, less than a month after the inauguration members of president trump's party want to know what the communications were with the russians leading up to the election. as washington headed into a morass of congressional investigations? thet yellen tells -- says fed is on the path for a rate hike. the dollar hit a one-month high as the trump trade continues. a warm welcome to bloomberg daybreak. we are happy to have carol massar with us. carol massar, star of bloomberg television and radio, we are in good hands. carol: great to be here. let's get you going with a look at the trades. dow futures little change -- little change. s&p futures are just down a hair. quiet trade on the equity front. in the european market, half a percent gain on the ftse 100. the dax up about 25 points, good

for a gain of about 2/10 of one point. european stocks heading for their longest winning streak in about 18 months. in the currency trade, the euro down 2/10 of 1%. also the yen is up about one quarter of 1%. focusing on trade that secondary testimony of janet yellen. the q&a portion important to watch but the 10 year up just a hair. crude seeing some pressure and some selling. crude at 52.87 a barrel. david: more and more questions about the nature and extent of the dealings of those around president trump and the russians. we turn to kevin cirilli reporting from washington. from the outside it looks like the white house is really on it back and is having struggles. is that what it is perceived like in the white house? kevin: no question with the

latest development overnight, reports circulating that administration officials than on the campaign had contact with russian intelligence officers. it is notable that paul manafort is denying that, however these reports are only going to embolden cries from the joint bipartisan intelligence community in the senate to have people testify, including potentially paul manafort as well as now ousted general michael flynn. bipartisankeyword is . it would be one thing if this is .emocrats against republicans senator corcoran coming out and saying we have to investigate this, that is a real problem. kevin: i interviewed senator bob corker and as he was leaving the senate banking committee yesterday. he said they would only make sense at this point to have general flynn testified before that committee. also senator mark warner, the

democrat from virginia, the top democrat on the committee, he is echoing that. when you take a look -- take a step back and look at what is being circulated from people like senator john mccain, and look at the rising influence of the more traditional establishment type of figures within the u.s. intelligence community within this administration, what you are seeing is that president trump and has loyalists, particularly those who potentially have interacted with russia are truthfully on defense. carol: and certainly distracted. what does this do to the plans for tax reform, health care, and pulling back summerlike a test regulations on the financial sector? kevin: i have spoken to senior aides who quite frankly, in the republican party, are concerned as they feel that potentially the president is utilizing too much political capital on trying to deal and fight these battles. it is worth noting, when you

look at polls, the republican is stille majority united behind us white house despite a united democratic opposition effort. that being said, is the president able to turn the page today when he meets with retailers and during that press conference this afternoon with the israeli prime minister? that remains to be seen. david: we will be checking back in later. thank you. on how thes get more latest developments in washington will impact the financial market. let's bring in torsten slok, chief financial of -- as well as .uring -- george goncalves how does what we are getting out of washington, disrupt the president, and what does it mean for the financial market? torsten: i think the trump trade's will continue. if you look at fundamentals compared to what janet yellen

said, the u.s. economy is in healthy shape, close to full employment. it has beenthat quite stormy on the political front to last several weeks, but nevertheless, fundamentals and the rules and playing field is what matters for corporate send consumers and it looks like we are moving in the right direction. carol: do you concur? extent.do a certain it is early days and i think the market has been riding high on reflation trades. carol: there is a lot of euphoria out there. george: that is right. last week there was a small sliver of time where both bond markets and dollars are questioning that. it ripped back yesterday and that is yelling more -- yellen or than anything else. you have to be careful how much goodwill you burn up but it is in terms of a full year hopefully we will get these policies in place but it could

get derailed or slowed down, and there is only so much in congress that they can do all these things. david: how much of this is a trump trade as opposed to other fundamental issues around the world? we have growth in china and around the world. if you knew the president would not be able to get things done this year, what with the markets do? george: bond markets have been much more cautious in not pricing in the full extent of the fiscal response. equity markets are operating to their own volitions. just if thee get to fed is going to hike rates for the right reasons, and the fundamentals are better, then of course it is all about the other factors around it. i think there has been a lot of hope on inflation and growth inflation. david: does this help because it takes pressure off the fed to hike? torsten: if you look to europe and emerging markets, you

frequently have a lot of political noise and storm around and economic data still moves in a business cycle. we need to pay attention to where we are in the business cycle, and that is what janet yellen was saying yesterday. evidence shows from e.m. recently and europe, we could have significant increase in the stock market and significant improvement in financial markets even after we have some political wobbles. carol: the financial crisis has taught us we can bounce back from a lot of different things, and the greek crisis, tick the laundry list of things that have plagued investors over the past few years. if washington becomes of the more significant and we start to see an unraveling of that administration, then what happens? george: i think it is more about when you get the policies in place. carol: what if they do not get in place? george: if any time by the near -- by midyear we realize we will to get things done we need

re-think on valuations and that could be a stormy time during the summer and fall that we normally get anyway. i think markets will give the benefit of the doubt. futures are not moving that much. carol: i hear optimism from both of you. david: are we overreacting? torsten: i think we are probably in some sense but it is of course clear as kevin said, if this has an impact on the prioritization of policies and investors will take notice. david: particularly when it happens this early in the administration, they do not have their team in place. under the cabinet we have almost nobody in place. carol: and now they are replacing members. david: exactly. george: i think what is critical speech president trump's to the joint sessions of congress next month and how does congress react, did they have enough time to put back some sort of answer saying, yes, we agree with your physical needs

and tax policies. i think the first two weeks of march are critical and it lines up with the fed. carol: when it comes to policy out of d.c., what do you find most promising, rolling back taxes, rolling back regulation? torsten: of all the things coming out what matters for businesses and consumers, and those things that matter are things that we are paying attention to. those are the ones that will be driving both equities and rates, and so far a lot of the things that matter for businesses and ,onsumers have a lot of promise and higher sentiment saying basically we have corporate and consumers believing this will be helpful. the answer to your question is it looks on the laundry list and prioritization, there is still a lot of hope. david: torsten slok of deutsche bank and george goncalves, both staying with us. up, an exclusive interview on governor dan to rulo on banking regulation and the future of the fed. ♪

♪ emma: time for other stories making headlines. i am emma chandra. softbank has agreed to buy alternative sauce -- manager -- at a price of -- fortress will operate aside softbank's technology fund. shares of fortress have fallen by two thirds since it went public in 2007. the head of britain's unite union says it will not accept a andle job cut between gm

peugeot. german officials are vowing to protect opals workforce in the event of a sale. the european union has approved a landmark free trade agreement with canada. and 99% ofntually the tariffs on imported goods. canada senate still has to ratify the deal. that is your bloomberg business flash. david: fed chair's congressional testimony reinforced that the fed is pretty much satisfied with their current interest rates and she warned about the risks of waiting to hike. >> as i noted on previous occasions, waiting too long to remove accommodation would be , potentially requiring the fomc to eventually raise rates rapidly, which could risk disrupting financial markets and

pushing the economy into recession. and pushing the economy into recession. david: still with us is torsten slok and george goncalves. this picks up on our conversation we just had. janet yellen went out of the way to say the rate hikes are based on the economy, not on the trump administration. we are headed in this direction regardless. does that strike you as remarkable? torsten: she managed to keep the discussion to the economic data, inflation, unemployment. all of the other things, there is a lot of uncertainty. she basically concluded we are in the right direction. david: does that suggest, and is this wise on her part, that it is not a trump trade? she is basically saying the economy is functioning in the background quite well. have had a recovery this last seven years and it is moving forward in a nice way. if the inflation starts to move

up, then we will have to do something and we think it is time to get going both on the employment part and the inflation part. david: she said we are on the right path but did not give us too much in terms of how many or when. strategist taking about what exactly she said, the fact that she is looking at economic outlooks and she thinks that keeping rates too low for too long would be unwise, that is something we have heard before. when i also here is a sense of optimism but there is more ,pside risk than downside risk largely because if we get these fiscal policy measures it will excel a great growth and inflation. they tweaked their stance. another thing we learned, they prefer to use short-term rates versus any sort of adjustment on the balance sheet. they put that to rest yesterday. carol: two hikes you are looking for. george: two hikes with the upside risk for three.

carol: when do we see those upside risks? george: everything is a matter of sequence. we have to get through the fiscal policy situation. let's look march, april, into may, june is the first quarter call that most or casters have out there. i think march has never been in play and yesterday she nudged it in that way but i do not think they are trying to. at the same time, after does go hikes over two years they want to speed up the pace and -- yearstwo hikes over two they want to speed up the pace. carol: they could surprise us. what is your expectations, two rate hikes? torsten: we think two. mainly coming from the organic recovery, it comes from the tion, and the third and final issue is, if the fed

leadership is changing, the composition of the fed is changing, where is the new fed going? will it allow inflation to be higher? will it overshoot two? will they be more hawkish or dovish? all of those things have opened up, and that is the third element that could possibly ,rovide more boosts to rates especially if we get a fed that is more hawkish. if we get a fed that is more dovish we could also get rates going up because it could provide a boost in inflation. there are a lot of uncertainties. in the current situation, we are looking at low rates for a while longer but a lot of upside risk for rates. david: george says it is not only the rates but the balance sheet. she went out of her way to say they are coming up with a plan and expects a substantially smaller balance sheet. what effect will that have?

it was definitely breaking news yesterday that you put a lot of emphasis on let's do short rates first and then the balance sheet. it is pretty clear that a very important difference may transmission mechanism, if you want to increase short rates or long rates because if you want to sell the balance sheet long rates are going up, and you only do that if the housing market is overheating. it is doing well, and therefore from our perspective is does it is a little early to start pushing rates up on the long end. carol: for investors, what part of the yield curve do you like? george: at the end of the day, there is this big tug-of-war and we do not know if the fed realized it is complicated, this allen cheap situation, and they do not want to deal with it. yellen is on her way out and the transition fed will focus on short-term rates.

