>> stocks closing higher. a new record this afternoon. through.00 bursting >> but the question is, what did you miss? the s&p 500 at a record high despite that profit recession we have been talking about. we will break earnings are just a minute. plus we look at the federal reserve as a political institution. how much leeway doesn't really had one tried to come up with new policy? election caused more stimulus in japan. we will look at what is next. ♪ close wasvious record 1230.8. but we had blown through it today at 2137.

does not matter which height were looking at, we have beat it today. >> poppy champagne. >> we sawtek financials leading techay -- we saw financials leading the way. have a new place to potentially mark the end of the bull market. you point out some of the sectors, i will jump right into that. first you have the info tech stocks winning on the day, which on the year they are actually one of the few that have been struggling a little bit. financials are down, tech stocks are a little up. a little bit of a return. had a bigen a systems jump. on the flipside had the financials and utilities which is the place we look for interest rates and figure out

what the interest -- expectations are. financials up almost 60 basis points. there barely even down, they are holding flat. whatever it is is still pretty much there. this is the only sector today that the s&p 500 capital goods sector sector trading on hyder -- on higher volume. machinery, aerospace defense companies about 8% above average on a day when everything else is pretty slow. >> your something really weird. high rates on government securities. most days we see lower rates, but the two year yield up to .65 , 10 year yield up to 1.43. >> kind of a bummer. >> we could have had records on both ends, we'll almost had affrighted but didn't quite do it. >> we also had a climb on the pound.

still 81 29 handle on it which is so strange. when i pull up gdp currency on my bloomberg, i always have to check twice to see if i'm really looking at the british pound. 1.29 seems an odd handle. the yen, i was so psyched to see it go through 100 and little bit of a bounce back. they promised to give us ¥20 trillion of stimulus. 102.83.is climb back to >> oil continues to decline. it is down 9% over the last month. we have talked about how oil stocks have tracked each other. for the last week they have gone their separate ways. see if thisout to divergence can last. >> 76% of companies beat earnings estimates from analysts. alcoa has on a good job of beating those lowballing analysts. second quarter, $.15.

we were looking for only nine cents of earnings but i believe to $.24 from the same quarter a year ago. alcoa earnings getting crushed. but beating estimates. $.15 beats to $.24 from the same $.09. sales, that is also down from $5.8 something. alcoa putting out a drop in earnings, a drop in sales, but most importantly beating analysts xmas. you see the shares trading up three and a half percent in the after-hours. they are dead even your today. the unofficial season off to a good start. >> this for me is the official start. there he got. >> let's get to our deep dive. i want to look at something extraordinary that happened in

lqd, the investment grade bond. bloomberg intelligence pointed this out. line, the largest one-day flow into this etf ever. the largest forever -- any corporate bond ever. it shows you how wild this chase for yield and getting, the red line is the five day moving average. way off any previous pattern. you can see how explosive that move was last thursday and how big last week. massive yield. >> lqd? >> investment-grade body. it absolutely exploded. >> we were talking last week about amazon, he thinks it is more overvalued than taz a lot. overtook berkshire

hathaway in terms of market caps. i have a chart looking at amazon, the market cap versus berkshire hathaway. moving berkshire out of the top five companies by market value. buffet.ats profit -- he wants to short even more today. >> that is huge. kind of a coming-of-age of age in some sense now that amazon -- not that amazon basin. up 12% your today. i'm going to -- up 12% year to date. this is kind of what joe is talking about. we got close to this double record in unison. even if we did not hit it, this is what is happening. yields going further down on the 10 year, stocks going up further. we cross that new high. it speaks to the idea that although we think of stocks and

bonds as compliments, they do not move in the opposite direction. if you look historically, only about 40% of the time to prices of bonds go up on days bonds go down. -- stocks go down. dividend search, people buying stocks the same reason to buy bonds. reasons to buyo bonds at these record low yields. either security you're looking for, you want the safety of those government bonds. or it is a momentum play. with stocks, the price continues to rise. the bull market in both of the going on for a long time. you can see all the charts and more on twitter. >> joining us now is michael regan and good timing strikes its rainier. you're looking at this as well, this move into the bonds. . do have a chart how important is that to the rally right now? a big deal.

