. jon: let me bring in the market reaction.

where is the market? one analyst said the market is quite neutral. in terms of position, it is quite neutral. guy: we have come back from an extreme position and the market was jittery couple of days ago and we saw some repositioning. that would have been speculative. you saw less movement in the option market them the spot price. there was speculative money trading minute by minute. the long-term money is still fairly neutral. : you can capture the dollar currency against the g 10 majors and you can see how the pound has missed out against the dollar. about downside potential.

there is a lot of upside potential as well. , there isthe bookies a lot of uncertainty in the city of london. guy: you can see a move up or a move down and we have probably changed where sterling sits. you could see a lot of catch up very quickly. this has been holding back the trade on sterling. close, are we is done? could there be another referendum? idea that half the country, almost half the country, will vote one way and the other half will vote the other way -- on friday, this is not going away? we will see if the result is as close as that.

some of the polls suggest there are a large portion of undecided. that could be a deciding factor. are commonentages for elections in this country. so's hope for a big turnout we get something decisive and people can at least know what the british public think. neverendum isof a out there. put it in grandiose terms and talks it -- talks about it being a fight for the british soul. jon: thank you very much. neverendum, do you get excited about that? david: i don't even like the

term. rattnering in stephen and john writing. --riding. we have polls that show substantial undecided on the election. you have polls and you have markets and you have the bookies. they are showing different things. what do you pay attention to? >> i pay less attention to the polls because we have learned they have become less reliable. you are polling now on something which they don't have a lot of precedent. i am very respectful of markets. i believe in the wisdom of the crowd and i am respect will of cookies because they don't like to lose money so they set odds pretty carefully. you would have to guess or bet

that they will vote to stay in. david: is that likely that they will remain? bookies can get the odds wrong. i think the key is the undecideds. if you look at the quebec referendum whether they would stay in canada in 1995, the polls were close going in but there was a big number of undecideds. they overwhelmingly decided to stay. i think the polls and the probabilities in the markets are not that far apart. you might assume that the undecideds turn out and then decide to stay with the status quo. be a remain vote tomorrow. i don't get to vote. david: take us past tomorrow. we will know by friday morning

the answer to the question. suppose they remain, it strikes me that this does not necessarily mean this is a huge endorsement of a stronger eu. to brussels went and negotiated for a weaker association for them to stay in. the eu has a lot of problems remaining together, don't they? >> the eu has a lot of problems and a lot of anti-growth policies and labor markets. there are many things about the eu in terms of exporting its anti-growth policies with things like tax harmonization. those factors have been there for a long time and the eu still has to struggle with them. the issue may be less for the u.k. than some of the countries in europe. seeksne country actively to leave, it opens up whether other countries can leave. that could start to undermine

what there is of a project that started with six countries and has expanded to almost 30 countries. david: even if they don't leave, does it weaken the ability of europe to get together and addressed some of the major issues they have to deal with? there are things like immigration issues and fiscal reform. remember, there are two layers to the eu, people part of the common currency and people like great britain who are in the european union but not part of the eurozone. the issue of fiscal and monetary integration is less important for the countries outside the common currency. they still have all these problems which have not been talked about it as soon as the brexit is over assuming they remain, we will get back to the problems of the common currency. immigration affects the entire euro zone and they will have to come to grips with that. hadd: in conclusion, we

mohamed el-erian in and he said politics are getting in the way of good economics. are we seeing messy politics? are they precluding sound economic judgment? >> to me, it seems the brexit vote is not about economic policy. it's more about immigration. i think there is a british psyche, a deep-seated distrust of europe. i think it is more about the political nationalistic judgment tomorrow. in the end, i think it will be the avoidance. been in the eu for 40 years. the european union and the eurozone have problems not

because of sound economic ideas of what to do big -- but because they cannot get anything done politically. david: it sounds like the united states. let's look outside the business world. sixth time this year, north korea has launched mid range ballistic missiles. they have fired two missiles which are capable of hitting u.s. bases in guam or japan. the pentagon says the first missile failed while in flight. japan call the launch is a violation of united nations security council resolutions. when it comes to investor confidence, donald trump beats hillary clinton according to a new poll. say donald trump would be better for their portfolios. independent voters are twice as likely to pick donald trump. on capitol hill, senate republican supporters of a

compromise gun control measures say they are getting momentum in keeping guns out of the hands of suspected terroristss. the national rifle association has come out against the plan calling it unconstitutional. news, 24 hours a day, powered by more than 2600 journalists and analysts in 120 countries. janet yellen may be preparing for one hike and we will debate the options and left of itobias joins the program and tells us where he thinks the s&p 500 will close this year. ♪

we are looking live at

washington where it's day two of the janet yellen testimony that will get underway later this morning. it was proceed with caution yesterday. proceeding cautiously and raising the federal funds rate will allow us to keep the to economicport growth in place while we assess whether growth is returning to a moderate pace and whether the labor market will strengthen further and whether inflation will continue to make progress toward our 2% objective. david: steve ratner and john ryding are still with us. there was a subtle change here. people say it was dovish. is there more than that going on? toshe opening up the door secular stagnation? inbe she is saying we are for a long minimal growth? >> there is a danger trying to

read too much into every phrase that any policymaker utters. i take her at her word and when ,he says it's hated dependent -- it's the data dependent, that's where she is at. economy is in a murky situation. in onet forcibly moving direction or another and i think she will watch the data. been whipsawed by expectations. mistake to view this testimony as a fundamental shift for the fed to do nothing? >> i don't think she was sending that message. she had a press conference last wednesday after the fed meeting. there was no difference between that press conference message and yesterday's message which is uncertain she has used a lot,

gradual, and cautious. the problem is, the fed needs to actually start moving. there is a communication problem. if the signaling is whether versus when, we are in a worse situation than when greenspan would speak to i think she is -- and i think -- this. -- i think vish and data dependency has become meaningless because the data keeps changing. even if the unemployment rate is 4.7% in underlying inflation is 2%. we are looking at the data and we are on a normalization path to it data says we should they are it feels like data dependent but they need the data to justify doing something. they are standing pat for the time being.

