stan fischer says it is still in the land of the accommodative. pushback causes the latest secretary of state nominee from getting confirmed. more record highs as the s&p 500 completes its longest winning streak in september to test since september 2013. good morning, this is bloomberg daybreak. i am jonathan ferro alongside david westin. record highs at the close yesterday across the board. a seven day winning streak and today a slight retracement here's futures negative about 2/10 of 1% on the dow and s&p 500. if you go cross asset, you are seeing this, this thursday morning. the euro of about one third of 1%. down by about two basis points. we have had a week full of fed

speak and in the last half-hour tom keene interviewed federal reserve vice chair stanley fischer who weighed in on employment. >> we will be aiming and very likely close to 2% inflation and full employment, which somewhere around where we are now, possibly a bit lower. jonathan: joining us now is sebastien galy, deutsche bank director of ethnic strategy and from our european headquarters, speak,ek full of fed what have you learned so far that he did not know last week? >> i think what we have learned is the fed is really optimistic. the data has been ok, it is not than on fire and they recognize that. you have not preannounced

something for march and they were not go into a march meeting -- and the market since then has repriced something between 223 hikes. hikes. -- two 23 the market is pricing some uncertainty between now and the end of the year something might happen. if there is a risk aversion event of the risk is to the downside to the market is priced almost perfectly. from our perspective at least, for now the fed is in the backseat. meeting is live but the market has a very different perspective on every meeting being life. is march a live meeting? sebastian: it really is a residual risk. i think june is what people are looking at and it is almost fully priced, which makes sense. some extentre to

declining and they are behind the curve, and they are not getting penalized for it. it is moving higher with higher inflation but is not really indicating the fed is deeply behind the curve, so the fed basically has to do very little and it can wait until june. by then it will know about fiscal stimulus coming out of the u.s. administration. in terms of tax changes, unfortunately these might be delayed. difficulties dealing with congress, it might actually delay some fed typing. david: there was a day when the fed chair when up the hill and said we are on the path to hiking. when we got the inflation data, you would see the dollar strengthen. what has happened? themos: a few things. first off, you seen some moderate dollar strength on the back of slightly higher yields, but the quality of the inflation surprises have not been tremendously deep are strong or brought.

the data is accelerating but not on fire. amid all this, the dollar is pricing quite significant strength and divergence in policy. at the same time you have data outside of the u.s. which is reasonably strong, whether you look at european data, whether you are looking at chinese data, global data has been quite strong. some of that divergence has been priced out. i would say that the curve already, at least in terms of the back end is priced firmly. even if the front and increases we do not expect a huge amount of upset on the back end. david: to what extent has there been a shift? extent are developments, global and economic developments constraining the dollar at this point? themos: i would not say constraining, but if you want to have a dollar that ever

accelerates from here you have to have a divergent paths. whenever you have a very divergent path the dollar becomes a counterproductive force for the u.s. economy, so ideally you want to have reflation or when you want to have higher rates in the u.s. or elsewhere, it is an environment where basically the rest of the world a strong, the dollar is not that strong, and the fed has more room to tighten policy. jonathan: the elephant in the room is how the federal reserve will react or not react to a fiscal package later this year. chair yellen weighed in on that. take a listen. >> we do not know what fiscal plans will congress and the administration will decide on. we are not basing our judgments about current interest rates on speculation about that. the economy has been making solid progress toward achieving our objectives. jonathan: so no real clarity from chair yellen, no clarity

from vice chair stanley fischer in our interview with him. as far as you are concerned, the federal reserve and how it reacts to any potential stimulus package or action out of d.c., we could see a short-term demand boost in a longer-term supply action and i wonder how much of a dilemma that could be for the fed. themos: it is a huge dilemma for many different reasons. that is very important, chair yellen has emphasized productivity. but activity growth is what determines what we call the equilibrium real rate, or for all intents and purposes, the level of interest rates that the fed basically reaches at the end of the cycle, or neutralizes rates at. this is very important for the long-term yield curve, the 10 year rates. measureet a package that brings productivity higher, and neutral rates higher,

innings the fed will have to raise rates a lot higher and there will be more space for yields to go higher. if you do not and you create a measure that basically subtracts from that, uncertainty rises. on top of that we have the cyclical issues which you mentioned, and even those are not particularly clear. there are some components that could create price shifts and components for risky assets, that are counterproductive for all intents and purposes for the fed measures. i am not saying this is what will happen but given the fed does not know the blueprint, they will need to wait and see what the combination means in terms of cyclical forces, prices, the dollar, in terms of long-term productivity growth and so on and so forth. david: productivity growth is a key element. tom keene asked stanley fischer why productivity growth has slowed so much and i took away the answer to be, we do not know.

are they sitting on the sidelines saying we do not know? sebastien: i think the market is in the camp of i do not know. productivity has slowed down in the u.s. as well as many other companies -- countries. several sectors come under pressure but broadly speaking, productivity has been slowing down as we move toward services, and services are the less per bone -- productive component of the economy. there are factors and developments we do not understand that they suggest -- in over the long-term terms of interest rates it determines to some extent the level that the fed will have to reach. it is relatively low. not have to tighten extremely fast if they do not need it, and wage growth in the united states has been

relatively paltry, a function of low productivity. jonathan: march, yes or no? themos: no. jonathan: sebastian question mark -- sebastian? sebastien: no. jonathan: coming up later on fedmberg markets, more speak as dennis lockhart joins bloomberg at 10:30 eastern time. do not miss that conversation. duke energy out with earnings moments ago. fo cfo,ung, the sea joins us next. ♪

emma: time now for other stories

making headlines, i am emma chandra. wants to of snapchat raise $3.2 billion in its ipo. snap is offering 200 million .hares for 14 to $16 each at the high end of the range snap would have a market value of about $18.5 billion and would be the first u.s. social media company to go public since twitter three years ago. the boeing plant in south carolina has delivered a blow to workers in deciding not to join a union. it comes two days before the factory rolls out the largest of the bullying 787. the world -- boeing 787. nestle expects sales to rise 2% to 4%, which is below its long-term target. it has been hurt by deflation across europe makes it hard to raise prices. that is your bloomberg business

flash. jonathan: let's turn to an earnings story. duke energy reported fourth-quarter earnings largely in line with estimates. it is the largest regulated you just equity -- utility in the united states. joining us is the cfo, steve young. your tenure at the company goes all the way back to 1980. you have literally send it all. as you look down at d.c., is this anything new to you? is it radically different? steve: this is the first time in d.c. that we have looked at tax reform since 1986, so that aspect of things is very different. we are actively involved on the issues that are relevant to us, but it is always exciting when administrations change. jonathan: with tax reform and mind, i am wondering how specifically it would impact your business. you have invested a lot in solar over the past few years due to

tax incentives at the state and federal level. do you expect the business strategy to change? steve: regarding incentives for renewables, i'm not hearing a lot about changes to the current tracking of those tax incentives. they are set to expire over the next several years as tax incentives are typically designed to do, and i have not heard a lot about changing that. the issues in tax reform that affect us are involved, the deductibility of interest expanse and that is important to capital for businesses like our own. that is an issue we are looking at closely. jonathan: do you expect it to be easier to build power plants and headlines quest -- pipelines? steve: you certainly think about infrastructure as critical to our business and an interest -- an emphasis on it infrastructure bill would be favorable in our view.

hopefully some of the regulatory processes will be expedited. we will continue to work with stakeholders on all assets we build. david: you are in a particularly heavily regulated environment. are you a fan of regulation or a foe? steve: we work with regulation for decades, my entire career. i started out and we were building nuclear plants under regulation and now we are building wind and solar farms. we have dealt with regulation very well throughout our state and at the federal level. we think that is a core competency for us. we work very well with commissioners and customers to get the right mix of infrastructure and assets to develop our business favorably. david: a lot of your regulations are state and local but at the , are thereel

regulations you are urging the administration to look at and change? steve: certainly, we are interested in the ability to get projects approved at the federal level. , are there regulationswe have investments c coast pipeline, a very important pipeline coming through the carolinas and virginia area. we have ownership interest in the constitution pipeline moving through new york state. we think these projects make some much sense for bringing low-cost energy to customers. we would like to see those regulatory processes expedited and moved favorably. that is a critical area for us. jonathan: you have trimmed for an assets and boosted your domestic position. your m&a strategy seems to me, it has been around zero electricity utility growth in the united states and to get that growth you have got to buy it. i am wondering whether that changes in the next four to eight years. we are very pleased, in

2016 we divested of our international business, moved out of a merchant generation business in 2015. we developed a gas portfolio business with the acquisition of piedmont natural gas. that has been our strategy, a portfolio transition. we have got a lot of organic growth in these existing businesses that we have, a tremendous amount of investment coming in the grid, and in the de-onization -- carbonization. jonathan: is the buying spree over? steve: i think as we said, we have the businesses we want and we are going to develop them organically. we will keep our eye on the markets for assets as we have done in the past. we will be opportunistic and frugal with our cost of capital,

but great opportunities out there as we rebuild the grid of the united states and de -carbonized. president trump and his administration are planning to tackle tax reform. what can we expect? we will speak with mitch daniels. this is bloomberg. ♪

david: this is bloomberg, i am david westin. as business waits for the trump to move forward on their agenda, much of washington watches elsewhere, including the turmoil in the new administration. joining us is kevin cirilli, welcome to the program. it is hard to know where to start. we have withdrawn a labor secretary nominee and replaced

the national security administrator. kevin: i think they are trying to reset the narrative. president trump will head to florida for his first presidential rally since the inauguration so clearly he is trying to rally his support, rally the base, and turn the page. there is no question that with flynn out and questions on capitol hill, this has been quite a difficult, rocky start for this new administration. david: we started out thinking this is going to be great for the president because he has republicans in both houses on the hill. what is the hill saying to the white house? kevin: they need to get back control of the narrative. president trump will meet with key leaders of congress to try to craft out a legislative policy agenda. hearings began this week on how to repeal or replace parts of the affordable care act.

