to "bloomberg daybreak." awayarkets 24 hours from aan inauguration. heading for the potential biggest weekend losses since the election. weaker a marginally dollar. treasury stable. 243, your yield. alix: here is what you need to know at this hour. may under pressure. goldman sachs of cut its london staff by 60% on brexit. investors await the rate decision at 7:45 a.m. eastern followed by mario draghi's conference. how does he address the recent surge in inflation.

donald trump's treasury secretary nominee is set to face tough questions on his policy views from senate lawmakers on capitol hill this morning. it is going to pick up at 10 a.m. eastern. jonathan: thank you very much. two days after delivering her vision, prime minister may at davos. more about how they are adjusting for the brexit plan and to preserve the ability to preserve the eu access to their markets. take a listen to this. >> the position is a starting position in negotiations. the clock is now going to start to take and count down from 24 months. we will see how it develops, but it is way too early for us. >> there is a lot of water to go over the dam here in terms of

timing and transitions, but we have to be prepared as it will be hard and fast. >> it will take a very long time to get full clarity that the banks and corporations and investors in people want to have. >> she talked about transition periods and phasing in. people believe a two-year clip is not helpful to everybody. that will determine how my jobs people have to move. >> activities covered by european legislation will need to move. that is about 20% of the revenue. >> it looks like it will be more job movement. >> depends what the law is. roles.can put in those they can be a little more for unitynd allow between europe and the u.s. so it depends what they come up with. jonathan: for more, we bring in john fry. the banks and chief executives

have been incredible guarded about their plans around brexit. we heard a lot more than we usually do this week. i wonder who the message is for. or isis the shareholders it a message for the government? >> a little bit of both, to be honest. if you talk to bankers here, there is a sense of realism among banking executives. there is a sense that perhaps the government is not as interested in their own interests as they should be. bankers are realistic. they are taking it on the chin. that is not to say there will not be negotiations, hardball between the city and wall street on one side and the government on the other. talking to bankers, the clear message is that the people are accelerating their plans and thinking about operations to take out of london. jonathan: prime minister may

swigging today pitching the u.k. as the global cheerleader for free trade. how is that going down in davos? >> you can counterpoint that if you want to be a leader in global trade, why should the beor star of your policy leading a trading block? there is an understanding that theresa may has to play politics to a certain extent. it is interesting talking to bankers. the is a deep understanding of the position she is in. there is an understanding that the brexit referendum was a referendum on immigration. people understand that. you have to make a distinction between what theresa may says in public and what her real position is. jonathan: great to have you with us on the program. david: thank you. on the eve of donald trump's inauguration, the big news today

will become permission hearings for his treasury secretary. we go to our politics reporter in washington. kevin, this seems to be the main event when it comes to confirmation hearings particularly because the democrats are staging quite an insurgency against the confirmation. how big of a deal is this? kevin: it is the main event. you are right about that insurgency. yesterday on capitol hill from top democratic senators holding a shadow hearing to define steven mnuchin as an out of touch business man designed to take down the middle class. they are particularly aiming at his time spent at one bank. i spoke with the senators, including some of which are on the finance committee when he will testify today, and privately, they say they know it is an uphill battle to convince and the republicans to change their mind and block his nomination. david: just under three hours now. it is clear he is anticipating

this. we get a quote here. he says "since i was first nominated, i have been maligned as taking advantage of other hardships to make a buck." is that the main issue? where healso an issue left the bank and had a substantial investment in the moving company. kevin: as well as his time spent in hollywood in business deals. two quick points. republicans will say that when donald trump said he wanted to drain the swamp, this is what he meant. they will try to portray steven mnuchin as an outsider who will be able to help grow the economy and get in line with more robust economic growth. the second point i would raise is that they are going to offer him up as someone who will the able to work not only with republicans but also across the aisle. that is the new ones here i would anticipate -- nuance i

would anticipate at this hearing that starts at 10:00. david: reported from washington all week long. jonathan: thank you. our colleagues in davos have been reading us views. we go now to erik schatzker for the latest headlines. erik: thank you very much. this is the latest from davos. out of the eu come into the world. theresa may says she will defend globalization as she leaves u.k. out of europe. >> let's face up to a period of momentous change. it means we must go through a tough negotiation and forge a new role for ourselves in the new world. it means accepting that the road ahead will be uncertain at times. but believing that it leads towards a brighter future for our country's children and grandchildren, too. speaks to prime minister may 11:30 in new york.

york will be a gainer pre-brexit. the bank knows how to operate in different cities in europe, including paris and milan given it had a fairly large headcount in those cities in the past. finally, we will get germany's reaction to the ecb. the finance minister speaks exclusively to bloomberg following the central bank decision. that is coming shortly. alix: thanks so much. we will be back with you in a moment. mario draghi's next move. -- 7:45ern kumal eastern, the latest on the decision. he runs one of the largest headphones in the world -- hedge funds in the world. he will tell us who will be driving the market. that is next. this is bloomberg. ♪

jonathan: from new york city, this is "bloomberg daybreak." we check in on the markets for you very quickly as we count down to an ecb decision. future softer, down about 10 points. if you look, down .5%. potential biggest week of losses since the election. a decent week for the pound. 12328. the pound heading for its biggest week of gain the summer, including one of the best days since 1993. it has been a tough time for some of those shorts out there. euros stronger at $1.06. the treasuries, 243 is your yield on the u.s. 10 year. david: we now go back to davos.

erik schatzker is sitting down with an extremely important guest. erik: thank you so much. it is ray dalio. he is the founder of the firm and a chief investment officer. good afternoon in davos. ray: good afternoon. erik: i have are trying to figure out where to begin this conversation because i have a feeling many of the threats we pull out will be tied together, but we begin with donald trump. people wonder, and i think you might have an answer, is what he are theeets, expectations built on those things noise, or are they deliverance to a better place, let's say? ray: i don't know. could be either. i think there is some things we know. we know donald trump is a businessman who is responding to a population that has been not well served and is important and

wants to revitalize the u.s. with business. i think we know he is more protectionist. i think we know that he can stimulate the animal spirits. i think we know that he is aggressive. we do not know whether he is aggressive and softball or aggressive and reckless. thoughtful or aggressive and reckless. the administration he has chosen around him, a lot of the people are quite capable, i think admirable. good group of people around him, generally speaking. that is a good sign. how he works with those and how it works out is yet to be seen. erik: you believe, ray, in the great power if you will, the inevitability of cycles. how much cap donald trump extend -- can donald trump extend, slow, interrupt cycles?

ray: we were at a spot where there is a debt cycle. too much debt and not much monetary policy. ability to have fiscal and monetary policy to stimulate the economy and get to the people who are his constituents was broken. ok. what he has brought it is a capacity perhaps to stimulate animal spirits. something very similar to 1980-1985. i would do the analog with ronald reagan. erik: first term of the reagan administration. ray: deregulation, getting something in terms of business spirit. erik: ultimately tax reform. ray: and tax reform. the difference i think is that then, we were in the depths of contraction. we had a lot of room to grow. we had an ability to lower interest rates to help stimulate that when the dollar rose. those conditions do not exist in the same way so this will

require engineering, excellence engineering. so the question is, is the skill set and the ability to engineer this there or not? we do not know yet. erik: too early to say. ray: too early to say. erik: what does that mean? if you are thinking about things the way you think about things, if you are thinking about the business cycle, credit cycle, the long-term debt cycle, do these cycles play out as they were playing out heading into this election? ray: they are the dominant forces still. erik: there is only so much. ray: there is only so much one can do. he has found a way where there exists a way to stimulate having to do with animal spirits. ok? so that is potentially a brighter spot than we thought existed. it has to be engineered prudently and well. you cannot reverse the cycle. it is similar to the 1930's.

let me take you back to the 1930's because this is a donald influence. erik: 1930's were a dark time. ray: yeah. if you follow the cycle, there was a depression, then they printed money. we had a re-brown in the whole world economy from 1932 to 1937. hen wee had populism -- t had populism. the word to describe the most popular influence right now is populism. is no longer central banks. they were most important economic factor in my lifetime. no longer traditional fiscal policy. the biggest force and how it plays out in the world over the next number of years will be populism. populism could be of the left or right. it tended to become more extreme. weree entering a period worldwide, it is a more important issue. those extremities where the

communists said the socialist on one hand and the fascists on the other, part was a visit voice that needs to be understood and dealt with well. the real question is, is it going to be smart or is it going to be stupid? erik: can you think of an example in the past, whether the 1930's or another era in history, when populism was smart? ray: at the yarn was considered populist. fdr was came in -- considered populist. he handles it by a large smart. erik: we need another fdr. ray: we need smart. right? they were fdr or the policies of fdr had pros and cons. i think that we need calm. we need to be collective. erik: hang on a moment. because we to ask

are drawing a comparison between leaders and their styles. calm, collected, thoughtful, careful. are those words you describe the donald trump you know? ray: the words that i would describe donald trump that i have come to know this way. they are possibilities of the people who are around him. those words i would use for some of the people around him. the question is how those interactions exist. there are possibilities here. i am not making conclusions. i don't want to rush to make conclusions. i am saying there are possibilities here. if it is done smart, it could be something. if it is impulsive, that is why i prefer to say he will be aggressive. the question is whether he will be aggressive and thoughtful or aggressive and reckless. that is the question. erik: the animal spirits you talk about, they have already

been revived to a certain degree. look at the appetite for risk assets since the election. conceptually. does it make sense from a standpoint of an investor? if you look at the standpoint for which equities rallied on the expectation of growth and the way bonds have sold off and the expectation of inflation, do those moves make sense to you? ray: totally logically. totally logically. what they have done is to convey what now we know. you change tax rates. you hear the policies. you have expectations. so on. there is more than that here which is interesting. businesses are thinking, where do i have my business, or changing the consideration. should i set up a business in china or the u.s.? now you have a more protectionist united states borders and an environment which is business friendly. and it is ok to

make money and make things happen. it is a business friendly environment, which also has rule of law and property rights. the u.s. becomes quite an attractive place for businesses to be. there is movement of that sort that also has a possibility in terms of stimulating. these possibilities exist. right? now the question is how they are engineered. i think there is a lot of possibilities here. very similar to 1980. if you take 1980 as a point in time, no one would have imagined what happened in the 1980's. 1980's was a period in which we had -- i don't want to get into that because it will take too long. erik: it was not that many months ago you and i looked at the world and you said we are 02 fractionalra interest rates in the western to fractional

interest rates in the western world. your anticipation is the stock market might return 4% every year for the next several years. do you need to change your view now? ray: i think he returns will be low. the most likely situation is the returns will be low. the only possibility they can change is through stimulation. does it raise the actual level of growth so what we are discussing is something better than we were discussing? the possibility of that -- erik: that seems to be priced into the stock market today. ray: we had an improvement. it is it? is a question mark. starting from a higher point. ray: we are starting from a higher points of the future expected returns now are discounting. we have normal growth.