would you agree with that? >> i would but i don't understand it you they hate signaled at the desk they have signaled that the previous meeting that most members were looking at june as a meeting to go. they had one lousy employment report and they took to fed interest rate increases out for next year. the communication is a mess and data dependency is a mess. david: we do talk about data dependency but is there inherent data dependency on a lack of predictability? the data changes. keeped el-erian says they moving the goalposts. >> i take issue with all of that. has ora that the fed should have some kind of plan and it's the job of all of us to extract from bad, it's not the

way the fed works or the way they have ever worked. it has always been data dependent. ofare in a tricky point murky data and i murky direction. we have international factors which should have some influence. say it's been what bad unemployment number but other numbers suggest the economy is in a very low growth mode at the moment and therefore the justification for another rate increase is uncertain. david: what does that mean for investors trying to make long-term investment decisions? >> you don't have constancy about anything in life. you don't know what your sales will be or what your stock price will be. these are changing phenomenon. if you want to be critical of criticism isbest

they have been utterly wrong in their outlook for several years now. they have been too optimistic about the rate of recovery from the recession and the rate of interest rate increases that could likely occur. the markets were right that the fed was wrong. david: we will have special coverage of the janet yellen testimony starting at 10:00 a.m. eastern time today. up, should investors play it safe with a referendum around the corner? --lefkovich iseg coming up next. ♪

jon: to our viewers worldwide, from london, the pound is stronger. there is so much uncertainty around the brexit vote but one thing is for certain, cash is

piling up outside. investors are holding onto the most cash and stew thousand one. -- since 2001. one day i made the mistake of saying you are in the wealth preservation business. you said i'm in the moneymaking business. with all this cash in the sidelines, you cannot make money. does the money get back to work after brexit? in the sidelines as a way not to lose money but not make money. there is a huge amount of uncertainty around brexit and everyone is sitting on their hands to some degree. there is still no lack of issues we should worry about whether it's slow growth in the u.s. or the so-called china bubble or the european dysfunction. i thinkget past brexit, you will see people more money -- put more money to work.

betweens is a spread bullish and bearish calls. the bearishness persists. i think we are focused on the midterm which is brexit. there is so much uncertainty elsewhere. about there is nice. europe has a lot of issues beyond brexit. in terms of holding cash, cash presents options for investors. to invest inosed tenure german bunds? gold to make 1.5% or invest in the equity markets which are fully valued? the cash retains the option to get invested if and when these uncertainties cause a trip up in the markets. debt one of the

uncertainties is who will be the next president of the u.s. the markets don't seem to be pricing that in right now. is it too far off? have they decided it does not matter? >> historically, the market is not done well in presidential election years. what you can expect is a fair amount of volatility. i think there are divergent views as to what the impact on the economy would be with a different presidential candidates. i think it's too early for the market to price and something that will not happen for another six months. as we get closer, i think you will see it priced in. jon: a special thanks to you both. coming up next, is sterling

poised for a pounding? our next drop will explain why he is voting with the leave camp ch will joinevkovi us when we return. futures are marginally positive and the rally continues in europe. ♪

you guy's be good. i'll see you later [ bark ] [ bark ] bye. see ya pal. ever wonder what your pets do when you leave home? [ laughing ] aw you cutie pie. aw. aw. aw. aw. [ barking ] [ washing machine running ] party's on! know what your pets are up to with xfinity home. xfinity. the future of awesome. see the secret life of pets, in theaters july 8th. "on" this is "bloomberg . in 90 minutes, it janet yellen

will be on capitol hill for her semiannual testimony. futures are unchanged on the session, dow futures positive slightly. 4 day winning streak. the risk on rally in europe is reflected in the efx market. the sterling is the story. is after a swing toward remain in the polls and the market has shifted with it. the yields are a little bit lower. let's show you what's happening outside the world of business. >> half of bernie sanders supporters will not support hillary clinton. 22% of his supporters say they

will vote for donald trump. 18% favor libertarian gary johnson and sanders has yet to formally concede. cold war era armors are being used against islamic state targets. .-52s are flown qatar,bers are based in the first time they have been in the region in 26 years. police and paris have banned the march tomorrow against reforms. they are concerned the march would result in violence like the one last week. the dispute between unions and has heatedpresident up. global news, 24 hours a day, powered by more than 2600 journalists in 120 countries. we will hear what key banks are looking at. ch joins us with

his outlook for the second half of this year. reading your analysis, your relatively bullish on the stock market. what gives you confidence? >> in particular, earnings trends and investor sentiment. many people are worried about valuation that we are not that worried. on sentiment, investors are pretty panicky. the case, there's a better than 95% probability the market will be up 12 months later. we don't fight those kind of numbers. on the earnings front, there is a real trend picking up that many people missed. the i assembled new manufacturing orders have been new manufacturing orders have been picking up and that means overhead cost absorption's over more units and