i am worried about more longer-term, because we do not know who will be the next fed chair. in conjunction with the new treasury and what they will do with the gse, if they want to get mortgages off the balance sheets and moved toward a portfolio, that is one way of doing it. that would cause higher long-term rates down the road. carol: thank you so much. torsten slok and george can call this thing with us. -- george can call this -- george good call this --goncalves staying with us. coming up, an exclusive interview with daniel tarullo on the future of the fed and banking regulation under president trump. this is bloomberg. ♪

♪ david: this is bloomberg. i am david westin. looking at live pictures of the white house, president trump has a busy day meeting with the israeli prime minister and he will welcome leaders from the retail industry to talk about his agenda and there's. joining us is our washington colleague. tell us about this retail leaders meeting. >> this is the latest in a series of meetings that he has been having with business meters. he has met with automotive leaders and airline executives and now he is meeting with retail executives, talking about the border tax that paul ryan wants to implement. he said he will be rolling out a phenomenal tax plan and the retailers want to make sure it works for them. they are not happy with the idea

of a border adjustment tax. that is the mess -- message they will try to bring. we will see retailers from some of the big retail companies, and donald trump has his own fashion brand so he is familiar with these executives. we know what the retail leaders will say, they do not like his border adjustment tax. what is the president going to say? toluse: the president has not quite been clear on what his position is on the border adjustment tax. a few weeks back he said he does not support this tax but then later he said it is something he is warming up to. obviously he has tried to target mexico for the imports that the mexican economy imports into the u.s. economy, and says that trying to reduce that trade deficit is something that is the reason he is supporting this order adjustment tax. he says it is something that can help pay for the wall between the u.s. and mexico and that it

eventually will help the u.s. economy in the long run. david: thank you so much. still with us are torsten slok and george can call these -- george goncalves. this border adjustment tax, who does it hurt and help? torsten: it is about taxing everyone, not just mexico, everything from europe and asia, and giving subsidies to u.s. exporters. it will help exporters and hurt importers. in some sense it is not surprising that importers are somewhat upset. at the same time, the economic textbook would tell you this was associated with a significant appreciation of the dollar. that of course would be hurting across the board for exports. therefore, how much the dollar goes up comes a huge issue and if you are already trying to

help exporters, any appreciation of the dollar will not be helpful. this is a complicated policy having interest from many directions. david: if there really is a push , you offset the strength of the is beingho really gored? george: whenever there is winners and losers, they will advocate strongly and that is what we will see today. at the end of the day, it is another reminder that there is some negative to this policy which could hurt markets. it will not just be upside. carol: the other thing we have to think about, the trump administration needs some kind of tax, some revenue to pay for all of these policies. torsten: the tax adjustment is mainly the main source of revenue so if we do not have that then we need to find another source of revenue.

markets and investors are at the moment figuring out, will budgets be balanced? on financed infrastructure and tax cuts will be coming through? on whether we will have significant budget deficits that are not financed. carol: thank you so much. coming up, the ceo of the largest publicly traded hedge us. firm luke ellis joining later on, an exclusive interview with dan tarullo on the x -- the future of the fed and banking regulations. this is bloomberg. ♪

♪ carol: welcome back to daybreak america's. i am carol massar. let's get you going on the markets. we had the s&p close at a record yesterday, dow futures are pushing higher.

off with some nice gains, about one half of 1%, and the dax up 2/10 of 1%. in the currency market, the euro a little bit lower, yen going in the other direction. the 10 year is relatively flat, janet yellen back on capitol hill today. crude oil down about 6/10 of 1%. let's get an update on what is making headlines outside the business world. emma chandra is here. emma: there's a report that members of a trump presidential campaign had repeated contacts with russian intelligence. according to the new york times, u.s. authorities intercepted the communications at the same time they learned russia was trying to hack into the dnc. campaign officials say there is no evidence the campaign was colluding with russia to influence the election. trump needs with israel's prime

minister today and the white house is signaling a shift from a long-standing u.s. position. president trump will not center stateals around a two solution. in malaysia, a vietnamese woman has been arrested in the death of -- related to kim jong-un. he was poisoned with a needle or spray. he was critical and lived outside the country for years. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. japan's softbank has agreed to buy alternative asset manager fortress for $3.3 billion. , a bit of tim coleman a premium on this deal. tim: a huge premium.

if you look at the close but is around 60% if you look at the 90 day moving average of fortress. softbank is pretty used to buying massive -- paying massive premiums. a massive premium last year above what was standard. big money, big premiums. carol: talk to us about why softbank needed or wanted to do this deal. tim: that is a good question that has not got a lot of answers immediately. according to press releases softbank sees fortress as being a great company with great people involved. the people i have spoken to and bloomberg has spoken to say it is basically about human capital, and acknowledged bank inform theho can chairman of softbank and the company as they go forward into the future, to do more investment. this is separate from the softbank vision fund, the

massive $100 billion fund they are raising and look to be closing the first round of this month. basically what we will see a softbank will be running the softbank vision fund with outside managers helping them, and they will be buying fortress investment group which will be delisted from the stock exchange. what we are talking about here is softbank having much more of a portfolio company in addition to the investments. david: he say this is not an isolated deal, they are amassing a huge portion for investment. what will they do with that money, do we know? tim: the softbank vision fund is focused on tech and it looks like fortress will keep doing what they have been doing, which is quite different from softbank, credit and so forth. they are spreading their portfolio with this kind of investment. david: thank you very much.

now we turn to bloomberg news executive editor jason kelly for an exclusive interview with the ceo of man group. jason? going to talk with luke ellis from the man group. it is a fascinating time for hedge funds. great to be with you. you wrote a piece recently about the hedge fund industry regaining confidence. there has not been a lot of confidence. have we seen the bottom? george: i think we have had a period where active management in the hedge funds have found like difficult. they have found life difficult because they have increased competition every day. there is gradually more competition than you have to get better at what you do. we have also had an unprecedented environment or the central banks all agreed on what to do and did the same thing, they ran the governments and drove down risk premiums. has to do with

capital that makes a difficult environment for asset management. whenever you think of the policies, it looks pretty clear that last year's political moves started to start the breakdown of that global consensus. that creates a good opportunity for making returns. the hedge fund business, you cannot justify fees unless you make returns so as an industry we have to concentrate on making returns. jason: let's stick with the returns for a second. you noted returns have not even matched a pretty vanilla stocks and bonds portfolio. where do they go from here, are they going up? george: i hope so, but then i run a load of hedge funds will of course i hope so. it is always difficult to predict returns. it is easy to, and say next year will be better, but there is a great descriptor of hedge funds. the descriptor is for macro type

of strategies, you look across market correlations. when they are elevated people do not make money. when they are back at historic normal levels, discretionary macro hedge funds make good money in the same way that stock funds, stockpicking funds money when the stock correlations are low and when stock correlations are elevated, they struggle to make money. looking today, those correlations have all dropped down to more normal historical levels since the trump election, and it has been a good period of hedge fund returns. if you can tell me where the correlations will be the rest of the year i will tell you what returns will be. sadly, i have spent a lot of money to try to come up with ways of predicting correlations and i do not think you can. you can describe them or describe why it may be good but a prediction is always hard. youn: all of those factors

have described have caused some hedge funds to go out of business and their prediction is that you will see more go out of business. boston consulting said we could see 30% of the industry go away by 2030. will we see more hedge funds go out of business? luke: i think the interesting thing, there was a separate research report from one of the other consulting groups who said hedge fund assets will be $5 trillion in 10 years time. i think the reality is, there are 10,000 hedge funds or some number like that. then ever has been relatively static and you get something between 1000 and 2000 shut down every year and 1000 to 2000 start up every year. i do not think we need more hedge funds. this sort of darwinian nature of the fact that if you do not generate decent performance and look out of -- look after your clients, you go out of business. do i think 30%,

of today's hedge funds will have shut down? i think it will be much higher by 2030. , we aren group have got about to hit the 30th anniversary this year. other brand names are 20 years plus old. when you look at the number of hedge funds that were around 20 years ago that are today, it is a tiny number here it yes, lots will shut down but that does not mean it is bad for the industry. about fees? you notice the average fee have gone from 2% management, 19% carry down to one and 17. how are fees going to trend from here on out? luke: i think what is really important is that fees should be related to the amount of risk you take in the quality of the returns you generate with at risk. theof the problems is that

two and 20 started in a day when a typical hedge fund ran between 12% and 50% volatility. the sharp ratio on a gross basis of hedge funds in the last five to six years is pretty much the same as it was in the five and six years of the 2000s before the crisis. the problem is the average hedge fund has been running at much lower vol and has not adjusted its fees. ae manager fixed fee has higher waiting depending on what the volatility runs. it is important that hedge fund fees adjust to the risk in a particular hedge fund in the quality of return. if you run a fund with high quality returns, decent sharp , you cand decent vol charge two and 20 and it is personally does perfectly

reasonable but you cannot charge 50% to 60% of the value for fees. jason: that sounds like the average fee is going down to me. luke: i do not know. you have to look at it on units of risk. that is what we need to employ people to do. some of our clients are for lower risk funds and they get them at a lower fee. some are for higher risk funds. we have had more people in the last year asking us to run funds at 30 fall and they get higher fees for that. what is important is the fees adjust to what is actually being done. do i think the average hedge fund can justify 2% management fee? god no, not at all. jason: what about this debate

that seems to be ongoing and perennial, this notion of active versus passive? are we going back to a more active world soon or ever? luke: i think the first starting point is you have to look at the , how incredibly unusual the 50-50, 60-40simple portfolio have been over the past few years. the sharp ratio has been about 1.3. investing is not supposed to have a sharp ratio of 1.3. if you look at that, that is something like the first percentile of quality of return that you have ever had from a passive portfolio. it has been a perfect environment for passive and if it is a perfect environment for passive it is a difficult environment for active. what we are seeing with the breakdown in his global consensus, with the changing wind in politics which is

affecting the central bankers and economic policy, is it is starting to create a differential world and in a differential world, active will outperform passive on a much more consistent basis. jason: luke ellis, thank you for being with us. david, back to you. david: coming up, an exclusive interview with federal reserve governor dan tarullo. this is bloomberg. ♪

emma: this is bloomberg daybreak. i am emma chandra. coming up in the next hour, an

exclusive interview with federal reserve governor dan tarullo. this is bloomberg. david: this is bloomberg, i am david westin. looking at live pictures of the white house in washington. a busy morning for the trump administration. joining us is robert kenneth who has served as atopic official in the treasury and state department. internationalor -- at my old law form and -- old law firm. you have been in so many senior positions at state, treasury, and the white house over the years, it is not a surprise that your name comes up just about every day for some position in the trump administration, most recently the nsa. do you have anything to tell us?