the search for yield has been the theme forever. -- like going for into this year we were going to see a steady rise in rates. that is obviously not happened. one great quote i saw was lower for longer. now it seems like lower forever. the dividend yield on the s&p 500 last week was about 60% higher than the yield on the 10 year treasury which is a level i do not think it has ever gone to before. it is awfully charts. it comeout 50% about about 2.1 yield on the s&p 500. people really looking at both classes. the it come treasury's were safety but stocks, for those willing to take on the risk to get that higher yield. >> if the yield was not as slow, i think your be a lot of excitement about the new highs. but because you ought yields granting lower commercials that people are very nervous about what this market is done us. -- is telling us.

>> i think it is. those yields can move quickly and reversed the whole thing you have going into it. fed speakersery going to be scrutinized. with that great jobs report was , many blow off the risk from the brexit. it makes you wonder, do we really deserve to keep rates this low indefinitely? it could potentially be a self-defeating rally. >> i have a chart here that sums it up. it bloomberg users want to hit us up. you can an hour bloomberg library, and also pull up a chess and look at the 10 year yield. when i find insane is this distribution. , i usually close

the side of the panel but look at how many are outside the standard distribution. it is just nuts. >> you can see in the bottom panel, that is how hide is. what is that ratio? >> 1.475. give a dividend yield 50% higher than the treasury yield and i think that is a big part of what is going on. >> people having coming to look for yield. the sense of place. -- defensive plays. they historically have a lower beta to the s&p. do you get a sense of concern on wall street either among strategists or investors that that trade could potentially become too crowded and pricey? >> even last week with the jobs data and general economic optimism, you saw a rotation out of those and into the more

cyclical, tech leading financials. financials were one of the leading groups today even though earnings estimates have been decimated for them because of these low yields. buy a low bowu fund for reason. it might under perform against market but i think people are there as advertised. keep away from volatility. but certainly there is a risk there. this optimism and the economy -- >> what are you interested in looking at? >> it is looking like we have already had six straight quarters of declining earnings. this could be the seventh. if you exclude energy, we are on that area where energy could be flat or possibly up about 2.2% drop expected. it would save -- take some really huge beach to get the

index into a growth area. 5.7, closet is for to 6% drop. >> which is shallow. i discovered a message, he says look, it is the same period as the great recession in terms of the length, but 5% compared to 50% during the depression. story saying yes at six quarters. the peak to where we are right now is only about 18% in earnings. the last two before that were 36% and they were accompanied by actual economic recessions. that is kind of the difference here now is that it is kind of strange that is big, long earnings recession without an economic recession. with the jobs number as we saw our there is a disconnect. i think people are thinking if it is not going to live the

unemployment rate, not going to create a crisis like it did the last time, that they can live with and earnings recession and buying stocks at an all-time high. that could all change pretty quick as more numbers come out with that seems to be the case now. >> thank you very much. adfgo is what you type on bloomberg if you want to check his columns, and i recommend it. coming up, how much leeway does the ever reserve have when it comes to monetary policy and the populace will discuss, next. this is bloomberg. ♪

♪ >> let's get to first word news. in indiana onp tuesday is fueling speculation that governor mike pence is going to be named donald trump's running mate. the washington times reports his chances of being the vice presidential pick are 95%. but two other names have emerged as possible running mates. lieutenant general mike oakland and stanley mcchrystal. abc news says mcchrystal is not interested. john kerry is heading to rush out this week to visit -- it comes at a particularly tense time in u.s. russian relations. in addition to differences over syria and ukraine, as follows last week's expulsion of diplomats after an incident outside the embassy in moscow. that involved a russia's security guard are fighting with a u.s. diplomat. detainees in bay the move to serbia.