i am hearing next week the border adjustment tax issue will continue to flare up. republicans are divided on that as well as a key part of tax reform. and deregulatory policies on dodd-frank, republicans are trying to carve out enough ways to get democrats on board so they can move forward with that in the senate. executive actions expected tomorrow on the import export bank. a lot of moving parts, and that noise surrounding, really concerning it could impact his legislative agenda. david: staying on president trump and his affects of border getadjustment, we want to your perspective. we were talking of whether the markets were just a little indecisive because they do not know what to make out of washington. is what we see in washington playing out? professional

investors have been quite nervous in january but the market is led by retail investors. people that are quite confident about the u.s. administration as a whole that has been pushing equity markets higher. professional investors are a little bit more wiry about the speed to -- wary about the speed to execute. i think there are some significant concerns but it is not being reflected in prices. prices tell us everything is absolutely fine. david: do you agree with that, and if he is right, how fickle are those retail investors? themos: i would slightly disagree. since the u.s. election you have seen a huge spike in long-term interest rates. you have seen a big rally and the dollar and a significant rally in the s&p. of course, this does not concern the last few weeks or months,

dare i say, but generally speaking the market has moved into a different attitude since the u.s. election, expecting policy will create a cyclical, at least cyclical if not long-term boost to growth and inflation, a stronger dollar, and a profitable environment for equities. in the mind of investors there are three separate issues. fiscal policy on growth, short-term and long-term. the impact of border adjustment and other kinds of such measures on the dollar, and last but not least, taxation on the level of the s&p and winners and losers among stocks depending on market capitalization and sector. jonathan: i keep hearing it, uncertainty, risk. er and flynn.dz why should wall street care about those kind of things

happening? why should investors pay attention? sebastien: largely i think they do not but the promise seems to be able to execute and coordinate with congress. congress will deliver the better weibo. bill.ter way if they cannot act together with means theret, it might be delays on what they can actually deliver, and the package might not be as reflective as what the president wants. it might end up seeing what we want. jonathan: if you are trading on headlines, as far as d.c. is concerned what is the headline that wall street would say, that matters to me? sebastien: we are trying not -- themos: we are trying not to trade headlines as i think that has been a losing proposition for a number of investors. i think if you drill deep down into the fundamentals of the current market pricing, for this to extend come up for risk to continue you need to see a very

big fiscal package. you want to see the size of the package and the composition. second, you need to figure out to what extent, which countries and sectors will be affected, if any, by border taxes. thed, obviously what is different tax treatment of different companies so they can figure out things like how high yield credit rates and investment grade rates. jonathan: that wraps up the segment. coming up, more central-bank watches. is more tapering ahead? the ecb publishes its account of the january policy meeting. this is bloomberg. ♪

[ alarm clock beeping ] weather. ♪ [ laughter ] cartoons. wait for it. [ cat screech ] [ laughter ] ♪ [ screaming ] [ laughter ] make everyday awesome with the power of xfinity x1... hi grandma! and the fastest internet. [ girl screaming ] [ laughter ] jonathan: from new york city for our viewers worldwide, this is bloomberg. i am jonathan ferro. this is how things are set up. negative,e marginally down about 1/10 or 2/10 of 1% on

the s&p 500 and the dow. seven straight days of gains on the s&p. five record closes as well. for the equity market, here is your situation cross asset. 4/10 of 1% up against the dollar as the ecb's latest accounts of its monetary policy meeting dropped across the bloomberg. the ecb has just published its account of the january 18 and 19th policy meeting. they say second round wage effects may materialize slowly and the underlying inflation lacks convincing upward trend. the ecb widely agreed to maintain very substantial stimulus. according to ecb accounts, scathing back stimulus could jeopardize recession progress. sebastien galy of deutsche bank still with us, and in london,

themos fiotakis. this just coming out, this stimulus-- that back could jeopardize recession progress. from our perspective i think the ecb has to figure out a few things and it is not an easy situation. they will have inflation go up in the next two months, but as the base effects subside it will come back down to a level of inflation which is still better than it was last year but still well below their target. second, their growth numbers are quite surprising and quite positive. that is something they need to take into account at the very least in terms of debate during the doves and hawks. the third thing, you obviously have a lot of political risk so

every time there is any worry about scaling back to we, -- qe, they are trading more nervously. i think on balance, they are maintaining their dovish stance but the market is so devilishly priced that the market is dovishly priced that the market is looking for things to change. , yields: french bonds lower. italian yields down by eight points. the story is not fundamentals. the inflation story, underlying inflation lacks a convincing upward trend. here is the line points. -- scaling back the stimulus could jeopardize inflation progress. how widely held do you think that view is on the ecb? sebastien: you are interested in germany and italy, and there is a two speed europe.

we talk about european inflation and in reality there are two elements, mostly to the north and mostly to the south. inflation remains low because of low productivity and poor balance sheets, and difficulty in terms of restructuring. that process is a long-term one to the question is whether the germans and some of their allies are able to be patient with the slow pace of reforms of these economies going forward, and the answer broadly is yes. because economic growth has been doing better there has been speculation of tapering of qe and that has put pressure on europe, especially the french bonds. that you this idea scale back purchases anytime soon it could jeopardize the inflation progress that has been made. there was another line that said -- it was some round between trade-off a relative deviations

between the p across jurisdictions and limiting respective purchases below the deposit rate. ecb, limitedthe deviations were possible and inevitable. how do you read that? themos: they have a very significant challenge the way they are executing qe. if they want to maintain it and proceed with it, they cannot just keep buying the same balance of core bonds and the periphery, because you are running into, given their rules it is not a scarcity problem, particularly with respect to german bonds. there is a number of ways you can bypass it. one of those ways was to buy more short-term loans. we have seen the first account of what the ecb has been buying and they have not been too aggressive. another thing which has been considered more difficult to lyrically but had more signaling

politicallying -- but had more signaling power is they're taking that line and trading on the back of it. jonathan: we have seen peripheral spreads come in. yields coming in 7, 8 basis points. right now, they give very much. -- thank you very much. david: we have not had a fundamental tax reform in this country in a generation, and businesses and markets are eager for the trump administration to get started with it. joining us someone who knows what is involved. ofserved on the office budget management under george w. bush and now is at purdue university. he comes to us from west lafayette, good morning. all the talk is about tax

reform, particularly in the business community. you have been in washington and though how it works. how difficult is it to get this through this congress? steve: it appears all must anything in this area is going to be difficult but it is very important. inry american has a stake much faster economic growth and we have had, and tax reform could be possibly the single biggest propellant of that growth. i am optimistic about this, having seen it happen before. there is really very little disagreement across the economic philosophical spectrum, that lower rates and lower, flatter taxes are positive for growth, fairer, and more neutral across investment sectors. we have seen it and the 1980's and the early 2000s. republicans and democrats were able to come together. whether they are able to come together now about anything, i

do not know, but it would be in the common good of us all, particularly the young people that i happy to live among, if they got it done. hear about lower tax rates and simpler taxes, people can rally around it but at the same time you have to pay for it. you were cochair of a committee that has priced out what president trump says he might do a $5.8 trillion over five years. how will we pay for this? mitch: some of the plans being advanced reduce what is called revenue neutrality. that is where the border adjustment and so forth could come into play. i think that is important. me just say, as someone who does believe the single biggest transcendent issue we face, and economic issues and a moral issue, is the debt we are about to deposit on the young people on this campus in their counterparts elsewhere. that said, the first step toward some, getting some grip on our

fiscal difficulty is faster economic growth. we will never get there limping along the way we have the last decade. i do not object, and in fact would support a whole host of policies progrowth that are in the common interest of every single american. they need to be as revenue neutral as possible and followed up by substantial reforms on the spending side where the real problem is. david: when we talk about how we will pay for these tax cuts, the subject comes up right away with the house ways and means committee, the border adjustment tax which would raise something like $1.1 trillion. have you looked at how that would affect the people of indiana? mitch: i have looked as an attentive citizen. i will defer to your excellent cattle on the equity sees -- intricacies of it -- excellent panel on the ink was -- on the

intricacies of it. all of our partners have this or something like it. it clearly would make america much more attractive to investment from within and without. looks to me like a very good long-term growth policy. i understand, always in tax reform there is a fight between the defenders of micro advantage and those who want to see a macro economic benefit. there are those who are fearful about the short-term effects and do not really credit the long-term possibilities that are there. as far as these retailers, i understand they like selling cheaper bluejeans, but maybe more bluejeans buyers in the long run is in their interest and in the common interest. i think from everything i have been able to take in come of the border adjustment idea has a lot going for it. it clearly would be positive in terms of job producing investments here in the midwest,

and probably everywhere. david: everything you try to accomplish and government has some cost, and when you are in indiana as a fiscal conservative , you have brought some conservatism to the state, you had to sacrifice. you cut back on some of the spending on higher education. you privatized a major highway. what as a country are the big give ups we should make? mitch: we will never get anywhere unless we face up to the unsustainable autopilot programs of social security, medicare, medicaid, government pensions, and so forth. the burden will land on the next generation and the ones beyond that. as i said before, that is not fiscal and economic policy to have debts as massive as the u.s. has run up. it will be a burden on future growth. there is a moral dimension to it. it is just not right to borrow

money, spend it on today, spend it on ourselves, and then hand the bill to those who were not around when we make those decisions. that is where it has to start. again, i do not object to congress, administration working on growth first. that is the first step, but right behind it i hope there will be a rethinking. any election last year the president said he would not touch these programs. the democratic position was much the same. that is just not acceptable and i hope it will be rethought. david: on the question of the moral dimension and what is not right, one of the first things the new president did was issued an executive order abandoning emigration from several countries. you spoke out on the other side of that. how much of that is personal to you? mitch: i think i was speaking for the community that i am part of now.