where we go from here is really dependent on where the growth surprises on the upside relative to where we are right now. erik: how much would growth have to surprise? ray: stocks in my opinion are modestly attractive, but not big-time attractive. to be inhey are going a very bold move will be a function of this engineering exercise. how long does that take? is it something that fizzles out because it is a good concept, or is it something that becomes sustainable? the honest answer is i do not know. erik: so they are modestly attractive but not very attractive. ray: that's right. erik: is there anything that is very attractive? ray: there is nothing very attractive. hardly anything is very attractive. erik: bridgwater scatters the cowers the globe looking for attractive things. ray: right now, it is a type of questions, of uncertainty, and

relatively lower profile. there are possibilities. i don't want to get into our market positions, but i think that between now and six months from now, we are going to learn a lot. there is political conflict issues. policy as it trump regards china, very interesting question mark. i think politics and global affairs will have a bigger effect than it normally has. let's say that china thing. andake the two china policy make it such a public issue would not seem to be a good move. in other words, normally, negotiations exist behind the scenes. when in a politically year you bring that to the fore for both sides, now it is a public issue and becomes a face issue in terms of china. how does donald trump's faith,

will somebody back down? how will this be negotiated? from an outsider's point of view, that would not look like a smart move. is that a smart move? it is hard to figure that it is. the politics of it, the conflicts of it, it is going to play a much greater role than traditional politics have played. populism in politics will be a more important factor. erik: if you believe the way you do in the rise of populism and the force that it is going to bring to bear upon the globe, politics, the economy, presumably financial markets as well, how do you express the view? who wins? or loses? what becomes attractive? what becomes unattractive as a result? ray: globalism is threatened. the multinational corporation is in jeopardy. emerging countries are threatened. companies arerie

benefited. there is a host of things that go on. the question will be, will be open this that began in the 1990's with trade agreements and globalization continue? or will it reverse? erik: if you believe in the power of populism, do you also believe that we will see it manifests in new leadership in france and germany, for example? ray: i am saying populism is an issue. i do not know whether it will be defeated or whether it will win. i do not know whether it will be managed well or poorly. in spain, it was defeated. erik: for now. ray: for now. right? whether people --middle, of people, were in

thoughtful people, inclusive people will remain in control doing prudent things. so when you go through this country's. spain very close to being changed. but i would say populists have not been in control policy has been an excellent policy as a result. in the u.k., it is more a populist movement to make decisions. if you go to italy and other countries, northern european countries, finland and other countries, it is a question. the biggest threat to the european union and the euro is no longer a debt question. is no longer a political question. is a populist question. -- it is a populist question. erik: given the fact that the turn inward favors domestic companies, does it also favor the largest most powerful economies, and by extension, is

it good for the dollar? dollar is more that the is the world's reserve currency. as the world's reserve currency, a lot of countries and companies dollars.e been when they have that protectionism, it is not for them. that is good for the dollar. peoplee dollar goes up, think it makes it more expensive, and that is a problem. while it makes it more expensive, it is the reflection that the demand for dollars is good. the question is whether you can lower interest rates in order to offset that. that is what 1980 to 1985 is about. it is an engineering question. it is not good if you are short dollars. erik: if you need lower interest rates, not that good if you are close to zero. on the subject of race, it was , it was not that long ago that you thought we would have a brief tightening

cycle and a quantitative easing. is that still the way you look at it, or have these things we have been discussing changed your perspective? ray: about 1.5 to two years ago, a lot of people in the fed said they were going to raise rates and i believe they could not without a problem, and they did not raise rates, and they were very long in not raising rates. i thought the deflationary forces probably would be greater and eventually more likely than the significant diving. now i will say they will be slow diving. the fed will be behind the curve and let this go. even who we are going to have enough fat and how that will work is yet to be determined. in any case, to answer your question, there will be rate rises, slower rate rises, but the underlying growth will be better. erik: does that mean a bond bear market? ray: i think it means bond bear

market but not much. bond bear markets determine rate moves rise relative to what is discounted in the curve. if you look at what the curve is saying, i don't think it will rise much relative to what is discounted in the curve so it is a negative for the bond market but not a big negative. erik: thank you so much. he is the founder, the german, and coach even investment officer at bridgewater associates. jonathan: thank you very much. what came out of that was pretty clear. exactly what davos and the world 2016mic forum missed it 20n and dominated 2017. now investors like ray have to do with that. the biggest threat to the european union is populists. david: populism is the fourth and what it is entere handled

well. how many views have changed since a year ago? that you will all of a sudden have politics play a role when it did last year but the market is not all out of bed. you have brexit, the trump election, and markets were able to recover. on the habitable, world politics matter, but on the baseline, is it about fundamentals? jonathan: very delicate point when he described what was needed in terms of leadership. someone calm, measured, logical. erik asked him is that donald trump? he said no, but the people around him. david: i talked to tom barrett yesterday. he made us a point. let's take a look at the team because it has been all donald trump today. this came up yesterday during janet yellen's speech.

donald trumpo be and his tweets or janet yellen and what the fed and subduing? of inflation, have higher rates, is that a trajectory no matter what. jonathan: what ultimately matters is policy. in the markets, let's get to it. softer,a little bit down 15 points on the dow. in london, weaker. negative .5%. 40ad of the ecb decision minutes away, the euro stronger. the pound stronger against the dollar as well. treasuries at 244. we are up a basis point. alix: may under pressure.reports from interviews a process goldman sachs may cut 11 staff by 50% on brexit. this as theresa may pitches the u.k. as a champion of free trade. mario draghi's balancing act. the decision is that a 7:45 a.m.

decision followed by mario draghi's news conference. growing on the hill. steven mnuchin is set to face tough questions on his policy views from senate lawmakers on capitol hill later this morning. that is slated to kick off at 10 a.m. eastern time. david: as you say, 30 minutes from now we will have the ecb decision. now we want to go to matt miller to cover the decision in frankfurt. is this about the language being used rather than the decision being made? matt: there is a split came among the economists and the federer ecb watchers we are surveying -- fed or the ecb watchers we are surveying. on the one hand, hawkish in response to janet yellen leslie. on the other hand, a lot of bank analysts are saying this will be the most boring, dull ecb meeting on purpose.

they will try not to make any news here. bank of america said he heard that from ing. if you are going to miss any ecb meetings, this is the one they sent to miss, but i would not want to miss any. david: that is a very powerful team. if we do get surprised, where with that come from? matt: the surprise would be if you get a more hawkish tone. that could be driven by the bundesbank. we had a couple of media sources. to use a rate doy dalio word and a more highbrow magazine in germany, both covers have highlighted the problems of having extremely low rates. the germans are a little bit uncomfortable feeling like what the ecb is trying to do is inflate these peripheral

countries in europe out of debt. the germans feel like they pick up the tabs from that. if the bundesbank are able to weigh in at all, you can see mario draghi get a little more hawkish. he extended market intervention until the end of this year. the ecb is definitely here for the long run. david: thanks very much. jonathan: i wish we had some of those front pages of some of those newspapers as inflation spikes to a great total of 1.7%. just below 2%. what do i know? from what central bank to another, the federal reserve say the u.s. is close to her target for inflation and nearing full employment. speaking yesterday on the white house and the fed relationship. at leastministration, the ones that i have had any direct experience with, have definitely respected the

independence of the fed. i have never had a situation where a member of the administration has tried in any way to pressure me for any reason about these stands of monetary policy. jonathan: joining us now is all strategist.income fiscal stimulus, yes.higher rates , ok. the weaker dollar has to factor in somehow. you cannot get those three, can you? >> you cannot necessarily get those three at the same time, but what is interesting on the back of janet yellen's comments is we're sitting here today at the top of 2017 with an expected three hikes for this year in contrast to where we were at the end of 2000 with the extended for hikes -- four

hikes. things at the end of the day should be spelling that the fed is going to be but fasterntially than what the market is pricing right now, which is two to three hikes. when we look at the potential for what this means for the bond markets, there is potentially more to be had there. we have seen a small reversal. hundreds of billions of dollars pile in last year. maybe .2%, which is really nothing. to the extent that rates continue to move up, we will see more. david: what was your take from -- alix: what was your take from jenna janet yesterday? one says she should have been more hawkish. oksana: she walked the middle

line between those two. i don't think she was as dovish as she would have been. all the things do not take into account the animal instincts. she did not say we are really going to go aggressive here so she tried to walk the middle line. let's see what happens. what will this new administration be able to implement versus the rhetoric. we will go from there. david: donald trump has a bit of a challenge coming in. he has expressed concern over the dollar. he is a deal maker. is there any likelihood he could try to break that holy trinity? it is not favor right now, but in the past, it has worked. oksana: through. -- true. he is a deal maker. he will be out there trying to negotiate for the best interest

of the country that he represents, which is not necessarily about free trade, global trade, etc. everyone interprets that differently. i think that is definitely a possibility. underestimating the action, what is horrible? oksana: the front end is quite vulnerable. you had a tremendous amount of assets forming the front and. -- end. you have had the longer-term investor go into high biggest essential interest-rate risks. now that is part of the curve that will feel the brunt of any monetary policy so that is definitely, there is a false security. looking across the pond at what , isappening in europe

really interesting speaking of what is at risk, the question i often get it, how much of a probability do you think there is that the eu does not stay together? the more appropriate question is how much of a probability is priced into european assess with respect to that scenario -- asse ts with respect to that scenario. is the possibility of the eu stay together zero? is that factored into the prices? we see assets priced to prevention of continued and infinite ecb support. that is what gives me some concern and that is where some of the opportunities could be. alix: the worst case scenarios we have seen never played out. brexit do not destroy the u.k.