the two men were released from u.s. base in cuba after comprehensive security reviews. it follows the transfer of another prisoner to italy over the weekend. 76 prisoners remain at want on obey. in japan, the focus turns to the trimester -- his conservative coalition scored a convincing victory in upper house elections, winning a super majority. his liberal party 156 of the 121 seats in confession. a junior coalition party 114 more. he has promised to take what he calls broader, bolder measures to expand japan's economy. global news 24 hours a day powered by more than 2600 journalists and analysts and more than 120 countries it i am mark crumpton, this is bloomberg. back to you. fed as wellow the as you think? our next guest is most, knowledge about the fed is

wrong. from the present to economist -- joining us is the assistant professor -- peter, thank you for joining us. what do most people get wrong about the fed? >> you get two different stories. one is it is the all-powerful, technocratic source of government that gives stability to the economy. those of the people that prays the fed. the other is the all powerful pull her strings that controls everything from their temple. those of the people who are critical of the fed. they are talking past each other and not understanding where the fed fits among government and the economy. >> you did say all-powerful in both discussions. are they really that powerful? what is fascinating is over

the course of its 100 year history, the fed has continue to accrue more and more power and authority. senses, both those who defend the bed and attack agree about its extraordinary powerful, they are right. and sometimes though they are wrong. the fed it cannot provide the answer to every economic question, and those who seek to praise the fed and short out and those who condemned for overreaching sometimes mistake that reality. >> it begs the question, what does euro wrote the power of the fed? how long can they had policy that is not working to wait it -- they expect -- at what point do they begin to question the authority? >> people have started already. the crisis was an acceleration point. when my favorite data points was in 2006, the was a pull a most trusted government entities and

the fed was at the top. they came back again in 2010 and the right there at the bottom with the irs. what was the difference? monetary policy as much as it was the financial stability and regulatory policy. the more that the fed has accrued authority and broader swabs of the economy and financial system, than the more people have skyhigh expectations that the fed cannot deliver. deliver, people to begin to criticize it. its friends in congress are numbering fewer and fewer. peter, with interest rates very close to zero, people see that the existing tools of the fed may not be sufficient. we have a chart showing the federal fund rate historically. what are the constraints on policy? let's say they wanted to literally drop cash around the country.

would they be able to do that? what can the fed not do? >> the important question there you're asking is getting the difference between the fed's legal authority and the fed's legal position. an extraordinary delegation from congress to do things.s of different there are arguments among lawyers about how much the fed could dip into negative interest rate policy. they have ample authority to do this. helicopter money, same true there. but that does not get to the question of what with the political repercussions be? more and more on the fiscal side, government deferring more to central banks, than the fed is caught in this catch-22. it is the only game in town but condemned byo be its opponents the more plays the role. it is caught and that vice grip. tossing cash out of a

helicopter would probably not be advisable for the fed's popularity, unless you are the one to receive the cash. i'm wondering about the fed's past history. alan greenspan seemed a little bit political and i wonder if you think that was the most political fed we have seen and how does that compare to the fed we have now? >> it depends what you mean by political. politicalspan was a operator, so well-connected to members of congress in the first bush and clinton administrations. in that sense, he was an extraordinary political operative. fed chairs,other i'm thinking of arthur burns during the nixon ford years, were not only deeply connected politically, but deeply interested in the interest of

the political sponsors. we have not seen that since -- something like that since. they were extraordinarily close. arthur burns, we have his diary where he talked about how much he loved richard nixon and how much he wanted to work to guarantee nixon's successes. it happened and it brought in the great inflation. ,hat was not greenspan's role so when we say the fed is political, we're not saying that the obama fed is going to hijack the election. >> i hate to cut you off. thank you for joining us. author of the power and independence of the federal reserve. thank you so much. --pokemon go is this game the game of the weekend. pokemon stock in a bubble. here's a look at the stock of

alcoa. the aluminum producer that is splitting into two companies reported earnings that beat analysts experts. this is bloomberg. ♪

>> breaking news on tesla. according to a tweet siding dow jones, the sec is investigating tesla are not notifying investors early enough after that autopilot crash. ise again, the sec investigating tesla for possible breach of securities law, that according to a cnbc tweet siding dow jones. we also have a big jump in seagate shares after that company said it is going to fire 1600 people.