you end up with better earnings. david: one of the numbers is you are projecting a 10% increase in earnings per share from mid-2016 to mid-2017 coming off of disappointing earnings. what gives rise to those earnings-per-share? >> most people tend to focus on the dollar which is no longer strengthening. everybody focuses on oil prices coming back and energy earnings have been a problem over the last 18 months. it accounts for the bulk of s&p 500 earnings drag. it has held back the s&p from rising. theoil price recovery from 26th dollar level gives you a better trend. i think that's the stuff most people focus on. where we differentiate is the

discussion we had about the ism new orders and the misunderstanding of inherent operating leverage at businesses. david: let's talk about certain sectors. >> energy is probably going to be better than most people perceive. investors have been fighting that trend for a while. they will probably have to capitulate. there is a change in the supply/demand equation. distal it delivery is shrinking. distilateal it - delivery is shrinking. addition, capital goods as part of the industrial production but we also like andnology and media financials which people have thrown to the wayside because they've been worried too much about the fed and the exact date

when they start raising rates. david: you think some of the defensive stocks may not be that defensive at these valuations? hit the nail on the head. at instantat we are defensive stocks like consumer staples, etc, but what they're paying for that protection is expensive today. it's fine to be defensive where you overpay and then it loses that defensive characteristic what could get in the way of your predictions coming true wester? >> there are fears around the chinese economy and u.s. elections coming up and the spanish elections. there are many things that people worry about. i have been fascinated by the constant reference to uncertainty. we have always had high degrees

of uncertainty. we probably get it faster because of instantaneous technology news feeds that i cannot remember a time when there wasn't uncertainty. if you talk to people who grew up in the 50's and 60's who were told to hide under their desk in withthe russians attacked a nuclear barrage, there is always uncertainty. david: i'm one of those people. thanks very much. jon: let's continue the conversation and talk about brexit, 24 hours away. decide whether to stay or leave the european union. we are joined by a supporter of the leave campaign. butone voting for leave acknowledging you can have a dig get lower in sterling. do you acknowledge it could be damaging?

>> it might be damaging in the short-term but i'm say there will be a gap in selling. sterling is overvalued as it is. we have a 7% current account trade deficit with the rest of the world. selling is overpriced it would be better for british industry if we had diminution of the sterling by 5%. i would not yet too worried. this is not the start of the first world war if great britain votes for brexit. this will be a short-term gyration which will quickly be over. by monday, the market should be back to normal. about the talk consequences of a gap lower. 70 pence.ing was at

we have had a massive gap lower and i have not seen a big boost to the u.k. economy from that. andou don't get a big boost the cable rates come down, why would you get a boost from the next gap lower? >> the price of oil has gone up which is a balancing factor. the rest of the world is not doing particularly well. china's slowing down as well as the emerging markets and europe is stuttering along. we have not had the opportunity of selling goods to the rest of the world. i think the euro could take a lot of the strain on friday if there is a brexit. 1.10.uld go down to $ jon: you on a bank and you've got exposure in europe. individual wealthy people, small

companies are leaning towards leave and the big companies are coming out in force saying to stay. make of that widespread between smaller and bigger companies and their voting? let's look >> at who leaves the big companies. members of the establishment get paid live times their average colleagues. they are different people to the entrepreneurs who have taken risks and recognize that although there is a risk in brexit, there is more risk in staying in the european union and that's why you see leading voting to leave the european union because they recognize risks in their everyday lives. they are independent people and they are not just corporate fat cats.

i don't believe the business people should be saying anything because their shareholders should decide. : they can tell their employees the likelihood of the future. >> they don't know anymore what the future is more than anyone else. the shareholders own the company, not the individuals. the guy who runs vodafone, he's italian. why should he lecture the british population? imagine hed wants to evolve his investments in the u.k.. >> in the last 20 years, the ftsde companies have not gone up at all. they produce zero return so how are they to lecture what the country will be like post-brexit ?

jon: let's talk about the french president saying the vote risks the future of europe and the imf and the g7 talk about economic risk. those risks are resonating with the british public. it's fair to say a narrative is built. you are here to discuss the economic argument. do you think in the next 24 hours of the leave campaign can sway the british public? is their economic upside in years to come? is a poor economic argument. it's safer for us to be outside of what is a turning house in europe. france and italy are bankrupt and they will drag the euro down. there will be a division in the euro in the next 3-5 years.

remain have won the economic argument. jon: it's been great to have you. great to have you with us. coming up, shares are rattling investors. are there too many concerns about management distractions? that's next on "bloomberg ." ♪

david: this is "bloomberg ." up, special coverage of the janet yelena house testimony at 10:00 a.m. eastern time -- of the janet yellen house testimony

at 10:00 a.m. eastern time. jon: it is the countdown to the vote 24 hours a day from the historic british referendum. if there is an exit, there would be chaos for a couple of weeks and a couple of years, who knows who will lead, they will try to renegotiate with the eu which will be chaotic. >> i am certain that when the second-largest economy in the european union leaves, it will send a shock wave through the european union but i think that will be a good thing ultimately because the european union is going in the wrong direction. from valley us now forge, pennsylvania is peter westerway. a divisive debates happening in the united kingdom. what damage has been done by the