robert: those reports about the national security adviser were incorrect. if i were -- if they were correct i would not have the pleasure of being with you. david: the nation's loss is our .ain we had steve mnuchin come in last week after some delay. talk to us about his to do list. robert: the first thing i would say about treasury, it is the department that will have the most active consequential agenda in the near term. that broad agenda is supported by a very professional and rather small bureaucracy. the ratio of responsibility to bureaucracy is the best in government. that is important because both on the domestic and international side, secretary mnuchin faces daunting challenges. on the domestic side i would say the first are bank deregulation and tax reform.

the outlines of what the administration would like to do have been laid out, but the details now need to come forward. what can be done by the administration, by executive action, what will require congressional legislation. side, oneernational month from today secretary mnuchin will be leaving for his financeeting with g-20 minister counterparts leading up to that summit in germany this summer. he will also be meeting with his g7 counterparts. oft is a very important part the international financial system and he will be playing a key role. role in national security has expanded with its leadership of sanctions, particularly against tough countries like korea and iran. disadvantage --

it is a disadvantage if you do not have enough people and steve mnuchin does not have a lot of people as he takes office. a concern.t is i would say the trump transition was ahead of schedule in selecting its cabinet, and they are going through the very onerous conservation -- confirmation process now. the concerns i have is we have not yet seen the names of those important subcabinet officials, deputy secretaries, under secretaries, assistant secretaries. although there are relatively few at treasury by comparison to state, he needs them and needs them quickly -- quickly. carol: what do we know about steve mnuchin's role in the trump administration? will he have the president's ear? where will he fit in with some of the other players that will help him in getting his agenda done because financial regulation and tax reform our two big projects.

robert: secretary mnuchin and secretary designate ross were supporters of trump. the supported him during campaign and frequently flew with him to campaign events, were very involved in preparations. i expect each of them and their departments will be significant players on the broad economic agenda, both domestic and international. they will of course work closely with other departments and agencies, and importantly with the white house, especially the national economic council. carol: if you were advising him, what would you move forward on first? regulation or tax reform? the first thing i would suggest is that he pressed the white house to approve his slate of subcabinet officials, to get them into the clearance process and get them confirmed as quickly as possible. secondly, with the staff he has, i would say what can we do on reformregulation, on tax

, and on the international agenda, via secretary or presidential action. let's first do what we can do within our own authority. at the same time, please start repairing -- preparing for me specific legislative proposals for changes in our bank .egulatory laws, tax laws if we need additional congressional authority on economic and financial sanctions, let's do that. i would first say what can we do within our own authority to pursue the agenda the president has laid out. let's not forget a lot of it will require both consultation and in many cases approval and action by congress. david: use of the first part is to get the white house to approve those subcabinet positions. the steve mnuchin know who he wants and what is holding it up? robert: i do not have a lot of inside information but i believe

that secretary mnuchin and secretary rost have a clear idea of the people they would like in those positions, or shortly very short list. the presidential appointment process in all administrations with whom i have worked, is a joint effort between the white house, presidential personnel office -- ppo is the acronym -- and departments and agencies. the white house is doing that across the executive branch and so it does take some time to get through the screening, the vetting process. there was a lot of criticism that there had not been proper screening of some of the cabinet officials. i think the white house and apartments are trying to do it correctly, and the key thing now is to get the decisions, get those names through the clearance process, get them to the senate for confirmation. david: you mentioned the national economic council. what is the role of gary cohn in this?

mnuchin, wilbur ross, you have some very powerful personalities. can they get together? robert: i think they can. the national economic council is a creation of president clinton. your next guest, daniel tarullo, served on the council. i think it was a great creation and put the emphasis on the economic and financial component of national security policy, as well as the work they do on the domestic side. they will have to work together, and there is a tension between the white house and the department. it could be either the nec or nsc, national security council. what we want to do is have a tension that is creative and productive, not personal and distractive. my impression so far is that these people are going to work in a way that does have a competitive element but it is going to be a competition of good ideas that will produce

good results for the american people. carol: you say they do need to work together, but taste on your knowledge of these individuals, will they work together -- based on your knowledge of these individuals, they work together? robert: i think they certainly won't want to do it. what i know of them, they are the kinds of strong personalities whom you want, people who have driven results in the past in the private sector. they need to bring those dealmaking, results oriented skills into the executive branch . when i was at the state department i worked for jim baker. he was a terrific secretary of state and george h w bush's best friend. he had a strong secretary of defense in dick cheney. we did not agree on everything. competition, but again it was a competition of ideas, which is what i believe turned out some wonderful

results not just for the u.s. but for the world. mitt,: ambassador bob kim thank you so much. let's check with abigail doolittle. abigail: shares of fortress investment absolutely soaring on the news that is the first hedge fund to go public in 2007 is going private. it is a 39% premium from yesterday's close. these shares are down more than 2007.om the ipo price in it is not surprising that three of the founders are in favor of this deal. trading in mixed fashion is pepsi co.. they beat earnings. the guidance for the year is a .ittle bit light it looks like the healthier mix of products is behind their earnings and they raised the devon and test dividend -- dividend. absolutelyssil

plunging, down more than 18%. they missed, in a big way, with a decline of 7% versus the estimate of a small decline. their guidance for the year is $1.35 per share, below the estimate by about 25%. it looks like weakness across all product lines. they are blaming currencies, background issues -- macro issues. david: thank you so much. i thought it was fascinating hearing from bob kimmitt who has been in the treasury and the white house. carol: there is a lot of players , strong personalities, and strong opinions. i thought it was interesting when he said the first thing that needs to be done is get the nominees approved and fill out the staff. david: he said he has a client and he gets a decision from a

deputy assistant secretary, and there is nobody to appeal to except for steve mnuchin at the top. that is not the way government works. carol: real good insight. , he hasor eight years been the point person on banking regulation for the federal reserve and now he is stepping down. his first television interview since the announcement, we will talk with dan tarullo about what he accomplished, what still mays to be done, and what he thinks about president trump's moves to implement changes. he is not altogether unhappy on what he is saying from the trump administration. that is coming up next. this is bloomberg. ♪

david: white house plays

defense. lesson a month after the inauguration, members of trump's party want to know what the communications were with the russians leading up to the election. janet yellen takes the stand. and she tells congress that the fed is on a path towards rate hikes regardless of what the trump administration does. and markets react. gained twoextends is and 11 state, the longest winning streak since 2012, as the trump trade continues. welcome to "bloomberg daybreak." jonathan ferro and alix steel are both off that we do have carol. carol: great to be with you. to see the risk trade, the trump trade, playing out. the dow futures are up a hair. we do continue to see records with the major averages. taking out the ftse come up about .5%.

the dax is up. we continue to see him move up. the major averages are a little bit lower. the 10 year yield. you can see 248 is the year yield. we are watching for that testimony. below 53 dollars a barrel. : we are now by kevin cirilli. theier we talked about russians and what the communications work. the president himself is tweeting this morning on the subject, keeping it going. one of the tweets says "crimea was taken by russia during the minute -- during the obama administration." so now he is saying that obama liked putin to much? kevin: he criticizes the media.

report lastth the night saying trump officials had communication with the trump officials. he criticizes the media and also is now criticizing the previous administration for being too soft on russia. that is a new piece of nuance that we haven't seen yet. trump is directly taking this to criticizing vladimir putin for the 2013 issue regarding crimea and russia's taking. david: it isn't just the media that he is going after. you have the growing issue in congress with republicans on the hill, but he is also getting the fbi involved here. this is from an opinion piece quoting unfavorably saying thank you -- the fbi should not interfere in our politics and is

. so he is putting the intelligence community back into the center of the dispute. kevin: in the campaign cycle, was the same official who quite thankful to james comey dealings andical assertions during the campaign regarding clinton. so three enemies this morning coming from the white house. the media, the white house, and russia. areuld tell you that there a ton of questions surrounding the white house, not only inside the beltway in terms of the intelligence community, but also on the bipartisan committee in the senate. lookingean spicer is forward to today. what does the white house need to do because they're coming at the administration from so many different points. : we have seen them in

the past throw many things seeing whatwall and sticks. they will throw a bunch of different arguments out there to see if anything sticks. david: we will come back to you before the program is over. carol: it is a busy morning in washington. investigators are asking whether developments from washington put the trump trade in question as we see equity markets move higher. here with us to talk about this is paul mortimer-lee along with blogsl regan, providing as this moves through the day. michael, set the scene. mike: at the center of the trump stocks andnk financials breaking out yesterday. goldman sachs setting record highs since the crisis. and obviously there are two things going on.

banks are rallying higher because of that, not in spite of them. and also because of the adventures that trump takes us on, it is clear that dodd-frank is in the crosshairs. a story yesterday was when ted cruz actually introduced a bill federalnate the consumer protection bureau. so regardless what volatility trump has, i think investors are pricing both of those things into the financial sector. that is really since the election, it did lead the market. the s&p gained and half came from the financial secretary -- financial sector. if you look at the evaluation of so low compared to

before the crisis. carol: what you are seeing in terms of economic and statistics, we will get an important read on retail, does this justify that we are seeing bank stocks within the s&p 500? paul: confidence was up before small business confidence exceeded expectations. andctations of deregulation fiscal stimulus. so yes, i think it is right to expect that the u.s. will have really good growth over the next two years. carol: what is really good growth? is 1.5%tential growth in this economy but we could get 2.25% or 2.75 even. so it might not feel i get that it is a move. clearly, the deregulation is good for profit. fed is not going to take this away quickly.