economy or stock market as predicted. every strategist says you will see a big selloff but we saw a rally. what makes to confident the risks will come to fruition and should be priced in? oksana: i'll have a tremendous amount of confidence necessarily -- i don't have a tremendous amount of confidence necessarily. there is very little room for error or to maneuver. you hit on a very important point, which is that last year if there is one lesson we all learned, is that no one knows what will happen or what the reaction will be to that scenario playing out. the major take away here is, do not be fooled by what you think you know absolutely. focus. this year, we are coming into an environment where there is a general expectation for the u.s.

to outperform. that is a fair assessment but no one should be putting their eggs only in that one basket. i think bond investors put too much into the face space last year are learning that lesson this year. it is about staying the course i positioning for a multitude of scenarios. alix: great to see you. thank you very much. coming up, it is drawing he's next move. the ecb rate decision is next. we will review mario draghi's conference at 8:0. -- 8:30. an an exclusive interview with david solomon. ♪ this is bloomberg. ♪

alix: this is "bloomberg daybreak."

coming up in the next hour, james gorman joins us from davos , switzerland. jonathan: from new york city, this is a bloomberg. we are about a minute away from an ecb policy decision. many expect it to be a non-decision. we begin with equities. we get you down to a cash open. futures a little softer. in europe, a little bit softer as well. down by .5%. down by 40% on the session. on the week, potentially the biggest week of losses since the election. cross assets look a little something like this. yields up a basis point to 244. heavily short treasuries for 2017. we had a bit of a squeeze.

we settled around the 240 zone at the moment. ahead of the ecb decision, we see a stronger euro at around $1.06. that softer dollar story reflected in the cable rate as well at 12325. as we await the ecb decision, largely expected to remain unchanged with rates at 0%. the marginal lending facility remains at 25 basis points. the depot rate remains at -40 basis points. the ecb maintaining 80 million euros a month until the end of march. into april, you decrease the rate of purchase from 80 to 60 per month through december. that is what the ecb decided to do with the previous decision. net purchases will be made alongside reinvestment. the ecb will run qe until inflation is on a sustained pat to his goal -- path to its goal.

we have heard a lot of this before so no big changes over the ecb. the fx market just looking at things quickly, the euro coming off of high. $1.06 today. we are up a third of 1%. alix: yes, the ecb says qe will run until inflation will be on a totained to his goal -- path its goa how does mario draghi address that in the press conferencel. ? does he chalked it up to energy or does he go able to the hawks? david: how does the conor mccullough particularly the germans -- jonathan: diminishing spare capacity. they responded to energy on the downside. way, as we the other move back to around 1.7% come you are going to hear the hawks

make a lot more noise. qe on hold to the rest of the year. 60 after the month of march, but it will not distract us from the conversation that will come up again and again and again even though they happen on hold through the rest of the year. alix: watching for any of those signs when mario draghi gives his press conference at 8:30 a.m. eastern time. for more, we are joined by erik schatzker for a bloomberg exclusive. erik: thank you very much. i am here with david solomon, president and co-chief operating officer of goldman sachs. good to see you. david: good to see you. erik: your boss was here not long ago so we will try to cover some ground that john and lloyd did not. there is probably not much to talk about as it concerns to ecb because they left rates unchanged. morepect there will be recent to talk about the ecb later so i will begin with this.

the conventional wisdom is that it is going to be great for goldman sachs to have so much of the firm's dna in the white house. the list kind of goes on. is that a safe bet that it is good for goldman sachs? it is i think that terrific to have a bunch of pragmatic business people participate in the process, but all of those people will be focused on their reputations and their business so we see how that balances out. erik: i am not suggesting they will favor goldman sachs, but i do wonder, and one does wonder naturally, if all those who were schooled at the firm in the way that you are and come to understand things through the lens of the firm will do things that are not just good for goldman sachs or will advocate for policies that are not just good for goldman sachs but for the industry from whence they came. david: we always talk about goldman sachs correlated.

growth is good for markets, usnomy, our clients, all of in the economy. i think that this administration as all administrations try to do will be focused on growth and to the degree that the people working in the administration can think in practical ways on how we can accelerate growth, which provides opportunity and jobs to people across the economy. that is a good thing. erik: one of the things that the new president and his administration may do in an effort to accelerate growth is roll back some financial regulation, give banks and firms like goldman sachs more visibility to provide credit to protectors of the economy that may be starved for it today. if it were up to you, what would you like to see changed? david: coming out of the

financial crisis, there was a significant amount of regulation that went into place with respect to the financial services industry, anyone it was focused on increasing capital, decreasing leverage. that was necessary and important. at the same point, a lot happened very quickly. very significant crisis is what we were coming off of. as a result of that seven or eight years on you can say what were some of the unintended consequences of this quick push of regulation, and how are they affecting things important for the markets? are they hindering lending? lending creates opportunity for businesses, that creates jobs. good for the economy, for all americans. i think it is appropriate after time to say are there places where the unintended sequences can between, changed, or improved so while we maintain safety and soundness in the system, we can continue to lubricate the markets and the system in an appropriate way so everyone can

benefit. erik: what are some of those places, rules? david: if you look at small and midsize banks, probably opportunity to increase lending. there will be some debate for that. i think these are things that should be looked at. i am sure to the degree that people are focused on our regulatory framework will be able to look at some of these things to see where is improvement. i am not surprised at this point people are going back to taking another look. erik: if the rule were rescinded tomorrow, what would goldman go back to doing? good at adapting to whatever the rules in the regulatory environment are. to the degree that was a change in the regulation in some way, we obviously adapt so we would be in position to serve our clients the best we could. rule one has to ask if the , is that what you would do if it went no longer exist? david: if it would change the

way we operate with the visibly of clients come with us the way we look at all these things. erik: will you and harvey what will you and harvey schwartz do differently than gary did? has lloyd and the board asked you to do anything differently? david: i'll think anyone has asked us to do anything i don't think- anyone has asked us to do anything differently. gary did a good job. ared, harvey, without focused on serving our business, and doing the best for our stakeholders. it is day 19. harvey and i spent a bunch of time, he has been in earnings, i am here at davos. erik: who is minding the store? david: harvey is minding the store. we have a big focus on our clients, on how we can grow our businesses, and there is a lot

to do. there is always a lot to do. it is not a question of different. . is a question of continuing a lot things we have done erik: you come out of investment banking. he comes out of finance. david: it is not as simple as that because i worked in fixed income. harvey worked in investment banking when he ran a financing group in 2004 off the top of my head. harvey and i have worked together over 15 plus years. sure, we have majors and minors in places where there is a natural tendency with experience over the last 15 years, but our business is about bringing the resources to our clients. our clients have complicated things they have to do with so we will work together to do the best we can for our clients while building the business inside the firm. erik: i am getting mixed

signals, not from you, but from others on investment banking. some say it will be a great year with the economy rebounding, reform, and others big is going to happen until the policy questions surrounding the come administration and what it will do and what it will get cooperation from congress or not are resolved. how do you see it? david: i would be somewhere in the middle as you expect me to be. i do not think it is as simple as that will happen, but i don't think it is as simple as we have this expectation of a bunch of stimulative activity. therefore, there will be activity. i think there is a lot of optimism. optimism breeds confidence. confidence plays a meaningful role in m&a activity. that set, when you're talking about bringing buyers and sellers together, if there are

questions about tax policy for example, how each side under right and comes to agree on value gets more complicated. it is certainly possible as we are ready to understand where some of these policies or how these policies evolve, that could be headwind to some activity by there will be no deal activity. some good amount of momentum from capital markets perspective coming into the new year. not as robust as it was doing parts of 2015, but i expect we will have a reasonably year. as there is more clarity on a much of these policy positions, if we actually are continuing to see the kind of growth and optimism that people are expecting, i would expect an increase in activity. erik: let's go to an issue that does draw on your background in the refinance and everything you have done since, since he reminded me of it. one of the things on the table is the elimination of the deductibility of interest expense. how disruptive or transformative

without the two corporate america? -- would that the two corporate america? david: there is discussion in the context of these policies. erik: let's just isolate that you consider what it would mean. david: it would certainly have significant impact on companies as they think about their funding, leverage levels, etc. when you talk about policy like this, is generally does not come into place immediately. to speculate about these things, how it would occur, and how it would unfold before you understand the full package of the policy is really not where i want to go. of course, from a corporate finance perspective, this is a serious thing about the way they look at hyundai, and it would create a need to rethink or repositioned balance sheets for certain businesses or companies.

erik: is is a fundamentally from the standpoint of a financier a good idea? is it a bad idea? david: it is obligated. depend-- it is complicated. and is how you are looking at the whole income statement. erik: depreciate investments immediately? david: there are a number of factors that play into that. we are talking about an aspect of a potential policy that is complicated and multilayered. to speculate on where that sorts out at 30,000 feet is hard to do. erik: let's take the best case scenario for financial services. the appetite for financial assets that we have seen since the election continues. people want to invest in stocks. they want to invest in risk assets if you will. be policy questions we have been talking about are cleared up pretty quickly. tax reform comes into place. there is some deregulation.

may be infrastructure. deal activity picks up. the pent-up demand for transactions that may have been held up by pre-election uncertainty is unleashed. will goldman sachs have to hire more people in investment banking to serve clients, m&a, ofhire salespeople in all that plays out as optimistically as i painted it? david: look, our business is focused on delivering for our clients over one period of time. one of the things we have done is we take ass long-term view in terms of the resources we need to serve our clients. a long discussion over the course of the last seven or eight years about fixed-income business and what was going on in the fixed-income business. we had committed to our footprint to focus on our clients. banking, the same thing.

banking is a business that runs in cycles. and they do not anything significant and all of a sudden they have something significant to do. staffed in a way and are ready to deal with that. we are very adaptive. we deal with that as we examine the business. erik: different way of raising the question. incremental revenue has been hard to find.there has been pressure for regulators that has had a dramatic impact on your returns and other returns in the industry. is the rationalization period over? david: what environment do we have as we go forward? as we look at our year this year, we had two phases. withember being in davos you last year everybody thought this guy was falling. markets were down, china was down, but it turned out differently.

our clients and businesses were more active in the second half of the year. as you look for work over there is more momentum being carried into the year. technology is helping us connect with our clients and do a lot more with our clients with less human capital in some places. is not as simple as yes or no. do i think at this point we continue to adapt our business and make the environment -- we have to adapt more. to the degree that the environment is better there might be an upside. erik: what you may have told me is that that most is a contrarian. here in switzerland, back to you. jonathan: much more from that throughout the morning. coming up later, morgan stanley chairman ceo coming up.