campaign regardless of the outcome? >> i think the political environment will be changed as a result of this debate and how it will land after the dust settles. i don't think politics will be quite the same again. there is going to be a of people voting one way and large portion voting the other way. that does not know away because we wake up and get a decisive outcome. what are the political consequences and the economic consequences of a fragmented political nation or does it matter? government for six in there and making no decisions. >> you're talking about europe which is interesting. i think the impact on u.k. political environment will be significant. that's true even if there is a

vote to remain. i think there are consequences in europe. is out of the bag. the anti-european sentiment that has been manifested in the u.k. is out there in europe as well. if there was a vote for the u.k. to leave the eu, other countries might start going down the same road. , theconomic consequences u.k. consequences are important but the consequences and the rest of your maybe even more so. looking at markets now, 10 aroundelds and italy are 1.5 percent or below and similar moves in spain. when investors see you in the united states and ask you about the referendum and the potential

risk, what to you tell them about their investment strategy in europe? >> one thing we are telling people to do is not to do radical things with their portfolios. at the moment, we see a fork in the road coming up on friday morning. the market will move one way or the other and one of the worst could doat our clients is to try to look around corners or avoid the uncertainty. for investors to take a long-term perspective on these issues. also, this issue has demonstrated the benefits of holding a portfolio that has been diversified across assets. onlybased investors holding u.k. investors are probably regretting it now. there is a similar story in the u.s. worrying about how we got this way buying international bonds. who knows when the next shock will come along. the benefits during these uncertain times as powerful. the looking at the markets,

pound is higher. there is a bias to looking at these markets on the rates of change in mountain last couple of days. they believe the market has shifted in a dramatic fashion that remain will come through. how are you engaging the likelihood of that? the market has made a bit of a shift in the last couple of days. >> there is no doubt the opinion polls have moved back towards the remain camp. it's incredibly close to call him we will only know friday morning. no sleep for anyone in the

next 48 hours. great to have you with us. musk said tesla will buy solar city in a deal that could be worth $2.9 billion. the announcement has both stocks on the move tel withsa shares falling and solar city up. you have been an outspoken skeptic of what tesla has been doing. with everything elon musk is doing, why did he decide he had to make this move now? cory: i talked to a friend of his and this guy is not afraid of risks. this deal is amazing. the cost of the deal is probably closer to $8 billion. they will try to issue stock for this thing. solar city is a very different

business. yes, it is involved in clean energy but this would be like ford lying con edison and saying we will own power or buying exxon mobil. it's a big stretch for a systems of buy solar rooftops. solar city loses tons of money. on a net income basis, solar city would lose hundreds of millions of dollars. if you look at the cash burn, it's worse. they are burning $1 billion last year alone. will doubler tesla its cash burn numbers as a goes into its most aggressive production cycle. david: elon musk is a very smart man. he could be right or wrong but he is very smart.

he said this is a no-brainer. what is his explanation? cory: he will have to explain it to shareholders. it's a totally different business that runs boatloads of cash, $1 billion last year. the overlaps are very disconcerting. morning a note out this of an analysis of the energy market. he said that chairman of an , we sent acompany letter to his cousin who is the ceo of solar city to buy a solar company. this is elon musk using his shares of the company he control to buy another company to be controlled which has been in a

spiral as far as share price in a different business. it's an unusual offer. there are ethical complex and board overlaps. david: up next, the battle of the charts. ♪

david: it's a special speed round of rattle of the charts with matt miller and julie hyman. matt: i have the pound index. we just put this together and we are comparing the british pound to a basket of the most important currencies in the world. they are trade weighted and liquidity waited. the dollar index is equally trade weighted and liquidity rated. since the fed announcement for the referendum, the pound has soundly outperformed the dollar versus the major peers. david: that is short and good. julie: i still have brexit

fatigue and i am looking at tesla offering to buy solar city. this is the free cash flow for the two companies which is been negative for quite a while, about $200 million of a negative cash flow for solar city and $450 million for negative free cash flow for tesla and they debthave high net to shareholder equity and these are the reasons why people are asking questions about the deal. david: i am with julie. matt. am with the new york open is 30 minutes away. ♪

david: 24 hours away from the u.k. historical referendum in the markets are at odds about the outcome. subtle change in fed

speak and janet yellen returns to capitol hill. david: in a national poll, more voters with a stake in the markets a donald trump would be better for their portfolios. we are just under 30 minutes away from the opening bell in new york and this is "bloomberg ." jon: 24 hours is the theme at westminster. we will know the out come in the u.k. referendum. let's look at the markets. futures in the united states are relatively unchanged in the equity market pushes higher in london. the ftse is 38 points higher.

a four-day winning streak in europe. euro-dollar and there is a significant move in the cable rate. i had of the fed chair testimony, round two, 1.7% is the yield on the u.s. 10 year. the markets seem somewhat reassured given the shift in the last couple of days that the could bemp for brexit ahead. to theellen heads back senate for testimony again. donald trump is beating hillary clinton if you've got your money.in the market .