2%-twoyou talk about point 5% and the president is saying 4%. how much is a signal and how much is noise? on the growth front, you can't raise growth to 4% instantly. but the plan is to raise the supply side. improve the supply side and we will see where we go. take morel information. investors are very enthusiastic about the u.s.. and also there is a global upswing. for the first real time since the recession, we are seeing signs across the globe that there is a synchronized switch. and that is good for everybody, including the u.s.. david: how much of this is a trump trade at all?

markets marching upward, how much of that happens without trump? paul: i think some of it would've happened. ofre is quite a lot polishing in the policy action because that will raise growth. carol: how patient are investors going to be to see not just words but action? the phenomenal tax plan was promised to be released in a few weeks. we will see. we have the budget ceiling, the debt ceiling issue coming up in the middle of march, again. and i think there is definitely a risk of, you know, underwhelming congress, not acting as fast as people want. so i think that certainly is a risk in the near term. said, everybody has been quoting volatility in the market since trump was elected and it hasn't been there. i, for one, have been expecting

big swings in the market and we haven't seen them so it is hard to say. carol: did janet yellen give you hope yesterday? paul: she said will be expected. that we will raise rates but not at a fast pace. the economy is at full employment. carol: the president would argue with that about full employment. >> but rates have got to go up. how fast.uestion is and she didn't suggested will be quickly. and that is reassuring for the market. mike: and she didn't hint at shrinking the balance sheet was a big priority in the near term. and there were concerns there as well. david: thank you to mike regan paul mortimer-lee. coming up, we have an exclusive interview with governor tarullo. that is coming up next.

this is bloomberg. ♪

david: this is bloomberg. when barack obama came into office he inherited a big financial crisis and much of it centered on the banks. tenure, hehis appointed daniel tarullo who became the point person for a set of new regulatory structures to make sure we didn't repeat what happened in 2008. late last week, governor tarullo announced he would be stepping down and he is here to review now where we are now and where we need to go.

welcome. we are putting this on radio as well. let's start with the big question. you came in and a lot of things were broken. everyone would agree with that. after eight broken years in terms of revelatory structure? know that there is anything so severely broken that we should be worried about it in the immediate consequence. but two areas in which we have tried to concentrate on still need attention and the first of largest firms that have been characterized as too big to fail. the has been a lot of progress there. but there is more work needed. secondly, the nature of the crisis in 2007-2008 reminded us that the nature of funding in a financial system in which traditional lending and capital markets are so integrated is just as runnable as in the 1920's when bank deposits were not insured.

it is a different form of funding now. it is repo. but the funding combined with the big drop in a key asset price, housing, was what produced the crisis. and we need to be constantly on the lookout for vulnerabilities with funding. and i think that is an ongoing exercise. you don't come to a point when you say ok, we are done. too big to fail, gary cohn came out and said that we haven't really addressed to big to fail. will playman, we something from what he had to say. >> what is most important to the american people is to get out of the bailout is this. and unfortunately dodd-frank bailouts. it enshrined them into law. and that has to change. david: is that right?

i think there has been an awful lot of progress made. the resiliency of our largest institutions is substantially greater than a decade ago. capital levels are way up because of the run ability and mentioned a moment ago. we have liquidity regulations in liquidityat her management systems by the largest institutions. we have made progress on a resolution regime that will make sure that no individual firm is too big to fail. it can be resolved in solvency. i don't think we're there yet so that is one area where more progress is needed. one thing i will say is that when someone comes to you and says that we have solved a too big to fail problem, that is when you should get worried. because the financial system adapts so readily and so

expertly in a lot of ways to create new opportunities for making money, the financial regulatory system needs to be attentive to the changes and to evolve with it. and that is what didn't happen precrisis. carol: i do want to know if we are getting into a cycle where people are forgetting the financial crisis? daniel: an excellent point. if we just go back to a decade or 12 years ago, what we were supposed to say with the 1, evenl system was though traditional lending had been integrated, when firms price for risk, a lot of the instruments in which they traded, they didn't take into account the credit risk embedded in the instruments. they were not attending to the possibility that across the system, you could have a liquidity squeeze if everyone pulled back and said, we are not

sure about asset prices so we will stay on the sidelines. in many instances, they didn't even know what their own risk was. in 2009, when we ran the first set of stress tests on the fly, as it were. we sent out requests for information and more firms than one would have expected were not able, in anything like a reasonable amount of time, to aggregate risks to the same kind of priorities across the big firm. those are the things that produce the regulatory changes that we put in place and those are the things which shouldn't be forgotten as a historical matter much, as a set of moment ago, the adaptations in the financial system means that new risks are created along the way. david: how central at this moment are the tests? daniel: i think they are the single most important supervisory innovation for the last 25 years.

what do the stress tests to? first, they try to look at a sizable portion of the u.s. financial system at the same time, to see how a recession or a particular move in asset prices would affect all of the than largestss firms. they are dynamic. we change the scenarios from year-to-year. precisely so that we test for different things. because you don't know where the stressors in the system are going to come from. and third, it is a way of allowing us not only to make sure that firms have enough capital and that they don't, like in 2007, continuing putting out dividends when their capital is shrinking, but also, it is an opportunity to make sure their attuned management is

to the idiosyncratic risks that firms may face. yes, the largest firms need a stress test but there's a reason why we go further down. that is because we need the whole system able to intermediary credit. so with large regional banks, which individually are probably not too big to fail, you still want to make sure that as a group, those banks are resilient enough to continue providing credit to u.s. households and businesses. carol: i want to go back to what you said in that more work needs to be done. our financials in community right now that are too big to fail and should be broken up a little bit? daniel: what we have been trying to do is set the regulations at the point at which we think is appropriate in order to take account of the additional risk to the financial system that any

firm creates, and then to have the firms themselves decide the most efficient way to deal with the regulations, whether to hold a lot more capital liquidity, or, as we've seen, to get out of some businesses and reduce exposures in other businesses. in a way we are trying to use a kind of pricing mechanism which gets them to decide the best way to do it. i do think that we have to continue to do that. mentioned last fall that i thought we should integrate the surcharge for the largest banks in two the stress testing regime. and it is also why we continue to work on the resolution regime. because that doesn't just say that we have a big fan to pull off the shelf in the event that we are failing. it forces a firm to change the way they operate day-to-day, precisely so that if we get to a

friday afternoon, we are not facing a situation in which there is no liquidity to deal with the stress. david: for those of you just joining us, we are speaking with governor tarullo. i asked you what yet needs to be done. are there any places you went too far, in retrospect? and is it possible that the banks have too much capital? daniel: sure, in a theoretical sense. but only talk about the largest institutions and you see the stress on the system that anyone of them could provide, then you understand why, in order to provide a buffer against that, the banks, those kinds of banks, will need to hold more capital than they might individually decide they want to. when you get to banks that are medium-sized and community banks, i think that they have a the post crisis

regime -- supervisory and net toory -- cast and broadly or deeply. particularly being concerned with the impact on community banks. the risk space capital rule had to be changed to take into account what the big regionals and largest banks were doing. process, those same rules applied to community banks. and i think in the post crisis time, we need to think more in changes pretty distinct and differences in the regimes outlook. community banks as opposed to citibank or goldman sachs. have you seen harm done to community banks because of this? is there less lending going on? daniel: my sense has been,

poring over the data and speaking with bankers, my senses been that the biggest problem remains demand for lending by small businesses and in some cases by consumers as well. index,look at the nfib the national federation of independent business, you will see that a very small percentage of firms say that having a problem getting a loan when they think they need one for expansion. the problem is the demand. but. bank, anyall regulation or supervisory exam creates a cost that it cannot amortize over hundreds of billions of dollars of assets. it is doing that over a few billion dollars of assets. complianceve 1-4 officers. so when you push up those costs in a way that probably isn't necessary, you are having an impact on the profitability of those banks. it, small banks

are subject to enough pressures for economies of scale and the like that i don't think we want the supervisory system to be an additional challenge for them, given the market challenges that they face. we have seen financial firms do a lot of work already. do you anticipate will happen in terms of financial regulation? will we see rollbacks? will banks roll back the compliance efforts that they avert he taken and what are the risks? too earlythink it is to tell what all these conversations and proposals will bring. my hopes andt expectations are that the core reforms that were put in place for the largest institutions, increased capital, stress testing, liquidity requirements, risk management and progress on the resolution regime -- that