but look at the markets. futures a little bit softer ahead of the open, down 1/10 of 1% on the dow and the s&p 500. ecb,ng at the euro, the rates unchanged, qe unchanged. for 60 we go through to the end of 2017. the euro is still firmer, up one third of 1%. the german finance minister speaking to bloomberg, we will bring you this as soon as we can. it creates "medical problems in germany." also a consequence of ecb policy, that weaker euro. david: but then the market would be a lot stronger. >> but then they say the ecb is doing a good job. take that for what you will. jonathan: the ecb will decide "the right thing." a germans from

newspaper say goldman sachs may cut its london staff by 54% on brexit. draghi says qe could be extended. now investors turned to mario draghi's news conference at a: 30. the hill, donald trump treasury secretary is set to face tough questions on his policy view from senate lawmakers on capitol hill later this morning. that hearing slated to kick off at 10:00 a.m. eastern. jonathan: if you headlines from switzerland from the german finance minister. mario draghi advocating structural reforms. the ecb policies allowing euro members to avoid the reforms. german politicians and their political dynamics meetings and nbc decision. those two things seem to conflict in a significant way. david: the germans would like

mario draghi to be tougher. alix: that is going to be an interesting point about rising inflation. you wind up having real rates going lower and in essence, looser monetary conditions reaches a stimulus. the hawks have that moving for them. jonathan: david, i wonder why, because that is not a message to europe. that is a message to a certain administration that will come in tomorrow. david: donald trump has taken after angela merkel fairly gratuitously. alix: much more on this as we get through the next two hours. for more of our continued coverage, we are joined by another interview. eric question mark >> james gorman, morgan stanley, great to see you. >> i listened to your conference call the other day, you reported fourth-quarter earnings, as did your fellow firms on wall street.

you sounded pumped. how would you gauge your level of optimism heading into 2017 versus every year since 2010 that you have been ceo? as, if not more optimistic. lot of the challenges we had from the crisis, we have put them behind us. i love the business model. number three, the macro environment is getting better. there are some interesting things coming along in terms of fiscal policy. i feel good about it. won butl policy clearly let's talk about the backdrop that underpins your firm and its earning power. what is specifically good? >> a couple of things. this is a market that screams for you to have a view. prices, bond prices, commodities with what has happened with oil, and what is going on with the currencies in

the last couple of days, you cannot just sit and watch this. this is not an indexing tight market. investors, hedge funds and individuals have a good business. wea rising rate environment, have $150 billion in deposits. this sense of optimism, which is feeding through the markets, keeps going, and clearly corporations are going to be more active in terms of financing and acquisitions. >> are we going to see the predominance of that activity in the united states or do you think that some of this in suzy optimism that we clearly feel in the u.s. is going to find its way overseas? markets have been more challenged. >> it has been tempered by what is going on in the environment. look at japan's negative interest rates. look at what is going on in europe, still issues related to the migration crisis which has

been a true tragedy. the chinese economy is slowing down to normalize rates. i am separating that from what is going on in the u.s.. >> you say it is a market that screams for a view. you have never been shy on taking a view. what is your view? if you look at bond prices and yields as they are today, as you look at relative currency values , what do you see? >> firstly, commodities are normalizing. we have had oil on 20-30 dollars a barrel. made are very meaningful and the participation don't russians -- you want oil around 70 to $100 a barrel for a lot of the economies. 50-60 dollars a barrel is right. earnings are growing and people are talking about how expensive the markets are but by definition, every day, equity markets in a growing economy should finish at a record high.

the economy is growing, they should finish at a high. i am not upset about where equity prices are because the underlying fundamentals are strong. >> and bonds? >> we have the u.s., what is going on with rates, and she used a slightly different with more than two rate increases this year. you are seeing movements around bond prices and interest rates across the u.s. but also across europe. >> to what degree are you excited about the process of some if not a lot of the regulation? >> i am cautious about it. we have worked very hard to get this industry in shape. somenk there have been excesses in regulation. a lack of transparency, elements of the rule have clearly affected market liquidity, so there is a lot of cleanup that needs to be done but i would not advocate, as some people are, contrarian dodd-frank.

the banks are well capitalized. the process is a healthy annual checkup. the resolution gives the market place confidence that should an institution fail they won't have systemic fallout. these are good things. they have said there is lack of transparency, a push him for the regulations. they have shut down some of the private equity type businesses for the banks but it also has affected market liquidity. we need to stop and absorb the regulation that has been done and recognized the capital levels are extraordinarily high. >> we would like to see, or you would like to see c car be less of a black box. would you ditch the rule? >> i understand the desire to have banks taking propositions through the emergent banks to carry more capital. i said right from the get-go we

didn't need a rule to do that. unfortunately, and i think paul volcker would be the first to say, i don't think he intended them to affect market liquidity. we need to be intermediaries which help clients take positions and hold inventory to do that. >> so if there were no vocal rule it would free your hands to make markets. would you go back to trading? >> never is a long time, but what i would do in this job, our business is an agency business. one of our core values is serving our clients. that is what we do. we have made a clear strategic choice. it is more consistent earnings. and zero if dodd-frank rates cost banks 10-15 points of r.o.e. in the post crisis.

-- what could be recovered structurally? >> look at where the markets price. -- theyet is pricing are pricing at about 1.2. so the market is expecting, obviously, the returns to go up. i think it is unlikely -- you will not see in my career the kinds of returns this industry had in 2005 and six for very simple reasons. the banks are undercapitalized your returns have fluttered. you got to see the r.o.e.'s pickup in the banks. >> could we recover five points? are looking at the earnings power of a firm like yours or the universal bank and saying, in a more normalized environment, 10 to 12% r.o.e., could it be 15-20? >> i don't think you're going to

see 15-20% but i do think that where we are with a lot of the banks under 10% including our own, i think those banks will be above 10% in the near future. >> business is clearly good. trading is as strong as it has been in years. same for investment banking, wealth management and non-interest expenses are down in the billions. can we answer two questions? is the cutting over and if it is over are you in a position to start hiring in a meaningful way or build in a meaningful way that you haven't been able to do during the era of financial repression? >> it is a good question. we put a target out there to take out a billion dollars of expenses. i am comfortable he will hit that this year. a lot of that is just smart outsourcing. does that translate into growth? i don't think so.

>> investment management is the other business but i did mention -- >> sorry, i have a bad cold. >> no, i'm glad you are here. it is mountain air. management, about three years ago, the firm set a target of $500 billion in that business for a u.n.. you are short of it by a little less than $100 billion. is it still the target and how do you get there? workingis a business well, it is probably our highest r.o.e. business. and a steady earner. >> as you've reported on, in the last quota, we are pretty close to where we want to be with that , iiness and what i described think dan and his team have planted the seedlings for growth.

2017 will be a better year for 16, for sure. we led the focus on long-term growth -- we are less focused on long-term growth and getting what we need. >> it is a business where scale matters. cap blackrock. -- look at black rock. it grew more and a quarter last year. do you not feel the need to achieve scale? >> you've got to decide what scale matters. was in the index and businesses. the traditional businesses have been shrinking over the last couple of years to the index etf space. i think that will turn a little bit this year. >> you still believe in active equities? >> absolutely. we have a committed business. >> how are you going to treat -- this is a chronic problem -- how are you going to freak money managers or fund managers who are consistently underperforming. actually, two years ago, we

had been running at 75-80% performance above the benchmark. coming back to the scale question, look at the parts of the business and look at the scale you need for each of us. for example, we have a fabulous business. equity planner funds, real estate planner funds, it is in the top 10 in the world. a portfolio manager managing assets has scale in their portfolio so you've got to dig deeper into what parts of the business need indexing. you clearly need scale. >> good answer. here's is a question inspired by a former colleague of yours. >> this could go anywhere. >> what you consider to be the biggest risks right now, keeping in mind that we are talking

about what appears to be an optimistic world? what is the biggest risk and how are you managing them? bid -- >> biggest for us or the markets? >> both. >> the biggest risk for the market is the geopolitical uncertainty. it is ironic talking about populism, which is not exactly what the crowd is all about. >> that is an understatement. to a recognition that things, geopolitically, have changed dramatically, that the brexit vote, the election in the u.s., a number of the other regional political movements -- they are not -- that is not flash in the pan. they made a fundamental shift and i don't think anybody understands what is going to turn that and what the implications are. does it lead to legitimate trade wars and protectionist behavior?

i think the biggest risk right now is the economic political risk. that backed up by the jet of -- geopolitical risk, the terrorism, the refugee crisis, etc.. in terms of morgan stanley, we have risks every day in our business that it is not obvious that i could point to one that is not an outside position that we are taking. we have happened our company almost exactly, as well as finance management revenues now, $18 billion in trading and baking. -- banking. >> so good to see you. they to talk to you. james gorman is the -- chairman of morgan stanley. david: up next, more from the world economic forum in davos. .he t shock of ireland we will bring you live in complete coverage of mario draghi's news conference. this is bloomberg.