let's start with brexit. the market is considerably focused on this event. we will know the outcome in 24 hours. the future of the membership of the eu. looking at markets right now, the markets have made a shift in the opinion polls are neck and neck but we have a big spread. what is your insight into the spread between the polls on the markets. >> i think people are taking a lot of solace in the rally in the market recently. the polls have shifted toward remain in brexit. the polls are not capturing the overseas vote yet. there are lots of british citizens working abroad. if they choose to vote, i think remain is the direction they

will vote and that is good for the out. come i think that's were the wedding exchanges are capturing a better look -- were the betting exchanges are capturing a better outlook are y. i would be cautious because the symmetry of the out comes is large for the out -- for the market. , it's bade a brexit, news and markets all over the world will selloff. market for thee last topple of days has been on low volume. we have started a high conviction rally so that something to keep in mind. david: how much are investors hedged against each alternative? i don't big it's possible to hedge in a development like this. it's pretty asymmetric. vote call but we

are lucky because we are long-term and patient investors. no matter which way the vote goes, britain will still remain in the eu for at least 2-3 years. they have to negotiate an exit and that takes time. nothing will happen overnight in terms of how business is conducted. i think both companies and investors will have time to adjust to the outlook long-term will not be good if the u.k. were to vote for brexit. let's assume they remain, to what extent has this entire effort raise questions about the cohesion of the eu over all? vote goes toward remain, people will still have lingering concerns about unity within europe. a lot of the participants in the eu have different agendas and

that is why the united states and europe remain a pipe dream compared to the united states of america. david: our second story is renewed focus on the economy in the united states. in senate testimony yesterday, janet yellen says she is less focused on when the fomc will raise rates but rather whether the economy will reach the benchmark to do so. in about an hour, she will go back to capitol hill to face questions from the house. what message did you take away from what she said yesterday? fed has broadcast its views pretty reasonably so far. if there was any surprise in yesterday's press release that came out, it is that it remains a dovish tone and there is no fear of a rapid increase in rates and i the market has taken's into stride. says, we should

probably move on. we had bearish wages on the front end of the yield curve. would you go long on two-year notes given that the fed may not do anything anytime soon? >> i'm afraid i would not. as a long-term investor, i don't think the bond market's giving you enough payment for all the risks you take. at such low yields. it's not just the u.s. but international. productionsu make of what the fed is likely to do the rest of the year? >> we don't because we are equity investors. the cost of capital is way higher than the riskiness in the market. a 25 aces point is not affect us that much. jon: a lot has been made about this read between the yield on

debt and the yield on equity, the dividend yield. i think jefferies did a survey of it's the idea that1/3 u.s. companies, the debt yield is below the equity yield. how do you view that situation? the coupon on the debt is fixed ,ut the yield on the dividend is there a risk there? >> i think it is always useful to have stocks. an unusually high dividend is a red flag. be careful that one does not change the dividend yield. if it is high and good and stable, it's worth having. there is a dichotomy between a favorsvidend yield which

equities as an asset class. view is thatn people are afraid of volatility inequities that they have chosen to go over the stability in bonds. it's a great cost and the biggest risk and investor takes is not volatility but it is not meeting your investment objectives. i would argue that this is an opportunity for the long-term investor to buy the attractively valued dividend stocks. our number three story is new investor confidence poll on the rates for the white house. shows that a voter with money in the stock market will pick donald trump over hillary clinton. looking at that survey, were you surprised which camp are you in?

>> i'm not surprised by it. generally, people think republicans do a better job than democrats on the economy. my view is it does not matter. politics matters less to market in the world would like to believe. economics matters more and i would say that developments in china and the eurozone and the fundamentals is what will drive the markets, not the election outcome. fromthis quote comes morning consult -- does that make any sense to you? the desire for safety is so misplaced that there is a believe that safety in bonds,

that ron's are risk-free. -- that bonds are risk-free. stability is not risk-free and volatility may have a better pay off. david: those are the stories that matter to markets now. on early a check morning movers from julie hyman. let's look at fedex where we have earnings related news coming out. forecasting an annual projection that was in line with analyst. it does not look like that's good enough to satisfy traders and investors. it says it expects moderate economic growth to support shipping demands. that is another company came out with numbers after the close of trading. it's interesting because fiscal second-quarter revenue is up 20% and it has been successful in

migrating more of its business to the cloud and yet projected growth is not fast enough to please investors. forecasting revenue in the current quarter that could miss estimates, there is slowing momentum even though the momentum is relatively strong. those shares are selling off. kb home's is out with numbers. the income rises 63% compared with one year earlier. total revenue was up 30% of the company is seeing a migration of home buyers out to the suburbs and looking to save costs with those shares up 1.1%. winnebago, this company came out ahead of and most estimates and towabledis well in the category. david: thanks for you. let's go to first word news. hillary clinton is

scheduled to meet with house democrats this morning. it's her first session with them since becoming the presumptive democratic nominee. she is expected to discuss her agenda and how she expects her campaign to go forward. likely republican nominee donald meets with house gop lawmakers on july 7. on capitol hill, centered a look and supporters of a compromise gun-control measure say they are gaining momentum. the proposal is aimed at keeping guns out of the hands of suspected terrorists. the national rifle association is against the plan, calling it unconstitutional. the french government and unions have reached a compromise that will allow a new labor march in paris. police had banned the march over concerns of more violence. the dispute between organized labor and the french president have led to strikes in garbage collection and public transport.