they will have durability. and i think they should have durability. because there is a broader consensus in the country that we cannot repeat what happened in 2007-2008. we do not want more taxpayer bailouts. and we don't want the secular harm that was done to the economy. and to get back to one of your earlier questions, that is where memory is important. we have to keep that in mind. i have always regarded higher capital in the fight against moral hazard is a place where conservative and liberal policies come together. when i was academic and i was testifying before the senate and banking committee on capital proposals, i was followed by a conservative economist who agreed with what i just said. and we found that we shared this view that moral hazard is a problem for an efficient capital

and market allocation system. david: why leave now? daniel: i came in, hoping to be a part of the group that put these reforms in place. i have an unusual opportunity, having literally written a book, to be in a government position where i could put some of those ideas into practice with my colleagues. and, you know, eight years is a long time to have done this. it is probably good for the individual and the institution for me to move along. have: coming up, we breaking data for you. this is bloomberg. ♪

carol: this is "bloomberg daybreak." we have breaking economic news in a moment. let's see how the market tone is ahead of the numbers. the dow futures suggesting a

high open to continue bullish trade. s&p futures have been flat through the morning and they continue to trade down. the european markets, we saw asian stocks at a rally overnight and that did continue into your. get to thelet's breaking economic news, a read on inflation, consumer inflation coming in hotter than expected. . analysts that we surveyed were looking for an increase of half of this. .3%. so that is some signs of inflation. food andhe volatile energy components, a gain. and that is also a little higher than what was forecasts. economists we talked to were looking for .2% gain. we have to talk retail. this is a number we watch closely. retail sales for january, an increase of .4%. so consumers were spending in

january. economists were looking for a rise of 1/10 of 1%. if you take out cars it has been a big proponent of the retail sales number. number. stronger so pretty strong. david: here with us to take a look at these numbers is paul mortimer-lee. numbers.aw the how much should we read into those numbers and how much should we not? this is stronger than what people expected. a bit more on the core. the core inflation is significant because it is the core inflation number that the fed looks at. and what i will say here is that the uptick that the fed is looking for is coming and may sooner than expected. won't change in opinion. but certainly they do look closely at this month and the

following month to see whether we are getting more inflation. is pricing behavior changing because they are more confident about the future? it might do. isid: so your year over year two .5%. how does that feed into what janet yellen said yesterday about not wanting to wait too long to raise rates? that is right. monetary policy takes a long time to affect inflation. if you get behind the curve then you have to catch up. maybe this is an orange flag and says yes, maybe you are behind the curve. and i think they are. >> you have to be careful because this is one month data. are there any nuances that we need to be aware of? i've seen so far but clearly we do have energy which is strong. we know gasoline prices were strong. so that gives us a strong month

on month. we expected that. but here on year, it has picked up to 2.5. so shaaban than expected. and it is really the food and energy, the survey was at 2.1% so the survey expected it to did and we went up. and that raises questions. does: to simplify this, this way and on the dispute between the dot plot and the market? does the market has been saying to raises that the dot plot has been saying three. does argue more towards three. yes. our view is that core pce, the fed's favorite measure, is running half a point below which will be up at 2% by the end of this year, very likely. and with rates still likely to go up to or three times this year, that of mean that the fed has a lot of timing to do.

i think the market is too complacent. carol: just to give you the specifics, it is energy, transportation, medical care, the usual suspects in terms of price increases. paul: the medical care is more important for the core. but energy, although the headline doesn't matter, it does speak through to a number of prices and transport is one of them. airfare. food. so it submits itself broadly. david: let's turn to the retail numbers. what does this tell us about the state of the consumer right now? strong numbers in retail? >> i haven't seen the breakdown between the category but the largest amount of the growth came from online which has consistently been strong. the other category was probably building products. a housingee size of recovery.

so think a lot of it has to do with that. but the price increases that you mentioned in medical could impact on discretionary items through the year. david: in the past, auto brought up the number and now it is dragging it down. this is now a much stronger number. i expect a lot of that is the shift to online. january is a very small month. it is also affected by gift cards from holiday. holly was a little bit slower so --y are sending markets markdowns. carol: furniture was flat and electronics were up. gasoline up. clothing up 1%. sporting goods at 1.8%.

eating entering game, strength at 1.4%. to seeyou will continue strengths in the link products. some strength in building from the online players. and clothing has been generally weak across the board. but where there has been strengths, i do think it is coming from online players and discounts. is that wetrikes have the retail leadership heading to the white house in the next hour. so that will inform the conversation. paul: a couple of interesting things with that. people expected to get back in january. and that didn't happen. december was revised up. so what it looks like, if you take the two months together, this surge in consumer confidence that we have seen seems to be translating into higher spending and maybe into a

lower savings ratio. so putting that together it looks like consumer spend heavily and retailers have taken the opportunity to raise prices. david: if you listen to janet yellen we talk about wage increases. the last wage numbers were pretty soft. it looks like confidence may be is driving the savings ratio down, in the same way that industrial confidence is driving it up. carol: it is interesting. we kicked off our show this morning talking about how much news is for out of washington but it is showing that consumers are shrugging this off and they are spending. paul: they are looking through the noise. there is a lot of noise in washington and consumers are saying, whatever is happening, we look likes we will have tax

cuts and the economy we stronger and we will get spending. carol: the retail ceos are meeting with trump and his team. what does this mean for the retailers in terms of the companies? for legacy retailers, it depends on how they are able to drive online sales. online retailers will be strong and in terms of policies they will be focused on tax on imports which will be huge for them. carol: that would be huge. we want to thank paul mortimer-lee and seema shah. , revealing what charts are saying about the markets next moves. and paul quinsee, the global head of equities will talk about which industry will lead the next leg of the rally if there is a rally. this is bloomberg. ♪

emma: this is the hewlett-packard enterprise greenroom. coming up, the goldman sachs president david solomon in a bloomberg exclusive. time now for other stories making headlines. this is the bloomberg business flash. japan's softbank has agreed to buy fortress investment group. a price of $3.3 billion. fortress will beside -- will operate alongside the technologically investment fund. wents had fallen when it public in 2007. cut betweenjob general motors and the maker of persia know. they have been in talks to sell vauxhall brands.

meanwhile, the ceo is in germany for talks with the team. they are vowing to protect the workforce in the case of a sale. pepsico posted fourth-quarter earnings that beat estimates. forecast profit for this year that was less than expected and that is your bloomberg business flash. carol: thank you. now to the morning meeting when we hear what key banks are watching. jabaz mathai joins us now. davido have you here with and myself. talk us through some of your reasoning here? jabaz: sure. this is based on deficits going higher eventually, which will cause the premium and the curve to go higher. that, there is

also the chance that, should we have an event, perhaps an accident or an election in europe, there could be some tailing off and you could potentially see the fed having to push back the rate hike. clearly that is not obvious right now. especially given the data we had today. coming in stronger than we expected. if you look at 2015-2000 16 rate hike was lower than what the market had anticipated. the signal that makes more sense given current levels and given how flash the u.s. curve is. relative to other economy curves. david: last year we were told would have two or three rate hikes but then we got one. but things are different. what we are told by the fed is

that we are much more to the upside than last year. her testimony,n janet yellen said we have to be careful about going too slow. does that change your analysis? jabaz: it does not really change our analysis. we are looking for to rate hikes this year. one more than last year. we also have to keep in mind a fed that is too reactive or aggressive may post a stronger dollar and the negative feedback looks from a stronger dollar may actually put a brake on the rates that we will see. to rate hikes is still the best case. clearly with the data we saw today, march looks more alive than before. so i would say perhaps 2-3 rate hikes. carol: everybody is talking about to rate hikes.

you mentioned higher deficits as part of your thinking. is that because we won't see from the trump administration, if they need to bring new revenue into the government, on a border adjustment tax? does this also mean you don't see the economy moving faster than some of the numbers we have seen as of late? to the extent that the border tax adjustment goes into effect, you could see some offset from a revenue standpoint. however, it is unlikely we will regime thate growth would offset that. because you are talking a big tax cuts here. both individual and corporate levels. based on the analysis that we have done and the analysis we have seen from nonpartisan institutes, we think it will most likely be higher, which means eventually pressure will

be higher as well. and that makes us confident with the expectations. and last but not least, the fed balance sheet is going to start rolling off. the best case will be next year. it'll be a sink to see what the fed does. that'll be at some point next year. it give us ay, sensitivity take on your analysis. if you turn out to be wrong, why will it be? becauset would clearly animal spirits will continue for far longer than we expect. our case is based on the assumption that they will reach peak optimism and after which we will start tailing off. assumption could prove false in the sense that you could have a sustained momentum in both inflation and consumer

spending which would pull growth higher. and in that scenario it would be higher than what we expect and we could move flatter. carol: thank you so much. barr on thendy future of the said. or then, check out tv you can watch is online. interact with us directly. we love it. this is bloomberg. ♪

carol: this is "bloomberg daybreak." we want to take you inside the bloomberg terminal. we have seen an interesting move

in the last hour. if you take a look at the expectations for the march 15th meeting, we are now looking at the probability of an interest rate hike i the fomc of 42%. only kicked off our broadcast this morning it was at 34%. was seeingerday i how much it was affected by janet yellen it was 30%. 34%, it didn't matter. but 42%? keeping march alive. carol: she knows how to manage it. story onan interesting the bloomberg terminal talking about how the market is not really anticipating getting ready for an aggressive fed getting forward. so we do see that in the fed funds futures. david: it is fascinating to watch. janet yellen appears again today before the house committee on financial services in an hour from now. one of the people questioning her will be andy barr from kentucky.