♪

alix: this is bloomberg daybreak. we are going to stay in dallas right now. right now. >> he is the irish prime minister. thank you for joining us. when you talk about brexit and the uncertainties, it is unclear to me whether ireland will benefit from brexit because people will move out or whether you will lose a lot of people because of the trade relations you have a moment. >> there are a few things. not only in proximity but going back hundreds of years in terms of social, cultural and business

and economic leaks. the northeastern portion of ireland, we are the only area with a land border. that area is protected by a legally binding agreement in terms of a peace process which was supported by america and europe. is to seesponsibility that those institutions are protected. alex with the u.k. are very strong and go both ways. i have agreed that the common travel area between the two countries will continue and there will be no return to the borders of the past or a hard border with customs. there is a seamless border at the moment. allowingegotiate, negotiations from the european union, the new relationships with the united kingdom after the article 50 is triggered.

and after the formal agent by the u.k. >> you're talking about northern ireland and the border but does it make -- do the political uncertainties make it different? >> northern ireland has a different set of strictures. it is the only area with a land peacenow and that fragile process has to be nurtured but also because of the movement of people across border, the intertwining of the economies is something we want to look at in the context of ireland. we have sector forums about the different areas of the economies . the premise or has clarified our view about that and we share that with downing street. ireland is a very attractive location. english-speaking, a long association with the european union, the applicable education system, the talent proximity to universities, like with capacity

for research and develop and and all of that. so we find ourselves now with brexit looming, the subject of quite a deal of interest from areas within the united kingdom. in competition with other cities around europe. as time goes on, they make the decisions that ireland would benefit from. >> when you look at what we heard from the prime minister in us speech, what does it tell about the kind of brexit that we are looking at? what will a clean or hard brexit look like? >> hard brexit would look like a removing from the single market. not so clear in respect to the nature of the trading links that will exist between the united kingdom and the european union and beyond because that is going to be an area with real intensive negotiations. for me and my country, we are continuing to develop our

economy, continuing to increase employment and provide attractive locations for investments and all of that. secondly, have a diplomatic engagement with leaders of europe and do that right over the next period. we will negotiate very hard with those objectives in mind. >> the 45th president of the united states gets elected tomorrow. what does his arrival mean for ireland and his plan to repatriate? >> the electors in the united states made the decision. we have spoken to him by telephone and his vice president-elect, with very strong irish connections. a long association with the united states and we will continue those relationships and work with this administration and i wish in anent trump well onerous task. >> has apple paid its 30

billion? >> the question is under discussion. i'm not saying that will happen. the issue of apple defended and appealed this case. systemopean judicial will take a couple of years. we are very clear that we have this with any individual company. all our commissioners are completely independent. >> i give so much. that was the prime minister of ireland. back to you in new york. we have great interviews coming up. we will be speaking to the german find -- german prime minister after that. jonathan: out of the world economic forum, a special thanks to francine lacqua. john micklethwait sat down with the german finance minister in an exclusive interview. take a listen. political suffer some

problems in explaining to the german audience, and president i knows this well, raising rates will raise germany up to 2% this year with zero interest rates causing problems. we will try to explain to our voters and our public opinion states have 19 member and it is successful. hastherefore any decision advantages and disadvantages and to some up, we are happy to help the eurozone. in thes a weak euro long-term. do you see that is a problem for germany or a strength? it was discussed in the euro

group years ago on monetary policy. -- i draghi explained would say today, if you will do , the german surplus will increase. and you will criticize me on behalf. that is mildly demand. -- use it is caused by getting a lot of criticism even from the imf, it is nonsense. i'm always fighting against it. the relations between germany and the central bank, do you think those have

gotten smoother or more fractious? >> we have all these discussions europeans are areging goods up and we courseto explain, of even that the inflation rate in the eurozone is increasing. i think ecb will have to think about it. that is up to them and not to me. in anw they can manage start, toe time to initiate some broadening of support. exclusivethat was an interview with the german finance minister speaking to bloomberg at the world economic forum. they kept interest rates unchanged.

he the reaction from the german finance minister. now to frank for where matt miller is standing by. political problems caused by the ecb. are we going to your more of this throughout 2017? >> i think you probably will. we were talking about the most read newspaper in germany. you can see the main concern for germans right now is inflation. european inflation jumped up in december. german inflation shot up 1.7%, that is double the rate it had been the month before. germans, historically, really don't like inflation. a would rather have low growth and low inflation and fast growth with fast inflation. this is a concern for germans in general but especially as they feel like the ecb is helping to inflate the peripheral countries out of their debt, germany doesn't want to be paying that bill with higher prices at the supermarket. it is concern for the biggest economy in the eu.

jonathan: that was a demand from the finance minister, please don't attack our trade surplus. he brought up the trade balance. now taking it back all the way through to the 70's. the surplus predates the euro. yes, it has kicked a whole lot higher since the euro was kicked in but the accusation that germany hasn't done enough to stimulate the demand to offset that massive current account, does it carry water? in the interview just now, he said that the ecb has helped with the surplus so it is not that he completely discounts the role that the ecb and the euro has played in this surplus but, of course, the germans are famous for making products that people around the world want to buy, especially high-margin products. that is one of the drivers behind that surplus.

david: it seems a little ironic right now as we have a new president coming in complaining about our trade to visit and wanting more manufacturing. in germany, you may have this surplus that you have a lot of manufacturing jobs you are generating. >> there are a ton of manufacturing jobs. both employs 400,000 people here and they also have a surplus as a result of a partially weaker euro but that carries with it the threat of higher inflation. jonathan: matt miller out of frank for it as we can you down to the news conference. entered theaghi room, rates unchanged on the ecb. -40depot rate maintaining basis points. the asset purchase program cap at 80 billion euros a month at least through march. after that, in april we dropped down from 80 million to 60 billion euros a month to the rest of 2017. towards the news conference in frankfurt, we will bring you the

full coverage. the euro up a dollar and six cents. graham,t purchase for inflation ticking higher. a little bit of political pressure from will gain -- from wolfgang schaeuble. let's bring you in. >> happy new year. the vice president and i are very pleased to welcome you to our press conference. we will now report on the outcome of today's meeting of the governing council. based on regular economic and decided toalysis, we keep the key ecb interest rates unchanged. we continue to expect them to remain at present or lower levels for an extended period of time and well past the horizon of our latest purchases.

regarding nonstandard monetary policy measures, we confirm that we will continue to make purchases under the asset purchase program that occurred -- at the current monthly pace of 80 billion euros towards the end of march 2017. our leadapril 2017, asset purchases are intended to pace of 60 a monthly billion euros until the end of december, 2017. in any case, until the governing council sees a sustained adjustment in the path of inflation, consistent with its inflation aim. the net purchases will be made alongside reinvestment of the principal payments from securities purchased under the a pp. the governing council also decided on further details on

how the euro system will buy assets with yields below the interest rate on the deposit facility and its public-sector purchase program. these decisions would be published in a separate press today. at 3:30 the monetary policy decisions taken in december of 2016 have succeeded. in preserving the very favorable financing conditions necessary to secure a sustained convergence of inflation rates towards levels below but close to 2% over the medium-term. borrowing conditions for firms and households continue to past measures.e as expected, headline inflation has increased slightly.

largely owing to base effects in energy prices. but underlying inflation pressures remain subdued. the governing council will continue to look through changes and to havelation no implication for the medium-term outlook of price ability. a very substantial degree of monetary accommodation is needed for euro inflation pressures to build up and support headline inflation in the medium-term. to achieve its objective, the governing council will ask by using all these instruments available within its mandate. if the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained

adjustment on the part of inflation, we stand ready to increase our asset purchase program in terms of size and/or duration. let me explain our assessment in greater detail starting with the greater economic analysis. 0.3%area gdp increased by quarter on quarter in the third quarter of 2016. after recording a similar pace of growth in the second quarter. incoming data, notably survey bullying to somewhat .tronger growth we expect economic expansion to further. the pass-through of our monetary policy measures is supporting domestic demand and facilitating the ongoing deleveraging

process. the very favorable financing conditions and improvements in corporate profitability continue inpromote the recovery investment. moreover, sustained employment gains, which are also benefiting ,rom past structural reforms provides support for private consumptions with increases in household disposable income. at the same time, there are signs of a somewhat stronger global recovery. however, economic growth in the euro area is expected to be dampened by a sluggish pace of implementation of structural reforms and remaining balance sheet adjustments in a number of sectors. the risks surrounding the euro area growtho outlook remained tilted to the

downside and relate predominantly to global factors. stats, euro viewer area annual inflation increased novemberrom 0.6% in december.1% in this reflected mainly a strong increase in annual energy inflation while there are no signs yet of a convincing upward trend in underlying inflation. looking ahead, on the basis of current oil futures prices, headline inflation is likely to pick up further in the near term . largely reflecting movements in the annual rate of change of energy prices. however, measures of underlying inflation are expected to arise more gradually over the

medium-term, supported by monetary policy measures, the expected economic recovery, and the corresponding gradual absorption of slack. analysiso the monetary , broad money m3 continues to itsnd at a robust pace with annual rate of growth increasing , up.8% in november 2016 from 4.4% in october. as in previous months, annual growth was mainly supported by its most liquid components. with a narrow monetary aggregate at a rate of 8.7% in november, up from a percent in october. low dynamics follow the path of

gradual recovery. observed since the beginning of 2014. the annual growth rate of loans to low financial corporations is , after november 2016 2.1% in the previous month. rate was oneowth point 5% in november after 1.8% in october. developments in bank credit continue to reflect the land relationship with the andness cycle, credit risk, the ongoing adjustment of financial and nonfinancial sector balance sheets, the monetary policy measures put in place since june 2014 are significantly supporting borrowing conditions for firms and households and thereby creating flows across the euro area.

the euro area bank lending survey for the fourth quarter of 2016 indicates that credit standards for loans to enterprises are broadly stabilizing while low demand has continued to expand at a robust pace across all low categories. check of thecross economic analyses with the signals coming from the monetary analysis confirms the need for a continued very substantial degree of monetary accommodation to secure a sustained return on inflation rates towards levels that are close to 2% without undue delay. monetary policy is focused on maintaining price ability over the medium-term. the stance supports economic activity. reap the full

benefits of our monetary policy measures, other policy areas must contribute much more. both at the national and at the european level. the implementation of structural reforms needs to be tostantially stepped up increase resilience, reduce structural unemployment and boost investment, productivity and potential output growth in the euro area. structural reforms are necessary in all euro area countries. in particular, reforms are needed to improve the business environment including the anvision of inadequate -- of adequate public infrastructure. in addition, the enhancement of investment initiatives, progress on the capital markets and reforms that we improve the resolution of nonperforming

loans are a priority. fiscal policies should also support the economic recovery while remaining in compliance with the fiscal rules of the european union. full and consistent implementation of the stability and growth over time and across countries remains crucial to inshore confidence in the fiscal framework. at the same time, it is essential that all countries intensify efforts towards achieving a more growth friendly composition of fiscal policies. and we are now at your disposal for questions. >> thank you. come from the wall street journal. raghi, the ecb stands

to do more if the outlook deteriorates. is the ecb ready to do less if it continues to outperform? i wondered if you had any update on that. president-elect donald trump, he has made comments this week about the dollar that led to a fall in the dollar. i wondered if you were worried about what this might mean in terms of the future of a currency war or perhaps suggestions he has made about an increase in protectionism. >> thank you. , where it is still a high-class problem, the answer is yes it is. we haven't discussed it anyway. -- really, itnt is very early for us to comment

the president's statements. the only thing i can recall is something you heard me say many times, exchange rates for us are not a target. but they are important for price stability and growth. and there is a very strong international consensus in the g-20 and the g7 to refrain from competitive devaluations. in thes a whole protocol g-20 and the g7 that basically states how countries should behave with respect to exchange rates. >> thank you very much.