jon: money comes out to the perceived havens of areas like gold. we will talk about gold in the future -- gold and the future for precious metals. elon musk goes on the defensive after investor shall they are not happy at about a proposed merger of tesla and solar city. ♪

are at a --futures

an all-time low. we have been spending the day so are projecting what will happen with brexit tomorrow. what is the gold futures market tell us about tomorrow? >> gold is lower and some of the offrist say you should sell area there is a lot of value long-term and near-term. britain will great leave but i think gold will be higher. if they vote to stay, the dollar will weaken and gold will hold ground. if the dollar strength is because of economic data coming up at her than expected of you better than expected in the u.s., the dollar does not

strengthen after a hike cycle has begun. anddollar actually weakens gold was $200 higher in 60 days. from last december. of valuehere is a lot in this area near-term and long-term. geo-: what about other political risks like china? how is that a determinant of wha we should expect with gold prices? >> you need to be in goal because there are many risks. you should have a portion of gold in every portfolio. pundits come on recently saying that gold has no value. they are wrong.

they are paid to put their clients money to work in stocks. i say gold needs to be in a portfolio and there is value in holding gold long-term. there are many reasons. could be an equity market selloff during election season. there are many reasons to have gold in your portfolio. voteears of the brexit have fallen off a little bit and their less reason to be in goal because of the brexit itself, but gold has a lot of value long-term. we should see a nice move going into the winter. david: thank you so much. coming up, elon musk is feeling the heat from investors who seem to oppose his takeover of solar city. details are next on "bloomberg ." ♪

jon: from london to westminster, the heart of the debate for the future of great written in the the markets are up slightly. a strong story through much of the session. a weaker dollar story. down slightly on the u.s. 10 year yield. 45 minutes away around two for janet yellen. mcdonald's is being downgraded to neutral this morning. the analyst is looking at overall second quarter restaurant same-store sales trends saying that they are slowing in the second quarter.

cutting comparable sales estimates for that company for u.s. sales. at the same time, reuters reports that make idols had gotten half a dozen bids from chinese and hong kong buyers for some of its stores there and a deal could be worth as much as $3 billion. it looks like that matt is not helping the shares of the moment. bunch of fast food stocks were downgraded. wendy's, papa john's, and dominoes are trading lower after that downgrade. priceline is getting an up or this morning to overweight. the shares are up by nearly 2%. the analyst says the stock is not performed well lately. also that margins will improve of the company is priceline shift its advertising's ending to places like facebook. amc networks are being cut to equal weight at morgan stanley. they say that new show launches

have missed expectations and the declining dead" revenue will impact the stock. la is falling after proposing to buy solar city for nearly $3 billion. shareholders may be upset with elon musk. he explained the reasoning behind his position. think basic message is we there is an excellent opportunity to have a highly integrated solar energy company that answers the whole sustainable energy question nation from generation of power to storage and import. cory johnson joins us now. musk thinksat elon

this makes sense for tesla? he is the largest owner of solar city. he has lost the most amount of money. you can see the collapse in value that all the shareholders have felt. he has felt it more than anyone. if i'm a skeptic, he believes there is value of solar city. he believes in that but no one else seems to. the losses in the business have been spiraling. they are projected to be worse this year but he believes in it maybe he's using the tesla shares to bailout the solar city shares which have been in freefall. david: he was on a call yesterday and today. what does he think is the reason behind this? cory: he is saying something

about a clean energy future. at the analyst notes, they seem to be largely perplexed. eight analystr notes last night and this few of themonly the are wondering what the strategic advantage is? they are extremely different businesses. makes automobiles and solar city has people on phones to get people to put solar panels on roofs. the user experience is different and it's hard to see the logic in this. david: let's get a quick reaction from rupal. what is your reaction for this deal? >> i'm not for it and investors feel the same. -- ideal is more about

think it creates more uncertainty. concept, it makes sense but from cash flow, there is no basis. both are risky business models and combining the two will derail the outcome. david: thank you both so much. jon: coming up next, the market will open in u.s. and the attention of global investors will be on washington, d.c. as janet yellen testifies on capitol hill. ♪

okay, ready? whoa! [ explosion ] nothing should get in the way of the things you love. ♪

get america's fastest internet. only from xfinity. by switching to xfinity x1. rio olympic games show me gymnastics. x1 lets you search by sport, watch nbc's highlights and catch every live event on your tv with nbc sports live extra. i'm getting ready. are you? x1 will change the way you experience nbcuniversal's coverage of the rio olympic games. call or go online today to switch to x1. jonathan: let me get you up to

speed on the global financial scorecard. futures up higher. to point on the s&p 500. a four-day winning streak here in london. 24 hours away from the vote in the u.k. and the future of the european union. you hear the bell ringing in new york city. through the other asset classes, yield about one basis point on the u.s. 10 year. janet yellen, that comes in 31 minutes time. over the commodity market, crude $.17 -- $50.17. sections -- 25 seconds into the session. >> we are not seeing much decisive movement at the open here. little changed. we will hear from janet yellen again today. perhaps investors are waiting

for that and then the big vote tomorrow. incidentally, we had been seeing a decrease in trading volume over the past several days. the only index across europe where we are seeing an increase in volume in the 20 day average. grahamseeing a waiting -- waiting game on the part of investors. not surprising given the magnitude of the vote. i want to come back to tesla solar city and i'm fascinated by this today. shares are trading higher by 10% on tesla classes offer to buy the company. they are trading lower quite sharply by 10%. analysts seem baffled by the offer this morning and by the timing of it. i have seen commentary calling it a bailout and not a buyout. we will see how this unfolds over the day. elon musk has tried to explain his rationale for the deal.