he joins us now from the capital and it couldn't be a better day to have you. thank you for being here. andy: thank you. david: you have written about reforms you think should come at the fed. now that we have a new president and we will have at least three new fed governors, can you summarize the problems that need to be addressed? andy: as you mentioned, this is the first time that chair yellen will be back in front of the committee. the american people voted for significant changes. there will be three vacancies for this president to fill with the advice and consent of the senate. and members of our committee will be asking whether changes can be made at the fed. and we think changes are appropriate. this is now a time when we have a full range of economic data from the obama administration.

almost eight years of economic data, since the end of the great recession, 2009. and frankly, economic performance has been substandard, to say the least. the slowest and weakest economic recovery since world war ii. we want to look at monetary policy as part of the problem. we have seen an unconventional of which wehe likes haven't seen before with interest rates from mr. decade. three rounds of quantitative easing and $4.5 trillion on a balance sheet and stroke -- and still not the outlook we wanted to see. we want to avoid from the extraordinary and n-dimensional policy to a more strategy-based policy that gives businesses and households and investors more certainty.

david: you mention three thing specifically. discretion, quantitative easing and the size of the balance sheet. let's start with the discretion issue. how can you rein in the discretion of the fed without interfering with fed independence? andy: we believe strongly in fed independence and we discourage political independence. that is important. i would argue that the extraordinary discretion that has been exercised by the fed in -- fed invite's political interference. you have the fed allocating credit, picking winners and .osers favoring the housing industry. of allocation of credit invites more political interference. whereas a more rule-based or strategy-based monetary policy, there would be greater certainty and predictability. and households and investors and businesses would not be left

guessing where the fed is going. so better communication and opportunityty, less for political interference. me, holding back the economy is a lack of productivity gain. and that invites issues from congress to help out things with small businesses. isn't it really not a fed responsibility? andy: we agree with you. not all of the lackluster growth is attributable solely to monetary policy. in fact, it is a recognition that monetary policy can only do so much. after eight years of overregulation and a broken tax code, and it isn't just eight years but a very long time, and the fact that you have a law like dodd-frank which has reduced the lowest level of

small business lending from banks in a generation and entrepreneurship at a 20 year low, the fact that you have those fiscal policies that are impeding economic activity is something that congress should take a look at. so productivity gains can be made, and i think with the new administration and congress, we are working to roll back some of those regulations. carol: if you take them back 15 years or 20 years, there is more transparency. talk to the public more than they used to. the dual mandate of on inflation and we have 35 seconds here. briefly, we want better medication about what the strategy is. we don't want to micromanage fed policy. we want the fed to communicate more than just for guidance. , for guidancen

means nothing if there is this much discretion. we want strategy and reference rules to communicate to the congress and the american people where the fed is going on a more clear eyed basis. carol: we look for to the testimony later on. thank you. janet yellen second day of testimony before congress does begin at 10:00 a.m. on wall street. coming up, carol stockton reveals the dollar's next move. and paul quinsee tells us what sector is poised to outperform. this is bloomberg. this is bloomberg. ♪

♪ >> welcome to "bloomberg daybreak," this wednesday,

february 15, the day after valentine's day. to opening bell, how are the markets doing, carol? ready quiet this morning. kind of a continuation heading towards the opening bell, industrial average is flat. up four points because of those futures. s&p futures are down 2/10 of 1%, so we're looking for a relatively flat open this morning. europe, the rally that we got on u.s. markets yesterday, following to asia and europe, the ftse of -- is up 1/10 of 1%. got to talk a little bit about the currency market. the euro is down half of 1% right now. as for the yen, seeing a little bit of strength there. hill,yellen on capitol giving testimony. the q&a portion is the section we will be watching closely.

below -- nine at -- nymex crude, below $53 per barrel. abigail? after filings 13 season, when we get to find out what the biggest investors bought in the previous quarter. first up, procter and gamble. they had been up on the news managementh fund increased its stake by $500 million in the fourth quarter. "the wall street journal" is now saying that their overall stake is roughly $3 million. the overall turnaround process for procter and gamble. shares trading higher on the news that berkshire hathaway increased its stake in apple. this is pretty amazing here. when we take a look at the 6023, this is a chart

of apple starting in january, 2016. there was a bit of a decline from the peak in 20 15. it was first disclosed that berkshire hathaway started buying last year and around may of 2016. we see the stock is up an that time. over not so bad at all. talk about buying low and sell -- selling high. berkshire hathaway is doing well on the buying part. railroadd -- turnaround specialist hunter harrison is demanding $300 million in pay. the board will be considering this as jack dorsey revealed he bought 426,000 shares this week after that disappointing quarter. , tradingherbal life slightly higher as carl icahn has upped his stake. he is now the largest shareholder with about 24% of the herbal life shares. carol and david?

appreciated, abigail. let's get more on the markets from katie stockton. also with us, michael regan, who leads coverage throughout the day. katie, i want to start with you. the s&p 500, a lot of folks have come on to say that it is getting pricey and overvalued. what do the charts tell you? , ase: there is a momentum you can imagine. it's a good thing. i know that people tend to worry. carol: it feels like a clean run up, it feels like. katie: it is and it has refreshed itself over the last few weeks, as we saw. little pauses to refresh. marketmentum behind the is across time frames and short, intermediate and long-term. that is over will -- overruling the overbought conditions. not necessarily a bad thing as long as there is momentum. doubts about had

the continuing momentum, what should we be looking for? downtick inthe momentum that makes the overbought conditions matter. starting to flatten out, the oversold measures would turn down. that kind of downtick would be concerning in an environment that is characterized by what could be considered overly bullish sentiment. it's: it's been -- carol: been really low volatility. mike: we had an interesting chart from a blogger, cameron price, who pointed out something . never thought to look at the ratio of trailing 12 month returns in the s&p 500 to trailing 12 month of volatility. you can see the chart here. both aooking at high-yield bond index and the s&p 500 total return index. the s&phe s&p -- carol: 500 being blue there? mike: my eyes are not -- [laughter]

exactly. so, that ratio, return to volatility is above two. four on high-yield credit. cameron's take is that this is a rare condition. a lot of indicators are showing this overbought condition. rsi is about 70. it's interesting, to me, katie, again, when you turn off these signals and let the spirits run, that's a question on everyone's mind right now. katie: i've essentially done with the indicators that i track. from acknowledging overbought conditions to giving more weight to the momentum indicators. that's what makes you have a good call or bad call in the market, how much weight you are giving to various factors. right now i think it is this moment we need to give more weight to until it tells us otherwise. carol: momentum, not necessarily

a bad thing. there is focus on the treasury market. janet yellen is on capitol hill. such a telling chart. i call itkatie: backing and filling in a tight range. a fairly well-defined short move within the range. short-term bias is higher for treasury yields. resistance is around 265. above that, you start thinking about 65%. it's just not a near-term reality. mike: is there a danger to the stock market at a certain bond yield? targeted as a danger zone. do you have a signal where you start to worry about stocks? katie: there definitely is a level. i cannot figure out what it is. i don't think anybody can, frankly. we will know it when we see it and it will manifest itself in the indicators. david: the indicators -- the u.s. dollar, what are the

technicals telling you about where it is headed? katie: it had a major breakout last year with immediate follow through. that was a positive on the dollar bullish events. for the past couple of months, this relief rally has been underway. the dollar index now faces some resistance. not in the clear by any stretch, but it has an upward bias in terms of momentum. carol: abigail doolittle mentioned apple this morning. we saw it closing at a record. we will bring up a chart. on a technical basis, what does that say to you? was followedp up through in the last couple of weeks and that tends to be a very strong event, now that we have seen new all-time highs. that of course relieves the chart of any resistance. it from aook at long-term perspective, we can derive something called a measure to move.

that was put at around 169 in the long term. a really nice breakout if it is confirmed. david: goldman hit a new record high yesterday. what do the charts tell you about where it is headed? new chart term momentum. a much different chart than apple, of course. be relieved,to sort of refreshing the uptrend. we don't have the relative strength behind the financials yet, but certainly you are seeing rotation back into them and goldman is one beneficiary. all-time highs for goldman look likely. today, is abasis, good thing that tends to be positive. i wonder, is there any political risk that would make you back away from the charts and make you say -- wait a minute, the market is going to start reacting to politics.

reacting to congress more rather than follow technical indicators. carol: even with the momentum out there. katie: yeah. the market is now reacting to political factors, of course. the charts will not tell you why something is happening, but it will help you identify that it is happening. right now it's not. mike: is that surprising to you at all? i'm a a little bit, but believer in the breakout. the momentum. as soon as the market tells us otherwise, we need to listen to it, but that is where we are at present. the energying at sector, do we start to see more regulation moving the overall market to the upside? katie: energy, industrials, i would lump that in the same group. they are more interesting to me in the near term. long-term trends versus the s&p and the industrial sector benchmarks, they are not quite as overextended as, say, the technology sector on a regular basis. opportunity for

relative outperformance in energy as i am a believer that crude oil will break out in a little range here. david: many thanks to katie stockton and michael regan. exclusive an interview with david solomon. president and co-ceo. this is bloomberg. ♪

bloomberg. is financials have led the rally since the election as investors bet on deregulation and raising rates. sachs, the best performer since the election, closing at a record high

yesterday. we spoke to the federal reserve thernor, who led reconstruction a regulatory systems after the financial crisis on the future of regulation under president trump . take a listen. the regularity of the funding combined with a big drop in the key asset price, housing, produced the crisis. we need to be constantly on the lookout for vulnerabilities with funding. is an ongoingat exercise. we aren't going to come to a point where we say, that's done, now we move on. david: joining us now is allison williams. he's basically saying that we are not passed the problem yet. there is still the danger that the entire system has adjusted now and the problem might come from a different place. is that right? do the banks see it that way? allison: i think that one of the latest or the last things that true low -- tarullo was trying

to include, including the stress tests and making things more strict for the banks, it was that regulation was not finished with making banks safer and eliminating too big to fail. even as we move into deregulation, it might not necessarily favor the bigger banks. we have been hearing more about pressure on the international standards. areshe has said -- look, we going to move forward. she has said that publicly. too think it is important have global regulations as it is a more global economy. global and i more think that makes sense. how much of the rise of the bank stock has been anticipation. particularly with community

banks? we have had two key drivers. first of all, deregulation helping multiples and then rates that should be a near-term benefit to earnings. sort of the last news that we got last week on regulation was donald trump sending a signal that deregulation is going to begin. that is obviously going to take a long time. we don't know what the regulations will be like or what the help is, merely the fact that we might get less new regulation could help multiple systems in that there won't be as much pain. but it could be a bigger help to earnings with organic david: -- david:we have some breaking news -- organic -- david: we have breaking news now, excuse me. carol: economists had forecast production to be unchanged, it's down, so a steeper loss there.