from reuters in frank for, two questions for you. overshoots your target, how long would you overshoot it? have you made up your mind for this? brexit, thene, on british prime minister indicating a hard brexit, what does it mean for the ecb and your outlook on inflation on growth? thank you. yes to the first question, it lies in what we decide as our objective. we define our objective, first of all in medium-term, over a medium-term horizon.

that is the relevant policy. second, it has to be a durable convergence so it cannot be transient. third, it has to be self sustained. in other words, it has to stay thee even when extraordinary monetary policy support that we have provided today will not be there. fourth has to be defined for the whole of the eurozone. that are the four features have always characterized our objective. again, it is too early to say. the final outcome of the negotiations will be very important. also, whether it will have economic consequences will depend on the shape of the

outcome and the length of time it will take. so it is too early to comment. thank you. >> mr. jones? >> claire jones, financial times. two questioned if i made. we have all noticed sharp divergence ease between headline inflation rates in weakened member states and stronger parts of the region such as germany. how do you handle b communications and the policy challenges that this presents? i think there is also some concern that members of the council think there could be difficulties in finding enough bonds to buy under qe and that could limit your ability to hit your inflation targets through

the program as it now stands. if core inflation remains weak and you need to carry on buying in 2018 or even beyond that, how would you intend to do that given these constraints that can be purchased under the program? thank you. >> the answer to the second question is by our decision below the dfr rate at shorter maturities. in the press statements, i mentioned before that has greatly add largest -- greatly enlarged the eligible universe. we are confident about the limitation of our program so we see, actually, no problems on that front. the whole strategy would be, as i said, delineated in the press statement but who is then ready to upgrade the strategy or revise the strategy as needed? also, these purchases, don't

forget, will happen if they are required. point, it is too early to say, let me say one thing about the council of today. unanimous inn was looking back at the monetary policy decisions taken in december. and stating that they were the right policy answer to the contingencies as estimated in december. more generally, it was a sense of satisfaction towards monetary policy stances that we have been pursuing since 2014. it is increasingly clear that this policy stance had been successful. since 2015, weat quarter gdp every

growth between 0.3 and 0.6% quarter on quarter. we have seen that in december of 2016, consumer confidence is the highest since april of 2015. the economic sentiment index is the highest since march 2011. become positive outlook index is the highest since may of 2011. unemployment in november of last sinceas 9.8%, the lowest july 2009. the euro area has created four and a half million jobs. new jobs over the last three years. more directly related to the question you asked, we have seen a dispersion of the value added

growth across countries at an all-time low since 1997. sense that ifa natives, enterica there is a speed with which we are approaching our objective, they can be caught -- coat with. ped.o see the underlying inflation pressures remaining subdued and especially nominal wages growth remaining subdued. on top of that, we see, as i mentioned in the introductory statement, the risks coming from the global uncertainty situation.

>> with the cnbc, one question is a little bit technical. so going forward, reducing the asset purchase to 60 billion, it doesn't mean that you are cutting all these individual programs like the sovereign debt and corporate funds or covered yous pro rata or are planning on shutting down individual programs altogether? that would be the first more technical question. second, how do we address german critics? it is getting louder and louder the minister of finance stepping out and reaching for a normalization of the policy, quiteis, of course,

flexible. so what are you telling them? >> thank you. the first question, we have not discussed that. for the second question, if you are referring to the very last statement by mr. shoretel, he actually said there are political problems in explaining the monetary policy stance of the ecb. understandable statement. what i would say is basically the same thing we would say now for a few months. if low rates are necessary now to get higher rates in the future, the recovery of the eurozone is in the interests of everybody, including germany.

the german savers have benefited. not only as savers but also as entrepreneurs, as workers, like all the other citizens of the eurozone. patient.e to be rates will go up. that, since our last decisions in december, however, there is more room to diversify into the median long-term spectrum of the yield curve, gaining a better rate in the very short term one. that is, if anything, what can be called a rate on return conditions, having proved in the last month and a half. -- has improved in the last month and a half. the onus would be, just be patient.

real rates will go up as well and this is what happens for germany and for our country's as well. >> mr. ewing? thank you, jack ewing from the new york times. interview, with the times of london a few days ago, president-elect trump was asked about the euro and he said " keeping it together is not as easy as people think." i just wonder if you want to react to that statement which doesn't sound like a ringing endorsement of the euro. also, what would it mean for monetary policy if you had a president skeptical about the success of the common currency? i just won't make any comments. it is just too early. let's see what are the real policies for these statements. i would rather comment on policies and policy actions and just statements.

thank you. >> terry daniels from -- extendnth's decision to the purchase program was met with a level of uncertainty by economists and the markets alike. that this wasn't a tapering exercise, how would you communicate tapering the message? how would you get a message across when the time comes to taper? and what is part of the reason for not labeling it tapering to do with the fed's experience in the past and the taper tantrum we saw? >> as i said last time, it wasn't tapering. we didn't discuss tapering last time or this time. we didn't even discuss

high-class problems of the time. thatituation -- it is true when and if -- i'm pretty sure it will come -- the time, and then we will have to have a very deep, very careful discussion and analysis of the situation. but we are not there. >> from politico -- mr. druggie, we got two questions. if you say the government counsel was unanimous, stating that the policies have been successful, does that mean those council member the willing to sign up to december's decision as shown in the minutes

where they admitted they were wrong? i second question is on the banking troubles in italy right now. what would you say to the that the process at the moment suggests bailing in europe is dead. have adon't sort of public admission of guilt in chinese style as a way of working. we simply had a discussion and there was general satisfaction that the policy was working and few signs that a it is working. data, the increase in the

market base, the expectations as you have seen, the survey base expectation measures also increased. although they are stable. it is interesting, they increased in the short term so they are stable in the long-term. so the risk of deflation according to any measure has largely disappeared. financing conditions have improved. the lending rates for households and companies have declined significantly. we pay a lot of attention because of the question i had before about diversity. in the progress towards our in objective, we pay a lot of attention to the cross country rates and that has gone down. more generally,

the balance sheet repair has actually improved markedly over the last few months. ,n general or more specifically leverage has gone down. also, all of this says that conditions for the transmission of monetary policy have improved. but all of this does not mean that we can sort of relax. we will have to keep this monetaryxtraordinary policy support as necessary to achieve our objective and even though inflation has increased markedly, we know that it is mostly driven by energy and, at this point in time, the council decided to look through it.

now, your question was -- i frankly don't want to comment on that explicitly, but i can ask the vice president, who is responsible for financial stability if he has comments on that statement on whether it is true, actually. >> i don't think so. the present level is being , thatd in all its details is the straight and true answer. , there is in article 32, number 4, item d, there are conditions regarding questions of financial stability that are in accordance with the rules that have been defined.

>> since your last press conference, when you said that you are confident that the italian government would do the right thing to support the , the italianr government has approved a decree to support the banking sector with a package of about 20 billion euros. there is also a comment about ecb supervision being too rigid. i was wondering if you could give a comment about the measures or the minister's comment. unfortunately, i cannot comment on either of the two questions. we have strict separation principle. -- not ask my colleague ask my colleague to comment on our voluntary -- monetary policy

stance. thank you. >> bloomberg news. mr. president, my first question is on the inflation outlook. how would you describe the balance of risks surrounding this outlook? before the science underlying inflation are still very weak, you cited wages and so on. in germany, unions are going into this year with demands of 6%.eases of 4.5% to do you think this is a positive factor? is it compatible with what you would describe as sustained inflation? mr. draghi: thank you. let me say about the inflation outlook, inflation in december

increased, headline inflation increased markedly because of base effects, but also because of higher oil prices, higher than expected. the outlook for headline inflation over the next quarter, two quarters, is higher than it was foreseen in the previous projections. now is what isn the extent of second-round effects coming from this higher inflation? we look at that with great attention. by the way, in so doing, we do what we have done in the past when inflation was going down. we will ask ourselves the questions, whether the four features of our convergence pushes us toward our objective,

are they actually satisfied? the ones i mentioned before. i don't want to enter into the issue whether nominal wages, higher nominal wages -- certainly, they are positive from our viewpoint, but wages are being negotiated by the social partners and so the central bank does not have a say into this other than to say a higher rate of growth with nominal wages certainly would move toward our objective of the inflation rate below 2%. however, we should also look at productivity. how productivity performs. productivity performance in recent times has not been sustained. thank you.

>> a quick follow-up on a previous question about inflation and critics in germany. i was wondering how concerned are you about increasing discrepancies between inflation rates across the eurozone and how large a gap can the ecb sustain? is your is your focus as a whole, but what if the german inflation continues to rise far beyond 2%, while other areas remain very subdued? do you see a point where the ecb would feel bound to act? does the ecb have instruments to tackle such an issue? thank you. mr. draghi: the answer to the question is no because our objective is the inflation rate below, but close to 2% for the whole of the eurozone. is the samend that answer to the previous question,

how likely is it going to be that this divergence -- these divergences will be unmanageable? we judge it not so lightly. we think the divergences will be managed. we have seen all of the divergences narrowing down over the last two or three years. they will continue doing so. >> thank you. a follow-up on the previous question in some respect. do you think that there is a need to explain better to the german public and to the authorities that there is simply a need for inflation rates above 2% in germany if the inflation rate for the euro area as a whole should return to below or closer to the 2% target? regarding forward guidance, it

says that interest rates will stay at the current or low will --e our desk lower level lower-level. is there an option to increase these rates? for example, the deficit rate. mr. draghi: thank you. the important thing to explain is that the recovery of the whole of the eurozone is in the interest of the german citizens, as well as the interest of all of the other citizens of the eurozone, of course. the present situation a very low or negative real rates will disappear as the recovery will come and will disappear faster as the recovery will come faster. that is important. second, it is also important to explain that the benefits of accrued to all citizens of the eurozone. benefits coming from our monetary policy have accrued to

,ll citizens of the eurozone including the german citizens. you can see this. >> happy new year. the expression "too early" is often used. that applies certainly for tapering. you outlined that there was no discussion about this. when you have to make a decision , to what extent does the analysis of the entire eurozone situation could be overshadowed about critical questions

the italian debt in a world without qe or other self european countries? -- self european countries -- south european countries? mr. draghi: thank you. the first question -- we don't debt as beingy's unsustainable. so, that is one answer. of course, in the case of greece , there is a program, there is a negotiation and you know everything about this. question, i would answer to the second question, just pointing out to the ,xperience you saw and before

we have given plenty of evidence of being able to act in an independent fashion bound only by our mandate, which is to reach price, to have price, to pursue price stability. that is defined as an inflation rate near but below 2%. we have given plenty of evidence of being able to act independently. so, basically, some of these pointons in pins on this and i think the -- in pins -- impinge on this point and i think the evidence is strongly in our favor. did i understand you correctly a few minutes ago? you mentioned that 4.5 million jobs were created in the last year and then he mentioned this in the context of monetary policy. jobou attribute this creation to your monetary policy? mr. draghi: well, if you go back

three or four years ago and you ask yourself, which policies were in place that could actually create jobs and expand economic activity? see that the recovery gradually firmed up, driven by consumption and investment, thanks to the extraordinary financial conditions that the monetary policy of the ecb has created. would this be the only factor? probably not. probably, there are other things. we are biased, of course, in saying that, but even if we were basically thes most evident outcome of our pursueshat, by itself, price stability. it is in achieving this objective that jobs were created.