purdue university, among many wonderful attributes, is one of the most international campuses in the country and we are proud of that. i get to spend part of everyday with fabulous young people who have come here from elsewhere, so i was worried about their interest and their futures. said washat, what i said by eventually countless other people, this policy had not been well thought through and was not well implemented. the administration seems to have acknowledged that, finally. david: many thanks to mitch daniels, purdue university president and former director of the omb. oning up, steve rattner whether president trump can regain the narrative in washington -- regain control of the narrative in washington. ♪

emma: this is bloomberg daybreak. this is the hewlett-packard enterprise greenroom. coming up, an interview with atlanta fed president dennis lockhart at 10:30 eastern time. time now for other stories making headlines at this hour. i am emma chandra with your bloomberg business flash. a judge in delaware has temporarily prevented cigna from scrapping a deal with anthem. they said they could not pull out of the deal. and some is trying to keep the deal a live. in china, demand for the hybrid electric prius has dried up. only one was sold in december and that was the first -- last since may.

it has been undercut by their more popular models, the corolla and camry. i am emma chandra. this is bloomberg. search forn the yields, investors betting big on corporate debt, spreading it to the narrowest. looking at certain things is jim keenan and still with us sebastian galley of deutsche bank. thespread viewed by many insurance policy, there just is not much insurance right now. what is your take away? jim: the insurance policy is insuring against the probability of default. when you look at what is going on over the last 18 months, where we were in the first quarter with 2016 with commodities down and expectations of a potential recession. we have come a long way and spreads reflect that, but if you

really look at the next six months of this year, the backdrop for credit is still pretty positive. you do not just see that priced in spreads and credit but in equity as well. you are seeing that tailwind that started mid last year of economic activity coming back up. obviously the pro-reflation, progrowth policies that are expectations of this fiscal policy is something that is giving some tailwind to the economy, and certainly sentiment at the household level as well as the corporate side. jonathan: break the spread for me, because most of that will be the backup in treasury yields. on a historical basis, what do you conclude currently? high-yield is the about 450 over. when you look at historical time periods whereinto economic activity is strong, positive earnings growth, the

possibility of default is pretty low. high-yield relative to investment grade, the duration of the debt tends to be around three to four years. right now you are seeing expectations of a lot of positive activity in the probability of default for high-yield is pretty low. you have seen times when you are obviously not going to get the returns you saw in 2016, but when you look at it relative you have a lot less interest rate sensitivity. your probability of default is pretty low so we would expect mid single-digit type returns. if the yield curve and rates are backing up, that will be a good fiscal income result. jonathan: is this all about the coupon for you at the moment? jim: i think this will be all about the coupon and dispersion. i think when you go sector by sector, there is going to be very different outcomes relative to what is going on in the

economy. certainly when you look at the idiosyncratic risk. our expectation is that the yield curve will back up a bit and that being said, you have seen some spread fighting. i think there will be a lot more volatility, some dispersion, but generally coupon type returns. ,avid: they call it high-yield there is more risk associated with it. is a recession being priced in? if we have one, all bets are off. jim: the most simple time to sell high yield is when you think you are going into a recession. right now we talked about the tailwind in the economy and commodity recovery, which is a big impact for the corporate sector and high-yield market. as you get into the back half of this year into next year, the probability of those policies, the size and scale and timing of

fiscal stimulus tax reform, and the like are going to be very important i think over the next 24 months, on a continuation of this economic activity. in the next six months, what you are seeing is a continued fromup from the bounceback the recession, earnings recession you saw in 2015. when you look at sentiment numbers, it is incredibly strong so some pent-up demand on construction and on the investment side, i think it will drive the tailwind of the economy. david: thank you very much for being with us today. if you have a bloomberg terminal and you want to check out tv , you can watch is online, click on our charts and graphics , and interact with us directly. this is bloomberg. ♪

david: this is bloomberg, i'm

david westin. janet yellen just wrapped up two days of testimony in the senate and stanley fischer joined tom keene on bloomberg this morning. tom asked if the complicated economy was getting more complicated because of inflation. >> it was very complicated when the inflation rate was negative and very low. inflationtarget of 2% , and we are heading in that direction. so it is not making life more complicated at the moment. very high inflation, which of course we will do what we have to, to prevent, could complicate the situation. but we are not there. define highyou inflation? dennis jock heart -- dennis lockhart will join us later, atlanta fed numbers sticking to inflation, the cleveland

inflation. what is the number, the statistic that begins to suggest high inflation? stanley: our target is to percent. obviously you do not hit it exactly but you hope to be close to 2%. we are as worried about being below as above, and it is something which is, if you are very close to 2%, it is not a problem. it is significantly above, you begin to worry and you begin to act. tom: part of our relationship over the years at davos and other important meetings has been, i really do not talk to you about the parlay game that i unfortunately have to -- parlor game but i unfortunately have to. i believe there is a march meeting and we have seen goldman sachs change their probabilities of what the fed will do. not specifically what will you do, what does this inflation dynamic change the cadence of

two or three rate increases through the rest of the year? : i do not want to give you numbers on two or three, but this is consistent with what we have, should be happening around now. that is that we be moving closer to the 2% inflation rate and that the labor market would continue to strengthen. if those two things happen, we will be on the path that we more or less expected. that was jonathan: -- jonathan: that was stanley fischer speaking with tom keene. sebastien galy of deutsche bank is still with us. at the beginning of 2017 a lot of people said the fed is not the game anymore, it is in dcn politics. is that a lot -- it is in d.c. and politics. they just have not

seen any policy and we are not closer to june. the fed is waiting for the same thing that we are, the fiscal package. jonathan: should they stay away from that? sebastien: they can afford it. they have a bit of an inflation issue and it is very easy to tighten monetary policy and reduce the problem. being late in the game is not penalized much but it could be brutal on the back end and the dollar but is not a huge penalty. the penalty is going to bang early. -- two early. jonathan: coming up, steve rattner. this is bloomberg. ♪

jon: as chair yellen gears up the fed for more rate hikes, the vice chair says the fed is still

in the land of the accommodative republican pushback. it prevents the labor secretary nominee from getting a nomination. not matchtainty does wall street in tizzy as him. the s&p 500highs as completes its longest winning streak since 2013. i amr viewers worldwide, jonathan ferro with david westin and alix steel is away today. a seven-day winning streak on the s&p 500 and five straight record closures this morning. down 2/10 of 1% looking at futures on the s&p and on the dow. treasuries have been big. all morning, we stay there with yields lower by two basis points on the u.s. 10 year. the euro-dollar and dollar-yen, both getting softer with the dollar session if those crosses are anything to go by. david: seems like every day could bring a whole new set of issues out of washington.

we are going to bring in kevin cirilli to bring us up to speed. we've had a lot of elements in last 24 hours. not all of them good for the white house. how they reacting? >> later today congressional leaders from capitol hill will go over to the white house for the second listening session with president trump regarding his congressional agenda. what we have noticed recently is that congressional leaders including mitch mcconnell as well as paul ryan have been somewhat critical, not perhaps openly critical but if you read lines,e desk between the medical of president trump and his policies. earlier this week, mcconnell trump is notsident above judicial review and of course all of this is coming on the backdrop of reports trump it above judicialaccusations lobbee at ministration and its previous campaign iteration for their dealings with russia. david: let's go to russia.

we now have senator corker saying he wants witnesses called on capitol hill by the end of the month. at the same time you have a republican congress supposedly working with the president, but you have a republican congress investigating people around the president. >> talk about checks and balances. what you are seeing now is the leverage people like leader mcconnell have against this whiteinvestigating people aroune president. house, particularly when it comes to crossing that legislative agenda. we could see, by the end of the month, that people like general flynn, people like all men , could-- paul manafort be called to testify. people like roger stone could be called to testify about their accusations against people for their communications with russia and those affiliated with russia. david: there are relations with russia going on. we are going to play back from

germany, we have the foreign ministers from the g-20 countries, rex tillerson will be meeting with his counterpart from russia. how is russia reacting to all of this? >> may have remained below the -- consistently rolling their eyes and shoulders every time a new report has emerged. there is no question that there are many folks in the business community including secretary tillerson's armor employer, exxon mobil, that would like to see some of the sanctions from the obama administration waned down regarding the sanctions against russia. that said, the climate is way too toxic for anyone to do that. what is interesting about secretary tillerson is after this trip, he will later go to mexico, so he has emerged and he is already underway in taking these meetings that are quite drawing a lot of attention. david: there was something about

fans and fires in their. we will be checking back in with you. now with us is steve rattner, chairman of michael bloomberg's first note -- personal assets. he has moved back and forth between wall street, bridging the gap between markets and public policy. you are a veteran not just a wall street but also of washington. you must some perspective on this, what is developing right now with the white house. thisis a big deal or is people inside the beltway making a big deal out of this? >> by any definition it is a big deal. you have these potential contact with the russians, nominees withdrawing because of bizarre personal problems, by all accounts chaos in the white house, the most inexperienced staff i have seen in 40 years, i don't know how it ends but right now this is a big deal. david: goalie back to the early days of the clinton

ministration. if we were saying there was a lot of chaos in the white house, with don't ask don't tell, they got mired in that. should we take a breath and see how this plays out? >> absolutely. this could play out any number of ways and i will not rule out them getting their act together and moving the ship forward but i do think there are important differences between this and the clinton administration. clinton made some personal mistakes and had to make some changes in the organization, but most of the people had significant government experience and white house experience. we have the opposite here. didn't have allegations of criminal behavior and of contacts with the russians and all kinds of things that are really out of spy novels and not the real world. i think this is a bit of a different order of magnitude. jon: should it be a big deal for investors? >> this is one of the oddities.

