five terrorists are killed by police after 20 attack in spain. islamic state has declared responsibility. republicans in the president look divided. from new york city, good morning good morning. this is bloomberg daybreak. alix steel is on assignment. futures are stable. at 11749.s firmer treasuries are pretty stable today. david: now let's get enough weight on what's making headlines. let's turn to emma chandra. spain, the connection between the two terror attacks. five suspects were shot and killed. pointhicle broker a check

and began running over pedestrians. that happened hours after 14 people were killed when a van ran them down in barcelona. at least 100 people were injured. three suspects have been arrested and one is still being sought. isis claimed responsibility. a top senate republican said the president has not demonstrated the character to serve job. bob corker told reporters there must be radical change of the white house did he said the president hasn't shown the stability or competence needed to be successful. he is chairman of the foreign relations committee. the white house says gary cohn will stay put as director of economic council. he is upset after remarks on charlottesville. he is not quitting. the president said he is one of the top contenders to be the

next fed chairman and -- fed chairman. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. i am emma chandra. david: thanks very much. the attacks in spain come against the backdrop of global tensions about u.s. leadership. to in 30ts they talk countries, they trust vladimir putin more than donald trump. joining us for more of the u.s. president in the global order is the burns, a professor at the harvard kennedy school. thank you very much for joining us. sense, you have that involved in a number of. importantsense of how the role of president as leader is right now. the: it's critical. the liberal old -- world order

is led by the united states. if what you find when you travel and work overseas is our political and economic power is our base. what separates us from other countries like russia and china is we were built around an idea of human equality. through all of that, the president threw that into question with his moral week is on charlottesville. you see senior republicans criticizing them for the first time directly. this does weaken the united states overseas. there is a trust among leaders in the world that the u.s. would he a political center of world leadership. he has been questioning the european union and nato, unstable policies toward russia and china.

i think we are in a crisis of american leadership. david: when something like the tragic attacks in spaini think f happen, we have people come out and try to reassure our allies that we will take care of it. this is what secretary tillerson and mike pence said yesterday during >> we can to miss terror attack it we will do whatever is necessary to help. attack,ver inspired the the united states stands ready to assist the people of spain and punish those responsible. >> the united states and their allies are resolved the line view and bring you to justice. david: if you were sitting in a foreign capital, do you have doubt that the united states has the resolve to defend ourselves? sense the united states is focused on that threat

to the two gentlemen you just showed have a lot of credibility around the world. it starts at the top are in while the president said the right thing yesterday in the attack,the arts alone he has consistently denigrated the european union. he has questioned the validity of nato. for europeans, those of the two building blocks of their relationship with the united states. he has taken us on a different path in terms of who we are. whether we truly commit to our allies, that's why you find results in the polls. they are consistent with what one hears when you travel in europe and asia and talk to allies of the united states. as he continues with his residency, he has to commit to america as global leader. that's where the questions

that,. is there another hand to look at? north korea and what happened with the un's purity count all last weekend, we had sanctions imposed on north korea. leadershipe global you talk about? the: that was a victory for trump administration, russia and china were on board area we see signs that china is beginning to exact some leverage against north korea. hopefully that will move them to ward negotiation. the president needs to stick with that. you saw this strident language where he became the first president to threaten a nuclear war. hours, in the last 24 they are trying to pull the

administration back in signal we war, weheading toward a are heading toward a negotiation with north korea. the president needs discipline. he needs the discipline of his cabinet. he has some impressive people and he should be following their lead. onid: as we come in to work friday morning and late august, a lot of us are asking are these merely passing storms of the summer? is something more fundamental going on. you've seen a lot of these. how do you determine which way it's going? -- nick: if the u.s. and china can coerce the north

koreans into a better situation, away from threats of missiles and bombs, i think that crisis can be diffused temporarily. that's the thing to worry about. i don't think war is imminent. the character of the president and the undisciplined nature of the president, he showed he does not have a grasp on the central event in our country, the civil week this ofcivil siding with neo-nazis in the white premises, if president trump remains in office, you're going to have this worry oversees about the quality of american leadership. david: let's come back to the financial community. markets reacted yesterday here

we are only 2% off the record highs in the act the market. lines, it still with and arrange. are the markets under reacting to this? that maybelling us it's not as dire as we think? ack: the united states is strong country. we are innovative and we have an extraordinary military. we have a lot of influence around the world. nowhere close to 1860. if you look at the fundamentals, there are reasons to be optimistic. the president does not control everything. we saw leadership on the ceos this week. we can be optimistic.