in the market, we are looking at the oil companies. seeing a bump up along with oil prices. janet yellen is speaking this morning and we will get weekly inventory data. that could affect the price of and these stocks as a result. finally, hp. it raises forecast for the full year in terms of earnings very the asset announced it was investing earlier in the week and would use the proceeds to itsce those up inventory in venting division and analysts are not content with the move today. that is why shares appear to be down about 3% now. jonathan: thank you very much. weeks,e last couple of volatility has been high. mistaking volatility for risk is the problem with many investors

according to the cio of global , back with me to discuss why investors should not shy away from volatility. walk us through this. why are investors mistaking risk with volatility? >> volatility is short-term price fluctuation. the real challenge of not meeting your investment needs, for the long-term. offwould you trade volatility in the short-term for risk, which is really long-term? designingnvestors are the investment strategy around reducing volatility when they should be focused on reducing risk. they are different. >> you have two funds. a pretty good track record. there is not just a simple binary choice between volatility and risk.

at what point does it become risk? it willot know whether come back up or not. it may be a long-term trend. >> absolutely. investing requires long-term thinking, no question. short-term, you will get mental and emotional whiplash. money is too important to deal with it in that short-term way. you are correct. volatility is different than risk in a sense that risk is permanent loss of capital. that drawdown is what you want to avoid. short-term fluctuation and something you want to look forward to -- >> that would be perfect if someone gave you a memo saying this was short-term rather than long-term. you must constantly be revising your opinion about invest meant because maybe your assumptions were off in terms of risk. >> that is where the power of fundamental research comes in. this is not a diy job.

remember, it does not fluctuate as much. it is far more stable and you can get around it a whole lot more. prices fluctuate a whole lot more. the prices lower than the value in that volatility is good. that is what you want to avoid. price alone does not tell you anything. talk me through some stocks that we can get high returns from. if i look at bank of america merrill lynch survey with cash out at -- allocations at a high, --t would you be doing at for the catch of the moment? quite thank you for the question. you have to have a non-consensus point of view. how we ares of taking advantage of the field of volatility in stocks and sectors. one is technology. , there is a company

that is a supplier to apple and because of near-term concerns about iphone shipments, this has corrected materially from the highs in the last couple of months. that is the kind of volatility i'm talking about. , it is notgap something a distressed asset you have to worry about, is there no flow to it, is a viable business, viable balance sheet, great strategy, available for a single digit multiple even though it is double-digit. volatility.power of another stock in u.s. markets is america -- american express. .ou are all familiar with it the interesting thing is the moment people think about credit cards, they think about wendy. what is different about american express compared to the other credit card companies is that ms

a spend model and not a land model. recently with concerns about nonperforming loans, people think charges will go up and the earnings will suffer. it is much more focused on consumer spending rather than consumer lending, it is not heard as much. that is an example of volatility, and unnecessarily -- unnecessary fear. jonathan: talk me through this. financials expect a higher right off. it did not discriminate across card issuers. why is the knowledge not widely available? you have just laid out, why don't people know that already? >> i think a lot of investors do not parse businesses into respective segments. headline at over numbers. consumer spending, referenced as spending is not

lending. only 40% of earnings but it is very visible. actually, american express is big in the corporate and commercial market. a lot of charge cards are issued by amex, 4% of earnings and internationally, another 20% of earnings. the contributions, the impact, and it is our job to put it all together. >> in addition to that, you look at american express and they just lost the costco business. visa city has picked up a fair amount of that. more and more people come in the electronic payment business. >> it is a challenge for oil financial institutions and american express is mindful of that. if you think about what apple they worked alongside visa mastercard and american express gives an anonymous advantage.

the cloud creates an opportunity because we can dismiss the cloud based on research. up, bothming volatility and risk are being driven by this week's grexit -- brexit vote. that is next on bloomberg . ♪

coming up later on bloomberg television, state street global advisors chief

rick laca officer ille. let's cross over to julie hyman now. this is the stock to watch. julie: i will start with .ompanies coming in and out fortune brands home insecurities will replace cablevision and the shares are up 6.5% and fortune brands are not reacting very much this morning. earningscame out with coming in ahead of estimates at $.52. sales up 2.2% and the maker of industrial tools, the company's missing estimates down 2% though third-quarter results be the

forecast on missed estimates. david: let's go now to abigail live.tle abigail: thanks. one stock moving here on the open. priceline is higher by nearly 2% to overweight from equal weight. near-term concerns have created a buying opportunity to he believes the disappointing second-quarter is timing related. one stock moving here on the open. priceline is higher by nearlyhey 15% to $1500 per share, adjusting the shares of room to run. not helping the nasdaq this morning, trading sharply down, adobe systems down by 5% after

the company posted missed results and a disappointing third-quarter view, suggesting the momentum for cloud-based products could the slowing. they did say they are on track to meet all 2016 targets and it looks like it is mainly giving adobe a pass here. saying the long-term story remains intact and he sees more than 30% up side potential for the shares of adobe systems. those are two movers here this morning. jonathan: thank you. let's get to sterling, the pound is surging to a five-month high a day before the referendum. a real shift as momentum behind the campaign to leave the european union dissipates just a little bit if the polls are any guide. for more, the founder and chief economist joins me now. earlier today, we spoke with the morgan stanley hesident and this is what had to say about the future in the city of london. take a listen. click we have contingency plans and we will talk with regulators