you have this disconnect between wall street and washington. you've got washington in complete disarray and they are scared and worried and depressed and all of these things and the stock market, as you said, is hitting record highs every day. should the market be more concerned? you could call wall street a tail risk. there is some secret deal with the russians in the trunk campaign and something like that. is rest of the market focused on strong economies and strong profits and the possibilities of policies they will like. jon: if you take an issue like withdrawing the president's nominee for labels to -- labor secretary, do you see this as republican pushback or does that lead into more market critical things like tax reform? >> i see it as very significant puzder but there is a significant risk to his policy agenda because of this chaos. when you have internal issues of one sort or another it makes it

much more difficult to get your policy through. he doesn't have the people to rewrite these regulations and secondly, there is significant disagreement within the republican party on many of these policies. when you layer on top of that all the distractions from this other stuff, i think it has a distinct possibility of slowing down his policy agenda in a meaningful way. david: you had a jampacked agenda. it wasn't clear what one first. is obamacare going first? who is the quarterback? is the president the quarterback? david: there is no quarterback. the president said casually he expected to release a tax plan in two weeks. said "we people thought we were releasing a tax plan." ,ou have distinct structures centers of gravity within the executive branch, so the answer is i don't know and i don't

think anybody knows what is going to happen first, what is going to be. david: coming back as an investor, as you look at these things, do you say, let me put my pencil down and wait until i find out what happens? do you try to a dissipate the tail risk? >> we did take some money out of the markets before the election. it turned out to be early. it just shows you how hard it is. we are a bit more in cash than we normally would be. we are not traders. we are investors. i don't know how to play the trump train so we tried to get off of investing and hope that it works out. jon: it is a nice headline for the media. more be accurate if the republicans had a congress rally and is that a better way of looking at things? will a republican held congress

want to get through? what will the white house want to get done as soon as possible? >> you do have competing tax plans but i think if you take the house tax plan and the border adjusted tax, i would take the under on that that. bet. that and potentially from the white house, while i think paul ryan is probably the most important guy in driving the legislative agenda because he is focused and knows what he wants to do and is the speaker of the house, he is not completely in charge of this situation. jon: we started by talking about detail risk, the potential for criminal acts in the white house. what is the basis for you? >> that they get their act together in some form or fashion, stagger along and they do get some legislation passed along the lines of what we are talking about. something on tax reform on the corporate side although there is a lot of issues there. obamacare is harder because

nobody has a plan that would replace it and still keep those 20 million people insured. back a wholeroll bunch of regulations and do a lot of that administratively. dodd-frank changes are very hard because that is going to be a tough one, but i do think that some stuff gets done. david: on the tax issue, if you take the border adjustment tax and talk to republicans, they say they cannot go forward without the $1.1 trillion per 10 years. if you take that adjustment task, does it all collapse? >> there is a real possibility of that. there is yet a third piece which is that they haven't addressed the problem. if you lower the corporate tax rate and you don't lower the individual rate for the same level, you have disadvantaged all the so-called small business owners and hedge fund guys who got their income through that and they haven't solved that

problem. probably hope they get something done but unless they figure out how to make these numbers work it is going to become located. jon: thanks for sticking with us. he will be staying with us. bank of america, merrill lynch, the u.s. rates will be waiting in and here's a flashpoint. check out the yield on spanish that. -- spanish debt. ecb, a little the bit earlier from the earlier meeting just last month. here's the line that jumps out. accounts showg limited and temporary deviations from the g were "possible and inevitable." up buying more bonds from countries like spain and italy on the periphery. basish bonds by five points, 1.63 on the spanish 10 year. this is bloomberg.

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>> time now for other stories making headlines. i am emma chandra with your bloomberg business flash. the maker of snapchat wants to bring as much as $3.2 billion in its ipo. snape is offering 200 million shares of 14-16 dollars per piece. ofp what have a market value $18.5 billion. it would be the first social media public company since twitter. employees at the boeing plant in south carolina have delivered a blow to organize labor.

they voted not to join a union. a big surprise in collective bargaining and it comes to days before the factory rolls out the largest version of the boeing 787. the chairman and ceo of activision blizzard has shares valued at $40 million. that comes after activision shares listed to a record. sold stocksan kelly for more than $700 million. that is your bloomberg business flash. i am emma chandra. jon: earlier this morning, said vice chairman stanley fischer joined bloomberg surveillance, speaking to tom keene on reactions to the president in washington, d.c. >> we really do not take political decisions. we take into account what is happening in the economy, where people think about and what might happen to policy but we

are not going to make our whations on the basis of pressures we are getting politically. jon: joining us now to discuss this is bank of america merrill lynch head of u.s. short rate strategies. still with us, steve rattner. mark, let's begin with you. on the program this morning, over the last week, what have you learned? >> we have learned that the fed is more optimistic on the outlook. they are pleased with some of the progress they have seen on the employment side and more recently on the inflation side. we think that is giving the fed confidence to believe it will be able to hike later this year. it seems like the fed wanted a little bit of optimality for march. the data flow continues to be strong. more than anything, they wanted to reiterate that they think it could be appropriate to raise rates later this year. jon: i could have told you that last week before she went in

front of congress so i want to understand what we got out of this week. the other thing in the room is the fiscal stimulus package. what are the questions left on the table that you want answered? >> any clarity on the fiscal stimulus side would be greatly appreciated. also, for the fed. i think some have factored in fiscal stimulus to the forecast but they are waiting for additional clarity. that is what michael would like to see as well. the fed talked about how uncertainty is high. you see that, but we are not seeing that play out in things markets vix, equity continue to be near all-time highs. the markets are confident things will get done. we will want to see what that is the for the market will take another leg higher. i do think we will start to see some kind of movement on fiscal stimulus in the near term and that should give the markets more confidence on the trump trade's. david: you say you are an

investor. but as an investor, as you look at something like janet yellen's testimony there is always one data point on the stream. what does it tell you that the u.s. economy is getting more broad. >> as you just heard, the u.s. economy is stronger. we have these data points along the way. getting stronger has been doing a little bit stronger than it has been. europe will be revised having their gdp number growing faster and it is growing stronger. thehe economies of developed world seem to be doing just a little bit better. on the other side, you've got to factor in the question of the fiscal package. there, i think it is possible for reasons we talked about that the market may be had of itself -- maybe ahead of itself. substantially, they are a fiscally deficit oriented package.

david: when you are trying to decide the degree of risk you want to take on, those two things cancel out so where you end up? >> they cancel out and so, i think we are investors and we stay mostly invested. we take a little bit off the table. but for the most part we are pretty constructive. the biggest issue is that the stock market is quite pricey and it has priced in not just at fiscal stimulus but in the corporate tax cut and the regulations and a lot of stuff that might not happen. jon: trading 20 times further it is high valuations in the credit market as well. we had a guest on earlier, looking at the high yield spread over treasury. as you look at things like market price, we wanted it to spread between where the fed sees things going this year and when a market sees things going this year. >> the fed has been a little bit more optimistic over recent years, including in projections for this year.

they think they will buy three times, the market think they will go twice and that is also true for next year as well. they are a bit more optimistic on the outlook but that is not really a typical from what we have seen in recent years. , the markethan not has been right so we think that will likely continue. the upside risk is if the data flow comes in more positive. we think the fed is biased to tighten policy further. to have a balance sheet run down, i think the market would really like to see the best forecast materialized and that may be reliant on progress on the fiscal and tax front that we have seen out of washington. jon: great to have you with us on the program. mark from bank of america, steve rattner is sticking with us. the federal reserve withdrawal. coming up the atlanta fed president dennis lockhart at 10:30 a.m. eastern time on bloomberg television. from new york, this is

bloomberg. ♪

jon: from new york city, for viewers worldwide, this is bloomberg. to europe, the ecb just published its january meeting, showing quality is needed in order not to desperate -- to jeopardize progress on inflation. european shares are largely lower, the largest round since july 2015. the european central bank may be able to buy more bonds on the periphery. yields lower by six basis points on the spanish 10 year, by five over in italy. still with us is steve rattner. what struck me is you have these ecb meetings, it is a focus on the fundamentals, as they should be. but what is in there with regard to politics? monetary policies over there are about politics this year.

should they be worried? >> i would put this in the risk category. it is well less than a 50-50 probability. it would be quite small to us and probably the number one on the minds of the germans, where i spent some of my time would be the actions. the probability by the polls of marine le pen winning are not great but if that were to happen it would be devastating. you've got the german elections, you've got all sorts of other stuff happening. jon: at the moment, germany, the united states, the brexit negotiations with begin later this year, their own elections is well, you get back in berlin brexit, france, the united states? >> i could say all of the above but i would have to put the united it's on the top of the list because you have -- trump has walked back and forth on some stuff but he has made comments towards merkel which are openly hostile.

he has made comments towards nato that were at times somewhat hostile. he has made comments about brexit that were incredibly supportive and all of that is the opposite of what the germans would like to hear him saying. that is probably the single biggest concern. david: there is a bear east of them. >> i left that off the list. david: when you look at europe as an investment possibility, you have these risks. you have four or five or six of them added up and that starts to look more troubling. where is the upside potential? where is the growth potential? >> we have been underway in europe and that has been one of our better decisions. we have been debating whether we should reverse that and the upside would be that the european stock markets trade at three points below hours. the numbers are quite depressed. you can get any kind of upturn in the economy and they should have significant earnings. that is the bull case for europe but you have these cases on the

other side, not to mention the fact that the europeans consistently disappoint expectations when it comes to economic performance. jon: steve rattner, great to have you with us on the program. coming up in the united states, it is a massive data dump. u.s. jobless claims and housing starts. and a whole lot more as well. more on the reaction from steve prosciutto. he is joining us next. with markets set up like this this morning, futures are negative and stocks are closing yesterday an all-time high for the fifth straight session. from new york, all over the markets, you are watching bloomberg tv. ♪

jon: from new york city, to our viewers worldwide, i'm jonathan ferro. this is bloomberg daybreak. a big data dump in the united dates. futures a little bit softer this morning, negative six on the s&p 500, -44 points on the dow.

some of that enthusiasm this morning's session coming out of the market. treasuries, very well bid for the session. the 47 year yield on the u.s. 10 year, a dollar is on offer. a downside price for housing stocks. that is where we begin coming in a -.6%. a slight downside surprise on housing stocks. building permits much -- month on month, the median estimate was 0.2% and an initial jobless claims, grinding lower. a downside surprise which is what we have seen as positive coming in at 239. bloomberg serving 245,000. for the labor market, looking tight. the housing situation, the new one, let's bring in our chief economist and trade partner of highland capital management and head of credit. let's go with jobless claims.