75.3%, just a hair short, if i can say that. a little bit lower. those data points, allison, just to pick up on what you are saying, the fed was watching those data points and we were watching to get an idea of what happened in terms of rate policy. it could certainly impact their outlook. put it all together for us. allison: it really is the short-term rates that will be the biggest help to earnings. it's been a huge move in valuations and investors will be looking for rising earnings estimates to help support that. it's a key factor for bank net interest margins. data points that they are giving today are more supportive for more hikes and sooner, so that would obviously be positive for the banks. it was striking to me how many people were going into

financials, particularly bank of america, susceptible to upswings and downswings on the instrument rates -- interest rates. allison: most of the banks were tied to short-term interest rates. bank of america is a bit more balance there, but even though we don't know the steps that will happen with short-term rates we have already had a big leg up in the long-term. it is the short-term rates that are the key. as you said, bank of america may be the most sensitive. we just talked to katie stockman, goldman hit another record yesterday. when you look at this company, do the fundamentals justify the run-up we have seen in the equity trade? aboutn: if you think goldman, and certainly we are all talking about the run-up, there was a lot of pain last year and what we saw in 2016 was estimate revisions.

forward-looking estimates dropping for companies like goldman as people were getting more and more concerned about the capital market's nest. goldman sachs is the most tied to that is this. we have had three quarters now of trading and that's the biggest part of the revenue pool. all of the indicators are that q1 is coming on strong. we heard about this from deutsche bank a couple of weeks ago, strengthening their business. we have seen it on the fixed income side. are a bit weaker. not everything looks bright. but we have that capital markets doing well. goldman is the most leveraged to these trends. what we have seen if you look at the revenue estimates for goldman is a downward trajectory for a long time, stabilizing and starting to recover. that may be what investors are looking at. andd: thank you, house williams, of "bloomberg intelligence." coming up, paul quincey is going to tell us about a sector that is poised to outperform. this is bloomberg.

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carol: this is "bloomberg daybreak." quick check on the markets for you, everybody. kind ofsee futures and a mixed open. doubt futures are up about nine points, basically unchanged. kind of marking time before janet yellen goes before congress once again. continues.momentum up about 26 points. different direction, seeing a little bit of selling, down one third of 1%. money managers are certainly in focus this wednesday out with focus on holdings from the fourth quarter and

revealing some interesting themes. julie hyman joins me now with the highlights, starting with warren buffett. warren buffett was busy, apparently. julie: i'm going to go on a disparate lift here. one interesting move he made was buying monsanto shares. we think of that is interesting because we see him as a long-term investor, but he actually bought monsanto after buyers agreed to purchase it. like a merger arbitrage play, which is unusual for him to do. valued at $800 million, one analyst said that we assume that he's betting the deals going to go through and that that is what he's betting on in this particular case. fear is down. that's why it is sort of a surprising thing. brooke sutherland of gadfly had a piece on that today, playing around with investors. he does have other people,

that's right. he has ted wessler and todd combs as a. use others shares trading lower, 21 million is what he had had. and southwest, as he is doubling down on the airlines, they are in a new position. this is something that he announced in november, he was buying the airlines, but the southwest stake is a new one here he increased his stakes in american, delta, and united continental. $2 million in stakes in each of those companies and now about $2 billion. what's funny is that he has made some disparaging comments about airline investing in the past. >> he's been very critical of that industry. we have seen the -- julie: we have seen the airlines do relatively well since then. apparently doug parker made the pitch to him.

that is kind of what sold him on this airline story at a time when we have been seeing, still, some rocking is from the airline industry. historically it has been boom and bust. julie: they don't have capacity discipline, for sure. david: but maybe they have got into such a level of concentration now? julie: that's the theory, anyway, on the airlines. carol: they gotten so good at charging you for everything. i want to talk about julie: -- julie: i want to talk -- julie: i want to talk about p&g, also. it's not a huge stake, about one quarter of 1% if you look at hds on the bloomberg, which gives you top holders. because he is sometimes known as an activist, it looks like an interesting take on the shares this morning.

david: you would take the call from nelson peltz. [laughter] , ite: what's interesting will be interesting to see if it consolidates further vocally but it has done a lot of reorganization within the company already. carol: they had a new ceo come in about a year or so ago. apple? julie: warren buffett buying there as well, tripling his holdings. the number two wire doubled its stake. tiger global, maverick, selling holdings. you always have people moving around in apple. this looks at apple since berkshire first took a stake. david: he's made a couple of shekels there. [laughter] julie: he's a good investor. not bad. bank of america, if you look was thell the holdings, company single-handedly that saw the biggest increase in investment from these money managers.

not shocking, giving the route -- given the rally. david: the regulation and rates. -- deregulation and rates. so much.lie, thank you coming up, everybody. we've got the opening bell. coming up on "bloomberg daybreak." we've got a quick check on the markets. thou futures suggesting a little bit higher on that average. ftse, continuing to hold on to its gains. the dax, showing a little bit lower this wednesday. you can see the 10 year, two year 50, and we will be watching yellen throughout the day. this is bloomberg. ♪

"bloomberg is daybreak." i'm carol massar, along with david westin. you can see futures indicating a bit of a mixed open, but keep in

mind the s&p, watch that average. it has been up for six consecutive days. if it can rise again today it will tie the longest streak since september of 2013 and it will be an interesting trend line to watch, as you can see. [opening bell] the open for you. the dollar index brought more momentum to the upside with the 10 year yield and nymex crude, we have seen this trade throughout the morning below that $53 per barrel mark at this hour. let's see where stocks have opened for trading. we expected a quiet open. what have we got, abigail? major averages, unchanged, trading slightly lower right now, but it is worth noting that just moments ago the dow put in another intraday record high. four days in a row through yesterday, simultaneous record highs for these three major averages. it will be interesting to see

what happens today on day number two of the testimony to congress. investors seem to take it with a hawkish but just right amount of hawkishness, with averages trading higher. as for the movers, we are looking at fossil and michael kors. you know? i'm going to skip right over to this macro chart. 6:20, what we have here are financialoomberg condition indexes. japan, the u.s., white, and the point to be made here is that when the central bank kicks in with stimulus, it helps these financial conditions. back here is when the federal reserve ended qe3 or qe infinity and we saw the conditions take a dive down, however we did have in and itthe ecb kick really seemed to be helping the u.s. financial conditions the most.

but again that stimulus seemed to help financial conditions. that central bank, helping the real world, carolyn and david. david: thank you so much. for more now, we are bringing in paul quinsee. a lot of us are driven by financials, u.s. banks. is there still a ways to run their? paul: i think so, yes. in aggregate stock prices are only just getting back to where they were a decade ago and in the meantime you have had about 100% return on stocks in average. the valuations are still pretty interesting as well. running around 12, 13 times was sustainable profits will be. that's a healthy discount for the rest of the market but most importantly we think the fundamentals are finally improving. thanks to better markets, a more

favorable interest rate structure, improving their own profitability, a lot of which is coming back with dividends. despite the new highs, that's the banking sector. what about european financials, for example? paul: a great question. the gains have been so centered in the u.s., you had a 100% return in u.s. stocks for the past 10 years. for an american investor you might have made a cumulative 5% in europe. from here with high prices at home it will pay to start looking overseas. european financials are the most contrary and things that we can think of. clearly it has something to avoid. the financial sector was getting back to the precrisis levels. still, very depressed stock prices. carol: strong stomach. paul: many of the same trends are going to play out. capsules have been raised.

we think that action is an important improvement that's underway that hasn't got help yet and it will help out the credit side of that risk two. -- too. investors aref saying that as i look at it, i see a lot of downside political risk in europe. i don't to the upside so much. where do you see the upside growth there? paul: we have got to look past the politics of we're going to make money. if we look at the european stock markets, it's different, more cyclical, more exposed to global growth in the emerging markets. that has been and it's time for disappointment. for the last few years it has been a headwind, but gentle and meaningful acceleration of color right now.lobally critically into earnings.

the profits have lagged the. -- lagged. of u.s.n terms financial recovery, that's what's now playing out in europe so we now just look at the cycle? level, that'sigh absolutely right. details are critically important and you really have to do your homework and understand the details. understanding the political context, the recovery is still uneven across europe. when we step back and look at it there is room for investors to get their teeth in. have we seen the high point of regulation, particularly capital requirements? that's certainly a big unknown. part of the rally has been the expectation but we will at the minimum see fewer new rules in places like they happen for the past two years, being scaled back a little bit.