, inflation in december was higher than seems that there could be some more positive surprises. in this context, is forward guidance still the right approach? the maneuvermits of the ecb. on thend question is difference between recalibration and tapering. you have always said that the reduction is not tapering, but recalibration, but will there be a classical tapering, like in the u.s., or could there be continuous recalibration until

bond purchases are at zero? thank you. thank you. your second question. i spoke about recalibration because before, i think it was march last year, the monthly flow of purchases was 60 billion euros. because the conditions were such that would justify that amount. then the outlooks worsened considerably. so we upsized. then we assessed the outcomes in december and we downsized. we recalibrated that. there was no tapering. what we are going to do in the future was not discussed today. , forwardirst question guidance has been one of the important parts of our monetary policy stance.

we think it was highly effective. signs of a transparent reaction function by the central bank. been very important in anchoring inflation expectations , at a time when there was a danger when they could become de-anchored. what we have to judge in the oncoming inflation developments is essentially the underlying inflation pressures. the higher headline inflation is driven by mostly energy prices translates its past flow in an underlying inflation, so that the overall inflation rate leads that is doable he

come but so sustainably converging to our objective. doable, but self-sustainably converging to our objective. that is the judgment we will have to make in the coming months. we close ourhis, press conference for today. thank you very much. mr. draghi: thank you. jonathan: that was ecb president mario draghi wrapping up this month's news conference. rates unchanged. no convincing trend in underlying change. draghi saying the risk remains on the downside, saying underlying inflation pressures remain. dovish on growth and inflation. let's get market reaction. a weaker euro off the back of some of those comments. .t is a weaker euro going into the news conference, it was a stronger euro story, up about 0.33%. now down 0.3%.

it was a stronger dollar off the back of some really solid data in the united states, which led many to believe that he may be less dovish on the growth story. dovish on growth, dovish on inflation. david: similar to janet yellen yesterday. >> jobless claims coming in closer. housing starts really killed it, as well. matt miller joins us from frankfurt for more. the big take away seems to be how defensive mario draghi was on inflation and how persistently he dismissed the rise that we have seen. matt: yes, it was interesting -- we thought and bloomberg intelligence had put out a piece just before this press conference saying that the ecb will likely ignore the inflation numbers that recently came out, for eurozone inflation. it just goes up and to the right. the reason is higher energy prices and europeans it's more

money on package holidays. on packagere money holidays. it was interesting to see with what force he ignored it. he said that will continue to look through it. mr. draghi: euro area and you will inflation -- annual inflation increase increased markedly from november 2016 to 1.1% in december. this reflected mainly a strong increase in annual energy inflation, while there are no signs yet of a convincing upward trend in underlying inflation. so, no signs of a convincing upward trend. i think what really put the market off or forced those market moves that you see, for example in the euro, i notice jon tweeted a chart, was the fact that mario draghi continue to bring up this line that the

ecb will use any measures that it takes, it will go to the full extent of its mandate in order ,o combat a negative situation when onlookers don't see it as quite that negative. jonathan: you are in frankfurt now, you live in berlin. give me a sense of the push back from everyday germans to read not just the news conference as we hear, the pressers, the comments from german finance ministers, do they look at the inflation numbers coming in at 1.7% and say, the ecb needs to raise rates? are they that sensitive to the story? matt: of course, they don't. when i talk to people who have nothing to do with the finance world, nothing to do with journalism, they talk about prices they see at the grocery store and concerns they have that peripheral countries are not doing their fair share. there is a concern among everyday germans that are not involved in banking that

peripheral countries are getting a little bit of a free ride right now at the expense of german inflation and that is the kind of thing that wolfgang schaeuble means when he talks about problems with the ecb policy. jonathan: matt miller in frankfurt. the news conference wrapped up very early. maybe that tells you a lot about where draghi wants to get to, just get out of there. we did catch up with wolfgang schaeuble a little bit earlier. political problems, that is what ecb problems is causing for the german government. take a look at this. >> we will suffer some political problems and explaining to the german audience and mario draghi knows this as well. the inflation rate is likely to rise in germany.

we have one common monetary andcy for 19 member states it is germany and the eurozone as a whole is successful. any decision has some advantages, some disadvantages. we are happy to help the eurozone in some respect. >> that is good. euro is a a weak problem for germany or a strength? euroen we discussed the years ago on monetary policy and mario draghi explained that he would go to quantitative easing ,nd so on, i will say it today , the germando so

surplus will increase. aboutou will criticize me the german surplus, that is my only demand, please don't criticize the german surplus by the it is caused ramifications for the german economy alone. getting a lot of criticism even from the imf. it is what i'm always fighting against. >> in terms of the relations between germany and the central bank, do you think those of go smoother or are they still in that fractious? >> know how we have obviously discussions. we know that the european central bank is doing a good job. explain, evento the inflation rate in the eurozone is low, it is increasing.

ecb will have to think about that, but that is up to them and not to me, how they can manage in an appropriate start, to initiate some loosening of some policy. jonathan: that was an exclusive interview with german finance minister wolfgang schaeuble sitting down at the world economic forum in switzerland. alix: mario draghi was also asked about the german push back . the discrepancy in inflation rates. this is what mario draghi had to say about the criticism from wolfgang schaeuble. mr. draghi: the important thing to explain is that the recovery of the whole of the eurozone is in the interest of the german citizens, as well as in the interest, of course, of all of the other areas of the eurozone. the present situation of very low or negative real rates will

disappear as the recovery will come and will disappear faster as the recovery will come faster. here basically, the idea is, you know what, germany? wait. you just wait. real rates will go up. we've got you. david: it will go good for you in the long run. jonathan: rates are going to stay low to go high later, apparently. this is bloomberg. ♪

jonathan: from new york city, this is "bloomberg daybreak." moments away from the opening bell. i'm jonathan ferro. futures trading warmer.

we are in little bit softer earlier ron and then we had some solid data out of the united states. initial jobless claims. decent across the board. we switch up the board, this is how things are standing. you hear the opening bell ringing in new york. a weaker euro, a stronger dollar. crude, we looking at are up about one percentage point. as we get these markets open for you about 15 seconds in, let's cross to alix steel. alix: not a lot of movement, but we are seeing marginal potential upside for u.s. equities. the dow jones is trying to break a four-day losing streak. it will be the longest losing streak since the election. a couple positive data points in the u.s. you also have better housing starts, as well. you also had the stronger dollar and heels jumping higher. -- yields jumping higher.

with individual stocks, check out netflix. over 7%. a killer quarter yesterday after the bell. reported 7 million new subscribers. 35% above estimates. almost 2 million of them were in the u.s. alone. now over 40 households have netflix in the u.s. content continues to climb. we did want to take a check in with banks. we had janet yellen speaking yesterday at 3:00 p.m. we had mario draghi this morning. euro stock banks. commerce banks up. mario draghi coming across a little bit more dovish in his press conference. the bank index had the third-best again so far this year. particularly with u.k. banks, what happens with brexit. lots of ceos talking about that

in davos/ jpmorgan up by 0.7%. wells fargo relatively flat. by 0.2%. up many wall street bankers in davos expecting some kind of boost with trump's presidency. dodd-frank enforcement expected to get more lax. david: you said it. over in davos we have bank executives talking about trump and brexit. two days after delivering her seton, prime minister may the u.k. is reaching out to the world. the bankers gathered in switzerland have been looking at how the prime minister's brexit plan may be changing their position in london. take a listen. position is a starting position in a negotiation.

startock is now going to and in thetick countdown for 24 months, we will see how it develops. >> there is still a lot of water to go over the dam in terms of timing and the transitions. we have to be prepared as if it is going to be hard and fast. >> this is going to take a very long time to get full clarity that the banks and corporations and investors and people want to have. she talked about transition periods, people believe that a two-year cliff is not helpful for anybody. >> we simply have to accommodate the laws of the land for britain and the eu. >> activities covered specifically by european legislation will need to move. that is about 20% of the revenue. >> it looks like there will be more jobs moving than we hoped for. it depends with the law.