as thebor market, as far head numbers are concerned, has anything changed? >> we expect where we are in this business to see these kinds of claims. people say claims are abnormally low but the reality is the correlation has broken down somewhat so these numbers are consistent with the labor market we have been seeing. 175 or 180,000 per month. 43.3, the median estimate at 18. what does that screen to you? >> the problem is the expectation of cents. 43.3, the medianthis is all dro numbers which everyone is assuming that trump is going to be able to fix the world's problems. i'm not sure trump is going to be able to fix the world problems and these numbers will come down in time. we will be dramatically lower. david: what is an investor to do? if you don't look at the numbers, you are looking backwards.

so what do you do as an investor? >> be careful in terms of what expectations you set in underwriting deals and underwriting credits going forward. i think a lot of the positivity has been priced in the s&p markets and the credit as well. >> steve referred to the business like a where we were on. the question is whether from can extend it. >> certainly you have seen the animal spirits pick up in the markets. that has extended a lot of people optimism. it will be important to see the number of people pull through. we have seen substantial earnings growth in the fourth quarter and it will be easy in the first quarter but from a tax perspective, it is going to take longer to come to fruition. jon: look at these numbers. you've got to ask, when do we get the passage -- package from bc? , the uptick in activity

hard data regardless of what we did from d.c. >> we move up from last year to 2.3%. that is about as far as that is going on to get you. then you have to keep you on that trajectory. a lot of analysts said we were down 2% so moving up to 2.3% if you some cushion where you could lose the momentum. i believe that the regulation aspects, dodd-frank, will get us closer to 2.5% but unless we get housing taking in, i don't see how you get the three plus percent of the trump administration has a lot of the equity goals going forward. jon: i take your point. as you look at the situation, the story is an optimistic one. let's talk about the credit right now. it looks incredible he offensive. david: certainly, the broader askets have seen a huge bid,

people looked for an inflation edge in some places to mitigate the risks of rising interest rates. i think there are sectors that are underperforming and beleaguered, relative to the rest of the market and i think you have to be careful looking at those opportunities but look at sectors where there are still opportunities like retail, certainly an industry that is going through shifts but there are going to be winners and losers based on what the consumer is doing. obviously, where we are in the job cycle, in terms of full employment and wage growth, there is a potential bid for consumers to improve. david: when you talk about the growth numbers, 2.3% or 2.5%, shouldn't we just get used to it? that this is the new normal? you have to get productivity really growing again and no one seems to have a plan. >> you have to have investments to follow that and that is the real concern. there is a lot of optimism around the improving demand environment but a lot of companies will put capital behind that.

they have enhanced capacity to enhance productivity and a tie the growth. david: they can see in the top line. >> but when you look at the national income shared on the whenr starting to a road, you look at it reaching the peak and global supply and pricing power, with those numbers up yesterday, they are not affordable on rental and energy. you go through the numbers and you don't see an upside. with that lack of power, what is the logic to invest in new equipment? so that gets pulled back. we have reached the capital on automobiles, so what we got left is housing and that is where the rubber has to meet the road. watching housing data, i think that is more important to going forward. >> do you have any sympathy for the federal reserve? >> i think they have put themselves in a bad position. it is hard to extricate themselves from it. they are taking some appropriate

steps in terms of moving very slowly. comfort, lesss sympathy for somebody to put themselves in a bad situation. jon: that that situation, kevin walsh, a name we hear a lot about these days, the former fed governor, in an op-ed in the wall street journal last month talked about the data dependence of the federal reserve guys and refers to them as daytraders. do you think that is true? >> i think at the end of the day janet yellen is watching the tightness of the labor markets. they are worried about getting behind the curve so we think some of the data that has recently come out of cpi and some of the job owning we have seen is begging for a rate rise before the middle of the year. david: that is the big question. tople in congress would like help the federal reserve get out of that jam by essentially

having rules so it is not data dependent, so they can't jump back and forth. what would that mean. what would that mean to the economy in a long-term? >> i am more of a fan of discretion rather than rules-based monetary policy because anytime you have a rule, the system finds a way around the rule. but for me it is better to go around discretion. the big mistake is trying to solve this through interest rates and their portfolio. instead of looking at the regulatory approach that they have. from has proven how well the bully pulpit can be. , it is timereserve they bring those tools back to allow them to be more flexible. they boxed themselves in on what little they can actually do. david: that is your approach. do you take encouragement from these echo border from the white house saying we are going to take a hard look at these regulations? it might take some assistance from the white house to get those out.

>> i don't think you have to change the regulations. all you have to do is change the interpretation of some of these regulations. we have put very onerous restrictions on a lot of these financial institutions and if you look at all -- at the deposit ratios, it is actually abysmal. everyone is so paranoid about leverage but leverage is the grease that makes the wheels spin. without that greece, the wheels eventually heat up. jon: as far as the reference goes, a bloomberg client said no kick traders. i think it is margaretha than that. the situation with the loan market, the president and the white house truly believe they need to take the regulations and strip it back because these are small businesses. is it a demand problem or a supply problem? >> i think that the regulation or the water down regulation of going to of banks is

improve transmission through the banking system and the small business optimism and the five standard deviation high, compared to seeking new credit and news growth, that is exciting for the economy. will actuallys make those investments and will they see that regulation? david: there are many thanks. now coming up, later in the program, we speak with cofounder paul hickey to speak about what history says about the current bull market. his is bloomberg. ♪

>> this is bloomberg daybreak. this is the hewlett-packard enterprise green room. coming up on bloomberg markets and interview with fed president dennis lockhart -- dennis

lockhart. that is a 10:30 p.m. eastern time. time now for other stories making headlines at this hour. i am emma chandra with your business flash. the biggest u.s. banks would cash in if president trump comes through on his promise to cut corporate taxes. bloomberg crunched the numbers and the bank could save a combined $12 billion a year. the president is for cutting the tax rate to 15%. a judge in delaware has temporarily prevented cigna from scrapping a merger with and some. the judge said they couldn't pull out of the deal after a federal judge blocked the deal as anti-competitive. the pricesas raised of some software, laptops and tablets in the u.k. by as much as 15%. the reason, the collapse in the pound after britain voted last june to leave the european union. several months ago microsoft

said it would raise the cost of software services by up to 22%. that is your bloomberg business flash. this is bloomberg. david: american businesses eager to see the details of president economyplans to the especially when it comes to taxes and trade. to look at what they are looking for, we join the ceo of snap-on, which sells specialized tools directly to professional mechanics from nascar to airlines. welcome to bloomberg. as i suggested in the introduction, we hear a lot from strategist and economists. you run a business, you've got employees making real money. what are you hoping for out of the trump administration? .> the me give you background snap-on is a company that makes hand tools from steel all the way to the end user. so we call on almost a million technicians in the field. our people are franchisees and

we talk about factories and we have a grassroots appreciation of what people are looking for and what they're looking for is tone or than anything else. they understand that there is significant political capital. they're looking for an administration that leans towards helping the american worker and american businesses. what happened in his inaugural address, we will make no decision except those in favor of the american workers, the fact that he would meet with business early is positive. we saw this in a recession. during the recession we called on auto repair garages. cash was flowing through those garages, the wall street journal was writing articles saying be repair shops come but they were not buying long payback items. so our view is confidence is everything. david: let's talk about that, very specifically. -- are you seeing that corporations are starting to increase their long-term investment for the future?

>> i don't know that you can pinpoint that. i'm not sure whether they are or not. i think this environment will do this at the grassroots level. you are talking about corporations. small businesses, garages, the auto repair business which is a bunch of small businesses right down to the technicians. it has never been better. it has never been stronger. their optimism was very good. one problem i do have is they can't find workers. there is a skills gap. if there is something the president can do, he can encourage the upscaling of the american workforce and create a technical base that will fill this gap both in the factories and the garages. if you go to a factory, the american manufacturers say there are 600,000 jobs going unfilled. part of the reason is we don't train them. we are not training them. theit appears to be consolation prize of our society so people don't sign up for them. david: but we are not hearing a

lot of president trump about the training of workers. we are hearing that too many people are going to mexico or japan and that we are losing these jobs. it is not that mexico has more skill workers than we do. >> that is a problem with president trump's plan but i think the whole thing first is the understanding that there is only so much political capital. they understand that every president would say that american manufacturers in court but it is a different between endorsement and support. where does it stand the priority? and with the president best people in the garages are saying things like, paraphrasing the new york times, saying we don't want to have more, we want jobs. we want taxes to be adjusted. david: right now, today, we are watching political capital being spent in washington. that is with discussions of the russians. if you got to tell the president right now this is the number one priority for your political

capital, where would you want us to spend it? >> i would focus on upscaling the american workforce because the american worker is what has always delivered us from evil and we have two problems. one is we are not training them correctly and we need to call in an airstrike so technical institutions need to match the skills needed in the jobs and then they have a heck of a pr problem and in america we have allowed the respect for the dignity of work to erode and when people say "i want to be a factory worker or a car mechanic or a technician" people think they have settled for a consolation prize for our society. the president's bully pulpit can change that. david: what we are hearing is that tax reform and border investment taxes and obamacare and things like that. is the business community saying to the president we really need education? >>d what i think is the council on competitiveness, a great organization which brings together the business and

universities and labor unions and someone, they are talking about talent and investment and technology, they are talking about investment which is tax and other things like infrastructure. it is a group of things. are telling you if you going from garage to the rise and factory to factory, what you realize is what is needed is the upscaling of the american workers because if they have the capability, even if you open trade barriers, you don't win the competition. david: finally, snap, you are not just a mistake. >> we are international. david: are you for or against the border investment tax? >> we are not worried about the adjustment tax. we import as much as we export. 80% of what we sell in the united states is made right here and a hand tool is 50% to 60% labor. so we are in a great position, even if they go into these border taxes. david: thank you so much. jonathan?