1600 jobs, that is about 15% of the entire company. we have news there on seagate, moving those shares higher in after-hours. 10% higher. 1600 jobs, that is>> good for sr tea -- rockport has appeared -- rough for tesla. >> not good for seagate employees. elon musk tweeted about his master plan, presumably investigators from the sec was not that master plan. >> what does this mean for his plan for a thomas vehicles, which they had to cook -- what should they have -- >> it is far fewer accidents at has luck than other companies -- at tesla than other companies. one crash in 130 million miles as opposed to one in 90

million miles for other cars. quick break we're back in two seconds. ♪ . . get ready for the rio olympic games

by switching to xfinity x1. 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.

german chancellor angela merkel says it is inevitable the u.k. will leave the european union. merkel said britain will formally apply to leave when a new prime minister is in place. meanwhile, she took questions over whether she will return for a fourth term next year. theresa may is poised to become the next u.k. prime minister when david cameron steps down on wednesday. the family of one of the five dallas police officers killed last week is thanking the public for its support. brent thompson's relatives are asking people to keep all police officers in the prayers. thompson was an officer with the dallas area rapid transit authority.

president obama has to dallas tomorrow to speak at an interfaith memorial service. the president is inspected meet with victims' families. vice president biden and former president bush and his wife laura will also be in attendance. three people have been killed during a shootout at the courthouse in michigan. the county sheriff says two bailiffs and the gunmen are dead. a sheriff's deputy was also shot but is listed in stable condition. the sheriff said there was a disturbance on the third floor of the courthouse today. the courthouse is located about 50 miles west of kalamazoo. republicans in congress had hoped to go to next week's president of convention in cleveland following a burst of productivity. but disputes with democrats over defense, the zika virus, and guns have changed the story. republicans accuse democrats of being the party dysfunction. democrats say republicans offer

to compromise and then support a more partisan final version in negotiations with the house. north korea says it is ending a diplomatic communications channel with the united states and hinting at harsher punishment for americans detained inside its borders. it is retaliation for u.s. sanctions targeting the leader and others over alleged human rights abuses. north korean, state media said it told the u.s. it will terminate contact through a u.n. channel that let diplomats communicate. dayal news 24 hours a powered by more than 2600 journalists and analysts in one 120 countries. i am mark crumpton. this is bloomberg. matt: thanks very much. let's get a recap of the markets today. all new record high for the s&p 500. you can see 2137 being the closing high and intraday high for that index, even as we see 10-yearow rates on the

and global bonds. the dow jones industrial average closing at a may high of 2015. not hitting a new record but up there. the nasdaq also the highest since december of 2015. >> on the nasdaq, that is outperforming the embassies. on top of that, the russell 2000 small caps were up. the real standout winner in the equity market. up with associated risk. the fact have been doing better is impressive. >> "what'd you miss?" the japanese prime minister said he planned to add fiscal stimulus following the ruling party victory in the upper house elections. japanese shares posted the biggest gain in almost five months. how much can he accomplish after the vote?

joining us from washington to discuss his tobias harris, political analyst. and also with us is betty liu to discuss the elections. tobias, tell us the implications of the election. what can he accomplish now with this new alliance majority he perhaps could not get done before? >> the biggest takeaway from this election is it was a vote for stability for most japanese voters. they told pollsters going into the election that is what they wanted. theyold one newspaper wanted the ruling coalition to keep its majority and stay in power. this is a vote for keeping -- not changing midstream with abe. betty: do you think he was aided fiasco whicht ended up propelling the yen higher?

did that bolster support for his majority party? >> certainly. i think it helped reinforce the idea of stability, that you need a sure hand. the opposition had nothing to answer anything he said. they offered policies that were a pale imitation. the public has not forgotten what the democratic party was like in power. for better or worse, abe is the most stable hand on leadership at the moment. >> we saw the yen react, selling off. the nikkei railing on the hope era,ill fire the third more fiscal stimulus. does he have the political capital to do something economically he could not during his first few years in office? >> the reality is the political capital has been there. the biggest question now, he is running out of excuses.