the president is a wild card area is shown that on issue after issue. he needs to center this administration. he needs to rely more on these cabinet secretaries. david: thank you so much for being with us today. theng up this hour, more on top story. later on in the program, we will be joined by mohamed el-erian. live from new york, this is bloomberg. ♪

joanathan: a rumor began

circulating on twitter that gary cohn was resigning. this was reported to be false, but caused a swing and financial markets. then it returned. -- joined by kristina hooper. as the faceing seen of tax reform? a very capables individual. he is worked behind the scenes to bring in some ceos. he was one of the big six is than working behind the scenes on tax plans. jonathan: i do wonder how financial markets would react if he was leaving the illustration. christine: it would the problematic.

stocks right now are priced for tax reform. gary, thatrture like would mean it's in serious jeopardy area -- jeopardy. david: the white house had to say this. it, that raises the question if he is going to be there for very long. christina: they had to do that area hopefully they are working behind the scenes and coming up with an incentive to keep him to get tax warm done. he could be nominated as fed chair. david: if he is that important to the market, does that give him more influence? it's going to be very hard tell him no area -- no. like steveit looks

bannon is not out despite rumors. he may be marginalized after that interview. gary cohn has had that are different than steve dan and, he may have more influence there. jonathan: when republicans in the house and senate the same things ultimately, why is that role so important? christina: the house is focused on getting a revenue neutral bill. that is a place of departure between the white house and congress. jonathan: you mentioned steve shannon. -- steve shannon. you could find out been ,ismissed or gary cohn has quit are you thinking about things right now?

christina: i have warned about risk for a while. there could be an event. i would not be surprised to see that you i think the markets are relatively resilient. i wouldn't be surprised see a you back. stocks are priced for legislative perfection. david: steve mnuchin was standing by the president. why are not we talking about him? do we not take he is as important to the press us? christina: the market has more confidence in tone. has a good reputation out there. i don't think is in jeopardy. he seems to be a stalwart. he has been with the president

route the campaign. he was an early subscriber to the trump you of the world. is not viewed as someone who would be in frustration. i would argue that harry cohen has been viewed as a more critical person within tax reform. david: it looks like the markets agree with you. coming up next week, we will have a rate lineup. they are all coming next week on bloomberg tv. ♪

emma: private equity firm has agreed to buy a u.s. power operator. if the price is 5.5 billion

dollars in cash. it's one of the great power generators selling to wholesale market. there has in a shakeup in india. ceo has resigned after a critical view from the company's founders. the founders have criticized the company for its act as asians and executive pay increases. private equity partners have the germann buying company. activist investor signaled it was time. that is the bloomberg business flash. joanathan: what does the attack in spain mean for europe?

joining us is matt miller. talk to me about the reaction. noted we're just finishing the first week of campaigning here in germany. up chancellor today at a pop campaign spot here in berlin said germany stands with barcelona. she will not suspend any elements of hurt campaign. she will shift her campaign and include events that are supportive of the spanish in barcelona in the wake of the tragic loss. forcefully, asut she tends to do and take the lead in europe. we that statements of other european leaders. she takes the lead here. end thenteers to the

other europeans against this terrorism. jonathan: we talked about the global leadership vacuum. how are the germans taking that? matt: that's one of the things that is helping to solidify her lead. if you look at the election poll can see that her lead is really substantial. 23% for39% compared to her next biggest rival. you've got all of the fringe parties down here at 10% or less area one of the reasons the , shens want to keep her has taken that leadership position here in europe.

david: thanks for a much. joining us for a different is nancy soderberg. nationalhe deputy security adviser. she is running for a house in florida. thank you for taking the time to join us they. you were are an expert in counterterrorism. if you are sitting in madrid or paris or london today and you look at what happened in spain, what actions can you take? nancy: our hearts go out to those killed in these cowardly attacks. a than hit by a terrorist attack since 2000 or. it's a great shock. spain is an area isis wants to take over.