jon: that is probably the most of the manic response i have heard so far. a message for our bloomberg professional clients. if you have a terminal you want to check this out. you canon bloomberg, watch us online and if you want to interact with some of our charts you can do that as well. you can interact directly on tv on the bloomberg terminal. markets elsewhere, as we continue our countdown to the cash open in new york, futures little bit softer this morning after five straight record closes. -4.5 points on the s&p 500, -37 on the dow. a bit at the margin with yields down about a basis point and 2.48 on the 10 year. the euro stocks climb, a stronger japanese yen in there as well. from new york, this is bloomberg. ♪

jon: from new york city, this is bloomberg. snapchat, wants to raise as much as $3.2 billion in its ipo. that would give snap a market value of $18.5 billion, the first u.s. social media company to go public since twitter more than three years ago. with us now is jeff mccracken, executive editor. there is always a message. what is the message from this company? >> please don't treat us like twitter, please see us as alibaba. when you think back on ipo's there haven't been a lot of a high-profile ipos. the question is, does this company, which does not speak to anyone under the age of 40, -- they only speak under the age of 40 -- is this company going to hold revenue? this content consumption for the millennial's, is that going to work? is it going to grow?

that is the question. they got the spectacles out now. is that owing to catch on? obviously it is popular but is it a trend that goes away in six months? that is the real question. >> jon: jon: the message is we are not twitter. is the message also, don't look at our monthly average users because they are not climbing as quickly as they should be? >> revenues are up six times this year versus last year, so that is great news. they are going to put that on the roadshow, but the daily user rate is down, 50% from where it was just last year. that is a concern. it doesn't have a long track record. it is going to be hard to know if this is going to keep growing if you don't have year after year 2.2. if you have a better understanding of other companies and when they went public -- i mentioned alibaba and facebook and twitter -- you saw more of a track record people could pinpoint. and this is a very rich

valuation they are looking for and there is not a lot of shareholder -- the shareholders are not going to have a lot of say in how the company is run. but the least shareholder friendly corporate governance you have seen. david: you have talked to this executive as have i and we are not so concerned about how many people are consuming the content, but it's only people on snapchat are creating content and they use that as a metric of engagement. it is an active one and does that change the business model? >> right. that is the argument. i have studied snap that i don't use snap. i am not the consumer. so it is hard to see if this is going to stick with people, if this is just a trend that will be popular for a couple of years in them and move on? i'm wondering if someone is going to require them -- going to acquire them. we sought dynamics got acquired by cisco. is that going to happen with snapchat?

it looks unlikely given this valuation. it would be expensive whether you are google or facebook or disney or whomever. you are not going to want to throw $30 billion out for this. create a sticky ecosystem? >> i don't think you can, to be honest. it feels like something that should fit into a company. this is a business that fits inside a google or facebook better than it does as a stand-alone business. david: so to jonathan's point, their users may not be growing but their revenue is. they are early on in that cycle and they have just started monetizing so in that part of the value, they could have a lot of room to grow on the revenue side. >> they feel like they are going to partner up with companies like espn. that will help grow the revenue and hopefully get to the point where they are making money. their revenue grew a lot but

there also is -- their losses also went up substantially. jon: you've seen it before and more to come, jeff mccracken executive editor for m&a. the u.s. equity rally. all-time highs yesterday again, paul hickey, cofounder and dean curnutt's, ceo. we will turn you down the cash open. futures are softer now, down 2/10 of 1% on the s&p 500 and on the dow as well. switch up the board. treasuries, low basis point and the dollar a low basis point. this is bloomberg. ♪

jonathan: from new york city for our viewers worldwide, good morning.

welcome to bloomberg daybreak: europe. i'm jonathan ferro. record highs across the board yesterday for a fifth straight session north of 2300 on the s&p. this morning, softer. treasuries been on the margin to run much of the morning, yields lower by a basis point. 2.48. the dollar weaker across the board against the euro and the japanese yen. about 30 minutes away from the open. let's go to abigail doolittle. have some earnings winners in the technology space, cisco systems trading of more than 1% after the largest internet equipment maker beat hardware was a little less strong than expected, but this is a company transitioning toward focusing to software. soaring 6% after the

company beat estimates. the street is very bullish year. who is anpoke to mark activist on this stock. he has been bullish on this for over a year. he has a $48 price target and thinks there could be more upside to the numbers. the big question from the macro standpoint, we have weaker futures, but stocks are at record highs for multiple days in a row. what is next? as we hopped into the bloomberg, this is an all world stock index over the last five years. it is nearing record highs as well but there is one reason to think records may pull back down. this is the relative strength index on the bottom. above 70, considered to be overbought territory, suggesting we could see a pullback ahead. confirming that we are looking

at a bit of a risk off tone today, gold trading higher or a third day in a row. vix is up in the premarket. down, havenyield bonds are rallying. a bit of a risk off today. david: before we get back to markets, we want to catch up on what is happening in washington. let's go to kevin cirilli on capitol hill. the president is beating with leadership today. kevin: president trump will meet later this morning with people, several conservatives from the house of representatives including a republican from new york, as well as mike kelly, republican from pennsylvania. what is interesting about this group of lawmakers is that these were all of the early congressmen and women who endorsed trump at a time when he had no support in congress.

some were being pressured in the campaign to find lawmakers to enforce him. while he is meeting with them, he is not meeting with leadership. him,have been critical of someone more critical in the past couple of days. david: that is an interesting approach, to appeal within his base in the congress. is that smart in the long-term? he needs the other people behind him. it shows president trump is perhaps trying to elevate some folks within the house of representatives as he looks to get across his legislative agenda. it also shows perhaps he is signaling to leadership that he still has supporters. he will be in florida this weekend at his first rally, the first one he has had since taking office. david: thank you, kevin. the stock rally, all-time highs across the board. levelsback toward record

touched in early january. can this rally last? joining us now is paul hickey and oliver renick. let's start with you, paul. the three-pronged rally. earnings have been improving. we have seen investor expectations sky high. then there is washington and the uncertainty around d.c. what is the weakest part of the rally? >> you would have to say washington is the weakest. it is really not that week. we are looking at three tailwinds working in the markets favor. earnings season has been very strong by all accounts. the economy has been very strong. washington, all of this talk about disarray, but inauguration was a month ago. getting policy done in a month is asking for a little bit much. the general tone out of washington is less regulation and more business friendly climate. that was a big surprise in

november for the markets which were anticipating a clinton victory and more regulation and status quo. jonathan: you point out let's be talked about the data, it is the expectation of how the economy will perform, versus the actual hard data. the question is how patient investors will be. oliver: it seems they are pretty patient waiting for actual action from washington. they had been waiting a long time for earnings. i'm glad you called it a three-pronged rally. we talk about the trump rally and it is still reasonable to call it that. there is some revisionist history with people trying to rename it, but earnings are of the most in about two years. companies and ceos talking about forecasts. i think there is a lot of stuff there to keep people in their seats and waiting, feeling

comfortable at these levels until we get clarity. david: things are pretty good for companies and stocks, but what are the values on those stocks? is there still more to go? to what oliver was saying, a three-pronged rally. if you see progress on taxes and progress on fiscal stimulus, that will be positive for the markets. earnings dropped a year ago, manufacturing came out of a recession last year. we have seen really strong data not just in the u.s., but across the world. to your point, markets have gone far. are they overdue for a pullback? sure, they are, but they were overdue a month ago, three months ago. if you are betting on black because it has come up red three times, it could still come up black. david: yes and overdue pullback,

but there is a promise, something coming around the bend from the trump administration. at what point do they say, we have waited too long? the summeret toward and you start to see some revolt on the part of the republican senators, if you can turn a few senators against trump, then you have problem getting legislation passed. that would be an issue going forward. if the fed becomes more aggressive -- right now, three hikes on the year, most people are expecting that. the market can withstand that. in that respect, we are ok here. again, valuations are at high levels, but you will need a catalyst, but we have not seen it yet. david, to your question, you have to keep in mind, this is basically a rally that even though had gone for so long and kept moving up to new levels, there was a certain sentiment

that was not there. this rally was well supported by buybacks, people reaching into get dividend. now i think it changes sentiment that hasn't been there for a while, people wanting to be in equities and comfortable in there. potentially, that will be a big part of it. >> individual investor sentiment has set out the rally. under 50% bullish sentiment for 111 weeks and counting, the longest streak in the history of the survey. the only other longest was 110 weeks in 1994. once individual investors got on board there, the market really did well. jonathan: one of the reasons that people love me spoke, you come up with those snippets of data. when you look at the 1% move to the upside or the downside, do

they matter? pullbacke not had a 1% in a very long time, since october. looking back, there have been several periods where this has occurred. what we have found, when you have been 1% pullback, the market is actually going forward , over the next month, three months, better than average theses because you have investors sitting here saying the market is overdue for a pullback. they finally get it and then they will use the opportunity to add exposure to equities because they have been waiting so long on the sidelines. our advice to investors is take a systematic approach. whether you put the same amount of money into the market every month, or you set aside money and wait for a 3% pullback, your returns can before times greater investing than waiting for the pullback every time. david: if only we had perfect timing. i presume that when the

dip is there, you probably will have that come back in. we have not had a dip in a while, but i think that is an important element. there has been structural support for stocks that some will call artificial. it is the buyback, dividends. the sentiment part is interesting. ,t brings up the question of sentiment-driven rally is a rally that others would get even more skeptical about. obviously, it is not quite there yet. even when you look at flows improving, it is from a pretty negative standpoint, and it is really into etf, not active management. thanks very much, oliver, and paul hickey will stay with us. coming up, more fed speak. will be joining bloomberg television at 10:30 a.m. today. this is bloomberg. ♪

david: this is bloomberg. i'm david westin. the federal reserve asked him to back into the spotlight which are yellen's testimony. earlier, vice chair stanley fischer joined bloomberg in an exclusive interview. wiwe will be aiming and ll likely be close to 2% inflation and full employment, which is somewhere around where we are now, possibly a bit lower. david: joining us now is mike mckee, international correspondents corresponded -- international correspondent for bloomberg television. what do we make of this? mike: the fed is where it has

been, the message that janet yellen delivered. they saw in december the economy as it is now justifying three rate increases, not seeing any change in the economy that would require them to change that outlook. the economic data has been coming in stronger than forecast which may be moves up the timing but does not mean any change in the number of rights they are anticipating this year. a goldilockss situation, in the sense that the economy has been moving forward, but not so fast for the fed to overreact and clampdown? the economic data is coming in strong, momentum is not as strong as late last year but we are still seeing good data. i hesitate to say goldilocks, a good environment. what's interesting about what mike was saying, the fed has always come to where the market has been. it is the market going to where the fed is now.