in past years, he had an election to face or there were other priorities. at this point, he is running out of priorities. there is not much left on security. for all the talk about how he could do constitutional revision, of fact is the process would be difficult. the economy needs it. he has got to show he is. committed to extending capital on labor market reform and getting demand going and fighting deflation. he knows he has to do it. it is a question whether he has the courage to do it. betty: no one would envy that long list. after we got those results, the day after, we had machine orders come out in japan that showed again a surprise decline. it brought home this notion the japanese economy is in almost a semi permanent or permanent malaise. out of all the things you mentioned, labor market reform

and getting t.p.p. past and all the other issues, what is the ext?one n >> with the yen strengthening since august of last year, they have to find a way to find a source of growth. they cannot depend on it pumping up corporate profits. they have to get household demand up. whether that is getting the fiscal stimulus package targeted at lower income households to get them spending, they have got to get demand up. there is no escaping it. >> it has been reported that we will get a cabinet reshuffle after the election. is there any chance there will be a change in finance minister? >> it is certainly possible. i was in tokyo in june. there was a lot of discussion over whether he stays or goes. there are good reasons to think either ways. he is 76. he might want to start moving

towards retirement anyway. that is certainly possible. the finance minister, it is a job you give to someone to keep them busy because it requires a lot of management. you have to keep the bureaucrats at bay. the overall direction of policy will not depend much on who the finance minister is. it is being directed by the prime minister and his advisors. betty: what do you read into the sharp fall we saw in the yen? what implications does that have for you? >> i think it suggests there is a belief abe is going to redouble efforts after the election. even though there was a lot of talk in the media about constitutional revisions as a sure thing, i don't think that is the case. i think market participants notice that. economic conditions mean he has no choice but to get it right. >> what is the next thing to watch? >> i think we will start seeing

negotiations over what the stimulant package is going to be like. there has been a lot of speculation over how big it will be, what will be in it, how much infrastructure spending, what they will direct towards household. we will start seeing details. that should emerge between now and sometime in early august. at that point, they will have a session in september. that money should start getting doled out. what affects one country can affect the region. how do you think this affects japan's relationship with china and the rest of asia? economically, if japan is not growing, it is not good for anyone in the region. japanese demand would make a difference. japanese companies looking for growth abroad, that will be good. but japan needs to have opportunities for growth abroad as well. as far as the constitution and security, there is some concern

in china and south korea that while article nine is going to be revised, he's going to steamroll that through. i think that is premature. there is no reason to think that will happen. some of his own allies have said it is not going to happen in the near term. his coalition partner is not in favor and they hold the deciding vote. they will not let it happen. i think they need to scale back concerns about what could happen with the constitution. >> tobias harris and betty liu, thank you. you can catch betty at 7:00 in new york and 7:00 a.m. in hong kong. we have breaking news on xerox. it is said to be in talks to and merge with that business. xerox is planning to split. people familiar with the matter say this merger and purchase

would happen before the split. xerox has replied to comment, as have people from donnelly. he shares are up 5.5% in at the after-hours trade. shares of nintendo surging following the release of pokémon go. is is a game changer for the company and industry? this is bloomberg. ♪

matt: time to the bloomberg business flash 80 look at the biggest business stories in the news right now. climbing --l color alcoa climbing. growth offset declines in

prices. alcoa is planning to split by the end of the year. shares in seagate also climbing in the post-market. the computer hardware and storage company is cutting 14% of its total jobs, about 1600 positions. it expects pretax charges of about $164 million. the company now sees fourth-quarter revenue of more than $2.6 billion. that is far better than estimates. goldman sachs is trimming 55 more positions in new york. that marks the fourth round of job cuts this year and pushes the total number above 400. because our scheduled to happen between august 31 -- the cuts are scheduled to happen between august 31 and is under 29. about half are traders and sick personnel in the security division. that is the bloomberg business flash. joe: "what'd you miss?"

go has nintendo stock soaring. this is lifted the market value by $7.1 billion. joining us is cory johnson. cory, what is going on? >> this company has gone through the roof after one good week of something that brings in a revenue. we don't know the numbers yet. a lot of people are showing interest in the new game. downloads on the android device alone has made this one of the most popular apps for the last week in the u.s. and canada and the u.k., the only places the game is available. it has captured the interest of people on social media with searches on the web and people things walking around playing this game. it is as interesting as it shows off potential uses of the amazing computing power in a

smartphone as it relates to artificial intelligence and augmented reality. joe: you said it generates no revenue. it is a premium model, meaning you can buy app purchases. tell us how they hope that translates into money. in casinos, the advantage players are card counters. essentially, you can buy your way into that club as you play the game. depend on how much people want to pay to find more .haracters it is a premium model where they download for free. they have been able to get a lot of people to download this and benefit from the buzz. some have said it is as popular as twitter. i think that is exaggerated. nintendo has always been a closed system.