and look at having european headquarters somewhere in europe that will be acceptable to our regulators in terms of a combined -- where would that be? possibly, we have not made a decision. to begin with you, that isancial services, what the remain campaign would tell me. he founded an independent medical economic research firm. do you really see that happening? >> i cnx in this, whether it is a mass exit this is a tricky word. i think it is pretty clear it would be a fundamental restructuring adding to the detriment of london, which is why london is very likely to vote heavily to stay in. i just wonder why did

we get a sudden shift to dublin? two financial services rather than directed financial services. of course, the financial services located in london for reasons other than being in the eu. obviously the language advantages enormous especially .or american firms there is a feeling that being in the country is about to disconnect itself, it is extremely risky. no one knows what the terms will be. the risk is being potentially cast a draft from the market. i have heard this so much. you say distractions are like he. unlikely as far as you are concerned? >> it has taken markers oh it -- markets away from fundamentals. before the sentiment began to weaken in the u.k., you can see the market on some measures as

tight as it is in the u.s., had it not been for the grexit confidence and all the fear, it might have been the bank of england raising rates sometime this year. no one is talking about that now except next week a will be if it does not happen, which i think is increasingly likely. you aboutant to ask something we do not talk about inflation. how concerned are you about that as opposed to brexit? on the assumption brexit does not happen, i think you will see us turn back to the inflation story, particularly the labor market, extremely well .ehaved increasingly becoming a little less behaved. it welcome. calling the danger is when will this become unwelcome. 3% wouldth of about

become a bit of a problem. i think we will be there by the end of the year but the market of angst the probability of inflation risk and the fed having to deal with inflation risk is somewhere between zero and nil. what are you seeing out there and more specifically, does inflation hurt or help you? >> inflation can help a lot of equities. pricing power, so generally speaking, it is good for them. in terms of deflation, if we do not have some inflation, it was pretty bad news. we clearly cannot afford to have a world with negative interest rates and the u.s. is at the beacon of having positive interest rates. some return. 25% of the rest of the world has shown us that it can lead to negative rates. i think the u.s. wants to avoid

that. you are both sticking with us as we count down to around two. coming up, bloomberg markets with vonnie quinn. vonnie: we will have janet yellen with the house and service committee members, as she talks a little more about market uncertainties. the u.k. still a member of the eu regardless of the outcome of the brexit vote, it does not leave. we will talk a little bit about guest.th our we will talk about what happens next week and maybe turn the attention back to the u.s. again. that is coming up at 10:00. 24 hours away from an historic vote in the u.k.. and the european union on the ballot. we will have an answer by

friday. in the market, said share janet yellen's semiannual testimony ran two. a quarter of 1%, 90 minutes into the session. ♪

david: welcome. we are minutes away from day two of janet yellen's's testimony in front of congress. we're back with ian and grupo. we have heard from janet yellen in recent days. let me ask you what could she say that would change the world? obviously, they broadcast and what they're looking at in terms of wage inflation, and so on and it so forth. any -- that changes

things because we have seen a big rotation in asset prices led by qe. that would change my mind. think anecause i economy comprises asset prices. so yes, i would put that into my remarks. what is your reaction about asset prices? ian: raising asset prices was part of it in the first place. one thing you really want to do is raise confidence in market. -- in thel past where written testimony that accompanied janet yellen's's remark, a specific reference to real estate prices running ahead of rental growth and broadly, i do think having achieved the objective of aggressive monetary and push us away from the

environment, the fed needs to have a fundamental rethink about the role of policy kind of moving toward a more recognizable late stage inflation uptick in meanwhile, still set to deal with the end of the world. janet yellen, that story and it ain't going any -- a going away anytime soon. if i could give you a choice, i could let you know the outcome or the referendum or how many times the fed would hike in the next months. >> i would rather know what the fed will do. >> same question for you? volumesnk it will speak about europe. >> as you make your investments, how much are you waited to worth europe and will that change? >> we see a lot of potential for

improvement. wrinkle.he vote puts a on -- i think in the long run, countries figure out how to overcome their problems. we have seen the united states do that. equities and corporate tent to be agile enough to figure out how to come up with solutions to the problems. david: how important will the vote the to that? >> it is usually important if we vote to leave here it kicks off a process that will last several years. very uncertain outcomes. no one knows what the final relationship would be and that uncertainty will be a huge drives on the economy, never mind the u.k.. a deficit that someone has to pay for. the risks and the potential outcomes are extremely wide. that makes it a dangerous event.

>> great to have you with us on the program. cio of global equities. a privilege and a pleasure to have you on the program in the last hour or so. the attention turns to that room , special coverage of said share janet yellen's is second day on capitol hill. she will be testifying before the house financial services committee. you can watch that live and in full right here on bloomberg. us today.for joining an historicy from decision right here in the united kingdom. ♪

vonnie: welcome to bloomberg markets with breaking news coverage from washington, d.c.. fed chair janet yellen is moments away from her testimony.

you can see the members filing into the chamber. following her testimony they will be questioning janet yellen. we will bring you the questioning live as a gets underway. we also have breaking numbers on existing home sales in may. julie: that number just coming out. million is the annual piece of existing home sales just shy of what analysts had been anticipating. month was revised lower to a gain of 1.3%. the housing market still in focus for invest years. it looks like the absolute number is still at the highest in february of 2007. interesting that we are getting this number. janet yellen's testimony continuing for the second day.