right now, the market is handling it pre-well. are starting to see stronger economic data continue, jobless claims have been under 300,004 well under 100 weeks, yet to go back into the 70's. the data is positive. as long as investors see strengthen economic data, they will not become overly worried, as long as we do not see overheating as well. jonathan: let's talk about the data out this morning. massive upside surprises. the philly fed business outlook coming out at 43.3, a 43-year high. are we seeing these outlook indicators translate into the hard data? mike: we are starting to in some of the manufacturing data. the interesting thing about the i saw thatdata -- steve was saying some of it is trump related -- but the orders

when a big and shipments. purchasing managers in that area are seeing strengthen the economy. david: do you expect to see more data?t translation, hard a lag time,is people are waiting for results. i would expect to see it in the first and second quarter. it will be interesting to see, once we get to march, as the first quarter comes to a close, what our company saying? sawou go back to 2009, we when obama came in, the financial crisis, sentiment toward obama being antibusiness. markets were in horrible shape. but you got to march and companies were seeing better things, maybe things would not be as bad. march is going to be a key time to watch for the economy as well as the markets. david: forward guidance is helpful.

whatd that, for hard data, is the one thing you look at, corporate investments? take the wholeto spectrum of things. what we focus on is the short-term indicators. we look at jobless claims as a weekly data point we continue to see, correlation to the market has been uncanny. it isher economic data, hard to place too much emphasis on it as far as background. , it isre revisions backward looking data. some of the sentiment surveys, while not hard data, they tell you where sentiment should lie. david: where do we get the productivity growth? we are not getting that yet. they don't necessarily know why and dropped off as much as it did. it has dropped off at the same

time business investment has dropped off, so if there are tax plans to boost business investment, you may see people buying computers for their offices which may improve productivity, but you cannot guarantee that anymore. it is not clear where it will come from or why it went away. jonathan: we have had a massive data dump. a ton of the speak. what have we learned this week that we did not know last week? not learned so much except for confirmation of what the fed was saying. that whatonfirmation the fed has been saying is coming true, and that moves the markets toward them. particularly with the inflation numbers going up, oil prices going up, also showing strong inflation figures. it puts march in play. there is a very that maybe they would want to do may so that they could prove that all meetings are live. we are getting closer to that. whether they raise a

quarter-point in march or may or wait until june, does not really matter so much, so much that the market is moving toward where they will end up. michael mckee, thank you for being with us. paul hickey is staying with us. the fear gauge at record lows, but the vix is higher for a second day. incarnate on whether there is more volatility to come. from new york city, this is bloomberg. ♪

jonathan: president trump promised tax cuts may prove to be a big boost to take banks, adding $12 billion to the profit of lenders. writer us now is senior of bloomberg and paul hickey is still with us. you crunch the numbers to come up with 12 billion.

how do you get there? >> it is complicated stuff. these big banks not only have earnings in the u.s. but they do stop outside. i tried to isolate the u.s. tax base for each bank. course, the effective tax rate for banks is much higher than other industries because they do not get all of the deductions that manufacturing companies get, retailers, they really pay much closer to 35%. cut and alle is kinds of deductions are removed, in essence, as proposals out there say, then they get a bigger benefit because they don't have deductions anyway, but they get the lower tax rate. many analysts on wall street must've done the math as well. what is in the price? have no idea what the eventual outcome of the tax plan will be.

financials have a number of tailwinds that the market is liking, taxes is one issue, less regulations is another. financial crisis, there was so much overhead in the financial sector and a lot of that has been worn up over the last several years. if you look at how the financial sector has performed since 2007, it almost mimics exactly what we saw in the tech sector following the .com crash. market did nothing -- did nothing for several years and now you have this headwind being worked off, more conducive interest rate environment, less regulation. those are positives. as you said, analysts have been crunching the numbers, but we don't know what the numbers will be, so it is hard to say what if anything is in the price. definitely working in favor of the group but other factors boosting the sector as well. david: too soon to tell, a lot of uncertainty, but to

oversimplify, on the one hand, your study looks at after-tax income. but the top line may also be effective for banks. you take away the interest induction, people will be less likely to borrow from banks, and that will affect their top line. >> that is an argument going on. a few analysts worry that the interest rate deduction may go forward for banks. if that happens, that would be a big thing. most people don't think that would happen. the house blueprint actually exempts a natural firms like rei ts. but of course, everybody takes. there have been discussions over many years, decades about whether the interest rate deduction encourages more debt versus equity. there are academic studies that definitely show that. more will be perhaps

equity and less debt, but then still, again, the more i look at this in detail, i realize there is so much borrowing that needs to happen regardless of whether the tax benefits are there or not. or the biggest corporations, they may not sell as many bonds and may go to the market and sell more shares. but for a lot of small companies, midsized companies, they have to borrow, they cannot access capital markets in another way. deductionest rate will shift the balance of power a little bit toward equity, but still, banks will not all of a sudden not have customers to lend to. also, the biggest banks, they make a lot of money from equity markets, too, so they will say, l bonds for sel you but we will sell shares. jonathan: cutting taxes is easy. what is your base case on what we get on the tax side of things? paul: i have no idea how this

will end up here and there are so many moving parts. you have the border adjustment tax, interest rate deductibility. those are just two things but there is so much out there. that is why i am not in washington. is that the tax environment will be more conducive. how that will play out is anyone's guess. jonathan: that is the consensus view of the market. a bit of confusion but lots of optimism. the opening bell is minutes away. all time highs across the board. futures slightly negative. three one dow, down the s&p 500. this is bloomberg. ♪

jonathan: from new york city, this is bloomberg daybreak. i'm jonathan ferro. futures negative, down 25 on the data. negative four on the s&p 500.

limited moved to the downside after five straight record high closings. the opening bell rings. will we break the longest winning streak since 2013? here is the situation any other asset classes. treasuries down by a basis point. the dollar on offer. stronger by half a percent. let's get to the open with abigail doolittle. mixed openoking at a for u.s. stocks, the dow trading slightly higher, the s&p 500 down slightly. a little bit of a reversal. the last two opens have been town on the day and then stock servers higher into those five days of simultaneous record highs. the s&p 500, if it can turn higher, is up for an eight day in a row, one of the longest

streaks in a long time. of course, we have the tension between all-time highs in stocks and a lack of consideration for risk. one risk, obamacare, we are seeing it on this board with of care insurers. molina health care missed estimates in a huge way. $1.54osted a loss of versus an estimate up of $.74. the ceo is blaming those losses on obamacare. it will be interesting to see what happens there. we see that weakness is dragging on some other insurers including centene. health and we seeook at the vix, this downtrend, which suggests we have lots of complacency from investors, not taking into account the potential uncertainty out there of what

could be ahead from a macro and micro perspective. one point worth making, we see this downtrend. we see that the vix has had a complacencyer this to spike higher and meeting a higher downtrend, which is suggesting the vix could spike of higher closer to 20, the question is when. tomorrow is options expiration, so we could see some volatility. jonathan: slight moved to the upside on the s&p 500. on the dow, up by .1%. .till with us is paul hickey also with us is the ceo of macro risk advisors. paul, let's have a debate as to whether the fear gauge is an adequate description. then it investigate whether there is any. is that a decent read of fear, the vix? paul: i don't know how much complacency there is in the markets. , stock marketeen

rallies on disarray. it is only thursday. i look to see how futures were trading that morning and they were up. i think there is a big tendency on the part of a lot of investors, they have a hairtrigger mentality. they are nervous. they think things will pull back, they are quick to pull the trigger if they see any signs of weakness. i don't know how much complacency there really is out there. jonathan: volatility on the front page of the newspapers. you keep going back to it. and the pastor has to step down come michael flynn. in a are shots being fired war that wall street does not really care about. should they care? >> there are a lot of headlines but the market does not move. we are four straight months without a single down day in the s&p.

slow, itnext gets the is cheap, but there has been nothing to ensure. it has been an incredible time for those taking the other side and selling the vix. it is dangerous to do that you are capturing risk premium in an environment where the market is so stable. it is challenging for option holders come even though the price is low. it is challenging when the market does not move. jonathan: this is a risk-reward strategy here is not an outright bid saying there is complacency out there. this is a cell vix puts strategy. talk about that more specifically. we have had conversations with hedge funds and asset managers. ayingxhaustion from p premiums are palpable. we came up with an option to generate premium for doing this, and yet, in some ways, you benefit if volatility goes up.

so you are getting paid to wait. what is interesting about april expiration puts on the vix, when they expire, they will expire to one-month s&p volatility at that time, which will encompass what seems to be a very important on the counter risk event, french elections in early may. david: the market does not care on the downside, should care on the upside. november 2011, it was caring. why this asymmetric affect reacting to policy? paul: selling volatility has become a popular trade. that will depress volatility levels, but i think a lot of thestors -- coming into election, people were positioned for a lot of volatility in the market. you saw the market go up, they had to walk back those bets. now the vix typically measures what has not in happening. very little volatility.