it has always been about playing on a nintendo device. this is showing they recognize there are devices that can do more and they are opening up these games that have tremendous andency for their users using intellectual property in another format and finally having great success with this format. into no mentioned shares added $7.1 billion to the added cap -- nintendo $7.1 billion to the market cap. 1999, it had licensing rights 750% -- it it's sort o percent. t it ended up basically being worth very little. will this be a fad?

this is the kind of game people might be playing for a long time? >> you're asking me to predict the future. i remember the past. the difference is that was a stock promotion where there was no substance behind the release. here we have a game people are playing from a big company where they have shown this is the focus. it is interesting to look at this. of course it is a fad. every game is a fat. the question is how replicable that is. i'm sure we will examine it. it is the middle of the summer. it is the silly season. i looked at serious news and trying to compare it to the pokémon thing. i was distressed. i was able to find thankfully black lives matter searches outshone pokémon go stories

through this new cycle by about a 4-1 basis. maybe there is some hope for humanity when we look at the seriousness level of what people are spending time making about and reading about. joe: we are talking about probably kids spending a lot of time playing pokémon, right? >> millennials are walking around bumping into stuff. the 10thgo is most read story so somebody is interested. matt: they're interested in what their kids are doing on the weekend. i was at somebody's house whose 13-year-old had been dropped off by his mom near a lake because he was going to go collect a pokémon character. people who downloaded this used it for 43 minutes a day, more than instagram or snapchat. >> that portends to actual revenue collection. it is one of the holy grails,

keeping people on the site for a long time. they don't have advertising right now but that could lead to all kinds of things. companysuggest this might have some hope. does it have $7 billion more hope this week? hope springs eternal, i suppose. we are seeing that in the shares today. i would join the doubting class, as i often do. joe: cory johnson, the chief pokémon go correspondent today. thanks a lot. >> it has come to that. matt: coming up, i have the coolest chart i have come up with since i have been hanging out with joe on "what'd you miss?" it is unbelievable and shows we could see something happen, something important, for the first time since 1959. this is bloomberg. ♪

matt: i am matt miller. "what'd you miss?" the biggest ad trade deficit we have ever had ever. it is unbelievable. i'm looking at this chart. we only have data going back to 1974. you see in white the trade deficit or surplus. normally, it is a surplus because we farm so much in this country that we typically send more out than we bring in. but recently in may, we had the biggest trade deficit as far as agricultural trade in all of history. and we have had three trade

deficits in a row because of the strong dollar. you see the dollar in blue. thessive strike before plaza accord and another after the burst of the internet bubble. another strong dollar season the last couple of years has pushed us down to three months in a row of trade deficits. although we are still in 2016 looking at a surplus, if we continue on this path we will have the first annual trade deficit in agricultural goods we have had since 1959. of this is closely related to the dollar and currency moves. i'm going to stay in that vein. i have a sweet chart about sugar. n. is a brutal pu it is from a bloomberg market specialist in são paulo. check out the red bars. very high the past couple of months. that is showing you managed

money net position. these are speculative traders betting on higher sugar prices. 50% of exports in sugar come from brazil. strong upian real is 17% year to date. matt: biggest beat of the dollar of all major currencies. >> absolutely. and their stock market is one of the few surviving in latin america. the sugar producers say we are going to turn this into ethanol and sell it domestically. you don't see the export hit. there is also speculation by meteorologists that lending at nina is going to cause damage and could potentially hurt supply. joe: that is a great chart with things you might never consider. surprising result of the strong real. matt: don't put it in your car if you can avoid it.

joe: what you need to know to gear up for tomorrow's trading day. this is bloomberg. ♪

this tonight,s expected negative .1% month over month and negative almost 5% year.ver >>tt:

mark: welcome to cleveland where the republican party is beginning to gather for the national convention. hundreds of delegates are in town already for the committee meetings that kicked off earlier today. just behind me is the quicken loans arena where the delegates are expected to make donald trump their official nominee for president next week. this week, the nation's attention is mostly focused elsewhere. it was a weekend of more conflict between protesters and police officers across the country. on friday, there were calls for