we will have to wait and see. we will not count on that much in terms of how we price the and that certainly could be constructive. david: talking about europe, what about emerging markets? good. dollar, not so where are you on emerging-market equities? itt matters -- paul: matters, but so does global growth in the world economy. we have had one good year of performance in the economy. they are up from where they were a year ago. typically you get along with that with an economic upswing. at a time when people are worried about valuations at home , emerging-market valuations still look pretty attractive. i do wonder if we start to close the borders to tariffs a hugede, is that benefit? brazil with commodity plays could take over the part for the united states with exports. paul: there's enough going on

for investors to take another look. for the asset class, they haven't made any money at all. david: thank you so much for being here today, paul quinsee. , flufffortress investor for $3.3 million. the private is equity deals reporter to hit big deal, high premium? >> you have to think about the premium and discount relative to .he stock this is the first private equity firm manager to go public in 2007. really at their peak, all of these companies performing at 1850 per share. over time it went down during to $.77 perrunch share and has come back. yes, the premium yesterday in

the close, to the recent moving average, the discount for softbank is the value for what fortress can bring to them as a private equity. as part of a company with a longer time horizon they can reap the rewards of the fortress long-term illiquid investments. david: fortress got a good price. what does it do to them going forward? will this limit their ability to access capital? >> obviously the ipo in 2007 gave them a base to pay people to make strategic acquisitions that they want. they don't have those anymore, but they do have the softbank balance sheet, which is massive. the more important thing is to be out of the public eye. with public shareholders every quarter, our sense, my sense, covering fortress for five or six years is that they never enjoyed being public.

it was difficult to explain to them every three months why there is mark to market volatility. i wonder if fortress investors want to be part of a big entity like softbank? >> they will be paid out, the shareholders. carol: but i mean private equity investors? are they going to be -- going to want to be part for being lost within a huge entity? >> one thing we do know is that they will continue to leave the firm, so the investment manager personnel to stay in place. you might think that it is the same people running your money and making investment decisions. david: you always hear that about acquisition. what about the cultures of these two organizations? most mergers fail on culture. >> you are exactly right, david.

what we do know as well about willess is that they operate independently here in new york to determine independence. to your point, carol, there may some watchion where closely how the culture changes over the next year or two and if there is pressure from upstairs at softbank to make changes to push strategically into areas where they may be forced to shift strategies and we will see how that goes. are there more coming? >> i could see that this morning , is there an exit for me here? maybe, but these other guys, 30 billion in market cap. david: they were thinking about it today. that was the value for the company right now. [laughter] up, retail execs from best buy, gap, and target, scheduled to meet with president trump this morning at the white

house. what is on the agenda? the impact of the border tax on consumer prices. this is bloomberg. ♪

♪ daybreak.""bloomberg coming up on "bloomberg markets," an exclusive interview with the goldman sachs resident and co-coo david solomon. that's at 2:15 eastern. and a quick look at the markets on this wednesday.

let's look at the dow jones industrial average hitting another record high. nasdaq, though, bouncing between gains and losses, tossing a record high in the s&p, which is down just a hair. two stocks to bring to your attention, aig is the biggest at this hour. recording its biggest loss since august of 2011. down eight percent after .arnings missed expectations . got to also mention apple. we have talked about this name a lot with good reason. hitting another record high today, $.69 per share. apple so far in 2017 is up 17%. retail numbers crushing forecasts, advancing the most in four months. with us now to talk about that, our consumer and retail, missed. when the numbers came out and we looked at them, they were

strong. >> no getting around them, those january numbers were pretty strong. the problem is, is this a hangover from the holidays? people using gift cards, shopping at sales, getting the good prices that exist. can it last? the other thing to notice is the discrepancy between the winners and the losers. you are trending up in terms of loss of areas. e-commerce, that's no supplies -- surprise. department stores, still not growing. isol: is there any -- david: there any hope for department stores, to put it bluntly? the news seems to be invariably negative. shelly: i took a look at that this morning and asked -- when was the last time it actually increased from a year ago? steadys a slow and demise. singular stories, like sears, completely going under. macy's has its hands full with

its own issues. other department stores are doing better than others. as an industry think they are still in trouble. david: are they doing better, or just less badly? shelly: which ones? some doing better than others, you said. is anyone exceed -- succeeding in this space right now? shelly: jcpenney is doing better than before. nordstrom is struggling but holding its own. nobody is heading it out of the park or anything like that. we have heard talk about keeping the malls for large urban areas where there is foot traffic and momentum. what happens? how does this play out? shelly: the footprint shrink. you have already seen macy's close plenty of stores. doing another round until we get to a point where there is an equal amount of department stores and people that want to shop there.

what's interesting is that amazon is starting to open up brick and mortar, so how do you balance that out? shelly: there have been lots of reports of talks of thousands of amazon stores, they will do that, i think, but i don't think they are going to do that for at least a few years. at least until they figure out what works and what doesn't. ceos are headed to the white house in just a few minutes to meet with president trump. take a look at that meeting. we understand that it may be an issue for the retailers. what is the president's response going to be? shelly: this will be the most interesting of his taxes. it has the most outcry against it. over 150 retailers have signed on to this make america affordable website movement, try to convince the president not to

do this. you have seen donald trump come back on some of his bigger promises. maybe this will be something that is one of those. carol: this is an issue that could impact of the pockets of consumers. absolutely. consumers are voters, after all. there are a lot of people working at retailers across the country who could really be a part of his base that might not like this. i don't think consumers quite understand what it means to have to have everything made in the u.s. and how much of their clothing is made outside the u.s. and on top of that, how cheap clothing is in america. compared to other countries, clothing prices haven't risen since the 1990's. i'm not ready to pay $50 for a t-shirt. how about you, david? [laughter] carol: thank you, shelly. coming up, bloomberg with vonnie quinn and mark barton.

onnie:: we will be -- those ceos will be meeting with the president. also, janet yellen, it might the a little bit more political today in front of the house committee, we know that that might a little more political. later on we will be looking at your interview with daniel tarullo and what it might mean for the markets going forward. david: you had me a wonderful, vonnie. [laughter] thank you very much. you can watch as well if you have a bloomberg terminal. and send usine a.p.'s whenever you want. we will do our best to respond. 's whenever you want. we will do our best to respond. carol: is that all it takes, wonderful? david: now you know. ♪

♪ i'md: this is bloomberg,

david westin. looking now at a live shot from the white house. president trump has a busy day. he will be meeting with the israeli prime minister netanyahu. before that he will be sitting down with leaders of the retail industry and have a discussion about his agenda. will be moree adjustments behind it. joining us now is our chief washington correspondent. kevin, what is the meeting about? kevin: top ceos will be joining president trump at the white house to go over their opposition to the border adjustment tax. target, gap, walgreens, those ceos will all be here this with president trump. another item on the agenda list could be cybersecurity. after their meeting at the white house, they will then head to capitol hill, where they will meet with orrin hatch, fed finance committee chairman, as well as house speaker paul ryan

and leaders of the house of representatives as republicans in congress begin to craft their tax policies. as you suggested, this meeting is important for industry's overall. adjustede border tax is critical to the tax plan overall. does the president need to bring those retailers around? to get the support that he needs? kevin: i can tell you that there is an elaborate industry push within the industry to oppose the border tax. they are targeting key party conservative members, including members of the freedom caucus. jim jordan told me that he is against the cross the border tax. at odds with paul ryan. this could potentially be the first disagreement between republicans within the republican party in congress and this white house. president trump has been closely

guarded as to where he stands on this particular issue. david: thank you very much, kevin. busy week down there at the white house. [laughter] david: carol? carol: want to take everybody back inside the number terminal. basically looking at fed funds futures and what it is predicting for the fomc meeting. the next meeting is focused on the march 15 meeting by the fed. futures right now suggesting that of -- that there is a 40% chance of an increase of rates in that meeting. , 34ng it back yesterday percent. i popped in the terminal and took it back a week ago at 24%. omentum in the markets, momentum in fed funds futures where we are seeing a greater likelihood of a move in march. janet yellen has made no secret of the fact that she wants that meeting to be live and she has to be getting that number up to carol: get it credibly live. carol:right.

-- get it credibly live. there areakers out trying not to shock the market at this point. that is exactly what janet yellen has done. reminding everybody -- hey, we can raise rates, every meeting is a live meeting. morgan stanley was talking about the next rate hike talk -- coming in september. another shot. coming up shortly, in the house. an attempt to persuade people. david: we will see what comes -- we will see what comes out of that q&a discussion. dual mandate, watching employment, feeling like we are at full employment a lot of economists are scratching their heads as to why we are not seeing wage inflation as a result. you have consumers out there, shopping. all right, everybody, 25 minutes into today's trading session, checking out the markets for you, the major equity averages.

dow jones is down 2/10 of 1%. flat right now, keep in mind we have seen a trend line in the s&p that we will be watching closely. some of thatming decline that we have seen now throughout the morning, down four and a half points, call the average unchanged. taking a look at what's going on with the euro, the yen is a little bit higher. the 10 year, watch the yield curve for any news from janet yellen. nymex crude, back above $53 per barrel. aig, the the session, biggest laggards. thanks so much for watching, everybody. have a great day. ♪

>> you're watching bloomberg markets. janet yellen moments away from delivering her semiannual monetary policy reports. this time before the house

financial services committee followed by questions from lawmakers. testsher second day of best she testified before the senate and repeated that waiting too long to tighten would the unwise. let's get a check on the markets. about 30 minutes into the trading day in the u.s.. julie hyman has a look at what's moving. julie: it looks like we are eking out gains at the moment on the three major averages. s&p bouncing between gains and losses. any gain would mean a record on a closing basis for the major averages. we will see what yellen's testimony brings and if that pushes markets around. in the s&p 500 i wanted to look at the best and worst performers. on the plus side we have procter & gamble after nelson pelt and try am took a stake in the company according to filings and according to various reports at stake could be as high as 3.