and the eu could put in very stringent rules, which requires jobs to move into the eu or they could be more flexible to allow equivalency between the u.s. and europe. it depends what they come up with. david: joining us now from princeton is alison williams. we have strong numbers coming out of u.s. banks. on the other hand, you listen to banking executives, a lot of uncertainty and some concern about brexit. how do they deal with this? alison: so, we heard about the quarter. it was a good one. if you look at the stocks, they are looking much farther ahead, looking to these potential changes, regulation rates, and taxes. those are the key drivers we are watching. with regard to brexit, there are two things to think about. the direct impact, so

managements need to decide what they are going to do with operations. i think we heard from companies like goldman, we heard from jamie dimon, it is going to be a long process and we are going to think about it. they are going to wait and see what the rules are and what is spaced out before they make any decisions about what they are going to do. then there is the indirect impact. we saw some of that in the fourth quarter and we may continue to see that and that is another thing that investors may be optimistic about. we heard from goldman yesterday a very positive comment in terms of the change in policy, the shift in policy being an extraordinary catalyst for dialogue, for demand for content . that is important. goldman really has conversations with ceos around the world, they have had these clients for decades. hearing from them in terms of the fact that they are having more conversations and that they could have more activity is a

key indirect consequence for the business. david: taking a look from the banks' point of view, it is not good for london if they lose people going to dublin, new york, or to the continent. going back to the banks, does it affect their profitability your strength that they have to relocate people? alison: for the banks themselves -- a lot of the talk about shifting headcount, really, the impact is really about what the impact is in london and also to the employees in may have to move -- for the bank, it is really just a cost issue. it is a cost in terms of moving operations. once operations are moved, could there be an ongoing help? there was an article yesterday mapping out a plan for goldman. goldman has said no decisions but it sort of mapped out a potential contingency plan. could you move some office people to lower-cost countries like warsaw and that is

something that goldman has done over the years? there is going to be a cost if you have to your footprint, but it is going to depend on what happens. are you moving a few desks or an entire unit? david: thanks so much. coming up, we will head back to davos, switzerland. michael dell talks trump, trade, and more. plus, we hear from theresa may in a bloomberg interview at 11:30 a.m. eastern. this is bloomberg. ♪

taylor: this is "bloomberg daybreak." interview with u.k. prime minister theresa may at 11:30 a.m. eastern. jonathan: from new york city, this is bloomberg. i'm jonathan ferro. for more from davos, switzerland, we cross over to erik schatzker. erik: it does not get much more special in davos than it does with michael dell. michael: good to see you. erik: dell relies on open borders. are you changing your assumption for trade flows and business conditions with donald trump taking office as president tomorrow? michael: we are listening to understand what the new rules

are going to be. obviously, we optimize our business based on whatever the rules are. as things move around and change, whether in the u.s. or around the world, we will make adjustments. what we see is a new administration that is talking about growth and talking about infrastructure spending, tax things --d repatriation and things that are progrowth. we like that. erik: do you have a lot of capital stashed overseas? michael: we have about half our business outside the u.s., so certainly, there are profits in those businesses. billion every year in r&d. that is in the united states. we will certainly understand what the new rules are and figure out how we continue to grow our business. erik: i guess it better way of phrasing that question then saying overseas twice is to ask

you, if they were to change the tax policy on repatriating overseas profits, if it were a diminished some out -- deminimus amount or a holiday entirely, how much would you bring back from overseas? michael: i think you will see our company and company like ours across all industries bridge capital back onto the balance sheet in the united states, which is likely to be a good thing. we are very supportive of that. erik: of what donald trump has said about trade, what would have the greatest impact on your business? michael: well, again -- erik: i'm thinking the range of china to some kind of a tariff on imports or a tax on imports to other things, to eliminating -- rewriting the rules of nafta, all of these things. michael: 96% of the world's population does not live in the

united states, so those a row potential customers for us, so we definitely want to have access to those markets. we don't know what the rules are going to be. we will have to wait and see. progrowthally, a administration is going to be quite positive. i've spoken to here say they believe there is a real possibility,a real not probability, of a trade war with china. to what degree does that concern you? michael: i think any sort of a trade war would be mutually assured destruction with china or other countries. there may be some resetting of the relationship in whatever the that takes, but interdependence of the economies , with respect to supply chain and other aspects, is quite high. the u.s. has had no industrial

policy with respect to the feedstock industry, we have some plants in the u.s., we could build more plants in the u.s., without the key ingredients, the displays, the batteries, which takes a long time and a lot of capital to build those -- there is a lot to do here. erik: it sounds to me like you are giving it some thought. michael: for sure. erik: you mentioned manufacturing. in addition to trade, it is another thing the president feels very strongly about. you do some manufacturing in the united states. how many people do you employ? could you quote unquote bring more jobs back to america? building a final assembly plant in the united states is quite easy. that is not the point. without the feedstock industries -- erik: those components. michael: exactly.

without the components, those plants would be uncompetitive. we need to have a thoughtful approach to those feedstock industries. it is also true that if you go in one of our modern manufacturing plants in the united states or anywhere in the world, there are not as many people in those factories because of automation and productivity, which all of our customers are also applying across their businesses. erik: let's talk about the other geopolitical risks. his subject of much discussion this week at the world economic forum. that is brexit, of course. now that theresa may as outlined what we might term a hard brexit for the united kingdom, what if anything changes for you? michael: it does not really change much. we have a substantial business in the u.k. we will operate under whatever regimes are there. if the british currency is less

valuable, it is actually better for us to operate in the u.k. in terms of our competitiveness. we have a substantial business there. we will continue. it was our first market outside the united states when we were just a tiny three-year-old company. [laughter] was: your merger with emc already impressive for so many reasons. we have talked about it. it seems that we could add timing to that list. the debt financing could not have been done at a better time. could you do that deal today with bond yields almost a full percentage point higher? michael: you could do it come it would just cost you a lot more. what is really staggering is dell is a public company, emc is a public company. they spent $5.5 billion on share repurchased and interest dividends. our interest expense in the combined technologies is a little over $2 billion.

so, we have the world's leading infrastructure company for the fourth industrial revolution all as a privately controlled company with a really advantaged capital structure. we are thrilled with how everything turned out. erik: last time you and i talked , you described dell, taking dell private's act one, merging with emc is act two, and act iii is yet to come. can you give a better sense of what act iii might be? erik: it is still yet to come -- michael: it is still yet to come. the cost of making things intelligent went from $1 million to $1000 and it is approaching zero because of the number of intelligent, connected things is exploding, from tens of billions to hundreds, to perhaps a trillion. the amount of data being created in the world is just tremendous

with this digital transformation. when you overlay on top of that all of the artificial intelligence, machine learning, deep learning, unsupervised learning, there is a cambrian explosion an opportunity that we are just at the great beginning of. that requires all new kinds of capabilities and that is why we built our new company. i'm really excited. that is certainly a big part of act three. erik: michael, i'm looking forward to it however it takes shape area great to see you here at the world economic forum. --, i'm on the edge of act my seat. dell act iii, what will it look like? jonathan: a great discussion. that is erik schatzker over in davos. president-elect donald trump's inauguration is one day away. will the confirmation hearings for his proposed treasury secretary steven mnuchin, how will they go? we discussed that next. we bring you live coverage

starting at 10:00 a.m. in new york. this is bloomberg. ♪

david: this is bloomberg. i'm david weston. he served 22 years in congress serving the state of south dakota. few people know as much as tom dashiell does about how washington works and what goes wrong where he does not work -- when it does not work. he joins us from washington dc. senator, thank you so much. >> having to be with you, david. david: i want to play something for you from congressman blackburn about what she sees as the pitfalls of the republicans fighting against the democrats in these confirmation hearings. >> i do think what you are going to see as they are going to pick, pick, pick and try to go after anything on any of the cabinet nominees that they feel

like they can go in and doing up a littleing them bit. david: what is the proper role of the minority? and when do they overstep? mr. dashiell: i think the proper role is oversight. congress has a very important role to play with regard to nominations. the screening, the scrutiny around the nominating process, and ultimately making decisions about the fitness of a high-level government officials. i think it has to be done with civility and thoroughness. i'm hopeful that most members of congress understand the need for the balance. david: is the rainy to balance the proper need of the new president to have their team in place to get on with governing the country? we can't delay this forever, right? mr. daschle: absolutely. i think difference has to be given to any president and the choices he or she makes with

regard to these high-level and very critical nominees. that has been done in the past and it is about to be done in this case. david: you have spoken out and written with your formal rival, senator trent lott, about the need for civility and bipartisanship. there has not been much bipartisanship going around these days. as you look at donald trump and his team going in, what is the chance that they can improve the situation? chanceshle: well, the always there. it is going to take an enormous effort on the part of president-elect trump. it is going to take an effort on the part of democrats and republicans in the congress. there has to be outreach, there has to be inclusion, there has to be a real effort to communicate and coordinate. that has not happened over the last few years and i'm hopeful that we can start a new with this president. david: with that sort of start, what is the likelihood mr. mnuchin will be confirmed? todayschle: i would say

there is more of a likelihood than not that he will be confirmed. the hearings have not begun, we have not looked into all of the issues involving his nomination. i think the assumption going into every nominee is that they will be confirmed. david: so, take me to the first 100 days. if you were giving advice to donald trump right now, what is the most important thing that you would tell them to do or avoid doing? mr. daschle: the most important thing to do is communicate and to include. to bring people down to the white house, to come to the congress if need be, to begin to develop a dialogue in an effort to try to communicate more effectively, to engage, to do things in a collaborative way. that has not happened. certainly, now with the republicans controlling the house, the senate, and the presidency, there is more of an opportunity to do that than we have seen in many years. david: when you talk about ways of communicating, your formal rival and friend, trent lott, has said he would advise them to

stop the tweeting. mr. draghi: i would agree with that --mr. daschle: i would agree with that. now is the time to be presidential, to consider demeanor, to consider the ramifications of some of the things that are set on tweets and to be a little bit more collaborative than he has and that he has the capacity to do with 140 characters. david: ok, think is so much. former senate majority leader tom daschle. we will bring you live coverage of steven mnuchin's confirmation hearing starting antenna clock a.m., coming up in just if used -- starting at 10:00 a.m., coming up in just a few seconds. jonathan: steven mnuchin heading into that hearing over in d.c. the bloomberg economic expectations index is 56. that man is going to have quite a job to deliver. since6 is the highest 2002. david: in the meantime, he has to go up against elizabeth warren. she has made it clear that she

wants to resist this. jonathan: a tough hearing for him. the inauguration tomorrow. almost 26 minutes into the session, let's get to the markets and wrap things up. equities, we are down by 0.1%. on the dow. down 0.05% on the ftse. dovish on inflation and a weaker euro down by about 0.3%. the hearing with the treasury nominee, the treasury secretary nominee, steven mnuchin, is coming up very shortly. full coverage right here on bloomberg. ♪

francine: where covering the

confirmation hearing for treasury secretary. we've got the highlights from the testimony which includes defending his record as andmanager of one west outlining his qualifications for the job including his 17 you hear -- 17 year career at goldman sachs. we will be watching the questioning from senators closely because he can be fielding anything on topics like economic sanctions, tax reforms, banking regulations, a strong dollar and there is so much to talk to him about not to mention fannie mae and freddie mac. areing us from capitol hill our reporters.