it is telling you what has happened rather than what is going to happen. david: we hear about the correlation of long stocks. as it has gone down, volatility has effectively gone down. point. is an important typically, the average correlation is 40%. postelection it has plummeted to 15%. that is stealing a tremendous amount of volatility at the index level. that is a big portion of the vix, even between low as interest-rate volatilities are considerably higher. from a trumpt is, standpoint, is he a president that will create low correlation, pick winners and losers in his policy? or from your question, are there more correlated risks coming that the markets are underestimating? jonathan: you have picked up macro catalyst for markets. paul, you look at what is on the agenda this year, french

isections, netherlands, -- th story will continue. is there a lesson learned from laughter that you can apply to 2017 or is it a different political environment? on the french elections but at this point you do not see nearly the odds of that type of outcome of brexit or trump with le pen. her arts are a lot lower than the others. we will see what happens. this election issue will be an issue, but with each event, brexit was going to be so bad, the market did nothing. trump is going to be so bad for the markets, it did nothing. jonathan: that is why i asked the question. the lesson of 2016 was buy. i wonder whether we have been conditioned, you as investors, coming into 2017 with that lesson of buy, and that is why

the vix is so low. >> you get geared toward the bull market and nobody expected the brexit. for the french election, we are seeing high sovereign spreads of france to germany. in the weeks before brexit, people had exhausted their ability to efficiently fund hedges. capital then, defensive capital, leaks into the u.s., and then you have buying of vix options and s&p options. that is something that we should be watching for. could buy outecb the p. you can buy more italian debt, buy more spanish, more french. if you want to play the political risk story in europe, are spreads the best way to play it? >> i don't think so. you have a behemoth called the ecb. even as they are tapering, there

is still a bid. nearly every single country has negative interest rates nominally, but for greece. i think there are certain fx options that figure quite well into the frexit story as it were. puts on the euro, yen will be in this uncertainty as well. jonathan: great to have you with us. dean curnutt will be staying with us. more fed speak. we have heard from janet yellen and stanley fischer this morning on bloomberg tv. next, atlanta fed president dennis lockhart joining bloomberg tv at 10:30 a.m. is march live? i'm sure that will be the question. the dow is up by almost .1%. the s&p 500 stretching their winning streak to eight straight sessions, another record high. that winning streak is the

longest since july 2013. from new york, this is bloomberg. ♪

>> this is bloomberg daybreak. coming up today on bloomberg markets, dennis lockhart at 10:30 a.m. eastern. david: this is bloomberg. i'm david westin. it promises to be the biggest tech ipo since alibaba. snap brings snapchat to millions of millennial's and files to go

public. it found an amended s-1 suggesting the valley of the company may be in the range of $20 billion. as company executives go out on the roadshow, we are joined by shira ovide. what did we learn from the amended s-1? >> they will sell about 141 million shares. it could be about $2 billion plus into their coffers, and they need the money. this is a new company and they need to grow very quickly. david: is this to invest new money in the company or invest in their losses? a company that has an enormous scale of losses. i don't think i have ever seen a young company go public with the types of financial losses that snapchat posted last year. literally, their cost of revenue which was mostly things like the computers they need to serve every snap, every story, was more than the revenue they brought in.

this is a company burning through cash at a prodigious rate. they will need that money to plug the financial hole. that: they are paying money for the cloud space to somebody else. it is not vertically integrated. whom are they paying to? shira: they have a deal mostly with google, kind of computer rental service, where in the cloud, they use google computers snap,re and send every story happening over snapchat. jonathan: before it has gone public, there is the story that they have just been upset help -- they have just themselves up to be sold. anything to that? shira: i don't know if there is anything behind it, but we saw a deal not long ago where cisco bought up a young company, after dynamics, literally 24 hours before it was supposed to sell its ipo shares. jonathan: i want to bring in dean curnutt.

the scale of the losses of this company, what does it say to you that a company like this can come to the market and get a decent valuation? i immediately thought of the tech bubble, the ability to come to market with obviously a with suchth story but significant losses speaks to investors doozy has him, the cash just/around the world in search of return. when the alternative is treasuries at even 2.4%, others even lower, you want some cash that has an opportunity to make money. there is not a lot of that around. david: tech bubble. people talked about that when facebook came out. that worked out ok in the end. why is this not facebook? shira: i think they want their ipo to turn out as well as facebook's. it is worth remembering, the facebook ipo was initially issued flop. the stock started to trade under the ipo price and stayed that

way for the better part of a year. only after that did the company climbed in value to the point where it is now one of the most richly valued companies in the world, but the ipo did not go off well. david: people underestimated their ability to do mobile advertising. that took off like a rocket ship and never took -- look to back. facebook is kind of a capital light model, all technology. digg differentiation between old economy stocks and new economy stocks, but a tremendous story, one that has been driven -- you talk about fangs. that has caused indices to rise higher. jonathan: differentiation between facebook and snap in terms of user growth? shira: that is the big red flag. snapchat has said 100 different ways in their ipo filing, they will never be as big as facebook , which has over a billion daily users. snapchat has about 160 million

deal users, it grew 3% quarter over quarter in december. it is not growing very fast and is not likely to get very big, and that puts pressure on the company to generate a lot of advertising revenue to justify the valuation. talk about how accommodating the market may be to a snap ipo. i wonder how useful those analogies are. people get scared because maybe we are at a top. how useful is that for an indicator of stocks? dean: you want to pay attention to indicators of froth. in the credit markets, they will look at what the company is getting. as the company borrows money, what concessions is it getting? it is getting a richer of how competitive it is to lend. that was prominent leading up to the financial crisis. there is a lot of capital competing to earn return. definitely a hallmark of where we are in the cycle seven years post global qe.

david: i want to conduct to the question of how big they are. how many people are using them, how often are they using them? fox newsk to my days, made more money than abc news, even though they had less people watching, because the depth of engagement was so deep. basicallyhink you replicated what the executives would say on the roadshow. we may not have the most users but the uses we do have are religiously, 20, 30 minutes a day for each user. that is the kind of engagement you don't tend to see with internet users who click from place to place. jonathan: that is the story the executives are selling. will the markets buy? dean curnutt is staying with us. shira ovide, thank you. coming up next is bloomberg markets with vonnie quinn and mark barton. mark: atlanta fed president

dennis lockhart will be joining us at the top of the hour, joining kathleen hays in about 35 minutes. looking forward to hearing what he has to say. he is approaching retirement. a few hours after we spoke to vice chair stanley fischer. france posting a profit up $.30. the company saying it will raise passenger capacity this year. theding it out with director of asset allocations, saying it has the making for a possible calamity. a big couple of hours coming up. the fed extravaganza continues. jonathan: looking forward to it. we talked about integration, user interaction. if you have a bloomberg terminal, check out the interaction. charts and graphics and interact with us directly.

minutes into the session. this is how the stage is set. unchanged on the dow. nowhere on the s&p 500. yesterday close at all time highs. will we snap the longest winning streak? marginal moved to the downside. from new york, you are watching bloomberg television.

jonathan: to the federal reserve, very much back in the spotlight. he heard from janet yellen over the past two days. morning, vice chair stanley fischer spoke to tom keene in an exclusive interview. we will be aiming and will likely be close to 2% inflation and full employment, which is somewhere around where we are now, possibly a bit lower. atlanta fed president

dennis lockhart will be joining bloomberg television at 10:30 eastern time. a whole lot of fed speak and a big disconnect from where the markets are, where the uncertainty is in d.c., and the federal reserve seemingly stuck in between. joining us now is josie only and dean curnutt. that disconnection between the d.c. and the markets and the federal reserve working at where to go in between. >> the market is liking the trump trade, reflation moves that you can do to capitalize on expectations of infrastructure spending, tax reforms. they have not come yet but it is just being hung out for everyone to see and everyone is reacting to that. we have had five straight record closes. clearly they are looking beyond the turmoil in the media surrounding trump and focusing on what they think matters most right now which is the economy, seeing all sorts of measures at multiyear highs, consumer

confidence, small business confidence the highest in 13 years. jonathan: philly fed exploding once again. they are just not seeing the impetus to sell yet, even though there is quite a bit of turmoil going on in washington. jonathan: the upside story, everyone wants to capture it. downside, nobody wants to hedge it. what is the trade for you? dean: it is the global benchmark , the s&p 500, on which everyone is trading. if it goes up and you are a hedge fund manager, you have to pay attention to it. the risk of being underinvested in an environment where the all-time high has reached excessive days is strong. the defensive trade, even though they do not cost much, they to ade opportunity costs portfolio, and that is also scary for an investor in the market that keeps gravitating. we think there is some

complacency in the sense that folks just do not have a lot of downside options in their portfolio. they are very cheap of people have found them tough to finance in a world where nothing is moving. jonathan: that is the paradox in the options market, but also you have to evaluate the opportunity cost. a bit of ake mountain. are we there yet? joseph: we are seeing the vix rise as the s&p hits new records, trading in verse about 80% of the time. some people may have been short vol may have gotten hurt on that move up, thinking continued gains would keep the vix lower. really something that is interesting, you could see and unwind there. it could be that people are positioning for some kind of downside we will see in the next coming trading section. sentiment is next around that but it's important to note, we

have not seen the vix up this much over a seven-day increase against the s&p in about 14 years. dean, you run the hedge fund every day. is the conversation on february 16 changed from the conversation november 8, november 9 in a material way? folks were frightened about a trump presidency, risk and uncertainty in the markets. it has been the opposite. markets are discounting mechanisms. one of the risks that they pulled, a tremendous amount of optimism going forward. asset prices. jonathan: we have to leave it there. thank you. that is it for bloomberg daybreak. this is bloomberg. ♪

vonnie: it is 10:00 a.m. in new york, three :00 p.m. in london. i am vonnie quinn. mark: live from london, i am mark barton. welcome to "bloomberg markets."

phonic a we go from new york to london in the next hour and cover stories out of atlanta and beijing. the top stories we are following. linda federal reserve president dennis lockhart is joining us for an extended interview. he will discuss whether the federal reserve is behind the curve in inflation and the impact of president trump's policies so far based on u.s. economy. , fallingopean stocks for the first time in eight days. the prospect of global political turmoil catching up with stocks? vonnie: the big banks could be saving billions of dollars of president trump it is tax plan through. we will find out how much tax cuts could boost some of the top u.s. lenders. a few complicated quest