is, it has as it been in their crosshairs for some time. all of europe is at risk. i was in london when the bridge was attacked. unfortunately, it's a fact of life. authorities are vigilant. avoide to step up and large crowd. i never go to big crowd events when i'm traveling abroad. again,see time and time no one is going to give up their way of life. they want to live their daily life and not let the terrorists take away our way of life and freedoms. that is the strength of the humans. , it will stand up to these cowardly attacks. i think that's the right message. david: we have had a series of

these. we are almost getting used to them. is there anything to stop them? i'm talking about personal resilience see and in the market and the business community, we will go on. nancy: it should never become normal. and happened in barcelona these terror attacks we've been watching the last couple of decades, it's never normal. it should never be separable. it's going to take strong leadership to come together and deny isis and safe haven. down and wipeble this out so they can't land attacks. i think we are doing that. david: there has been a lot of questioning about things the

president said. is there room for criticism on this score? he has made this a priority. he has given the support to the military to pursue that are in a -- that. nancy: i think he the focus on that or. i think he distracted. he needs to give more consistent messaging. the distractions the road american ship. david: thank you so much for joining us today. this is bloomberg. ♪ ♪

track your pack. set a curfew, or two. make dinner-time device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. introducing xfinity xfi. amazing speed, coverage and control.

change the way you wifi. xfinity. the future of awesome. you're searching for something. whoooo. like the perfect deal... ...on the perfect hotel. so wouldn't it be perfect if... ....there was a single site... ...where you could find the... ...right hotel for you at the best price? there is. because tripadvisor now compares... ...prices from over 200 booking... ...sites ...to save you up to 30%... ...on the hotel you want. trust this bird's words. tripadvisor. the latest reviews. the lowest prices. jonathan: coming off the back of the biggest one-day drop for u.s. stocks since may. every single benchmark, every index, down 1% yesterday for the first time since may. this morning, futures are

treading water. the bigger losses are in europe. down .4%. to give you a g10 picture, everything advancing against the u.s. dollar. rate as well.able yields have been grinding lower throughout the week. 2.9% is your yield on the 10 year. that is the across asset story. headlines across the business world. emma: in spain, please kill five specific did -- police kill five suspected terrorists. that happened hours after 14 people were killed when a van ran them down in barcelona. 100 people were injured.

three suspects were arrested and one is still being sought. islamic state claims responsibility. for aent trump searches tactic in the war in afghanistan. there is a retreat today at camp david and they will try to resolve their role in afghanistan where american troops have been fighting for over 16 years. the u.s. and south korea begin their wargames next week. this is a key obstacle in negotiations with north korea. kim jong-un has warned that they could lead to accidental war. refused to halt the drills. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra, this is bloomberg. david: controversy continues to swirl around the presidency of donald trump with prominent republicans calling for change.

here to give us the rundown is our chief washington correspondent, kevin cirilli. give us the latest on what is going on in washington. senate foreign relations committee chairman bob corker issuing a damning critique of president trump yesterday questioning his confidence and his ability to be in touch with the character of america. this is the most high profile criticism we have seen of the president for his response to charlottesville following his press conference in new york. those likeker joins orrin hatch and mitt romney and other top republicans including john mccain in their criticism against president trump for his response to charlottesville. mike pence is scheduled to meet with the president over the next couple of days at camp david where they are having a military series of meetings. it comes as gary cohn has said, as top advisers have said

privately that he is expected to stay on and remain in the administration as a steve mnuchin. estate of steve bannon is a bit more unknown -- the state of steve bannon is unknown. there are more rallies of white supremacist groups planned for the next couple of days. david: that is quite a rundown. let's come back to senator corker of tennessee. we want to focus on why that is important. he was a supporter of president trump. for the vicevetted presidential nod and he was considered for secretary of state. this is someone who seemed to be a now i and is a man of influence in the senate. we have reporting that other leaders in the senate may follow his path? kevin: i can tell you that over the past 24 hours i have spoken with senior aides to republican lawmakers both in the senate and

the house and all of them are incredibly frustrated about what has happened over the past several days. with regards to the president's roof up -- response to charlottesville. senator bob corker is seen as a giant in the senate. is influential and it was vetted to be vice president when candidate donald trump was thinking of having him in selecting him to be vice president. is also someone who has been in the weeds on a host of financial policy issues as well. he is very well-connected and respected -- to see someone of that caliber speaking out against the president's response is something that could have a domino effect and is a big warning sign for the president as lawmakers are set to return to recess in september. david: it could be an interesting weekend in washington. thank you so much, kevin.

the markets clearly reacted to any news about gary cohn yesterday. early in the day there was reporting that mr. cohen might be -- that gary cohn might be considered to be leaving. that yellow band there, those rumors on twitter, you can see the blue number which is the s&p came down, the vix number came up, the white house went out with an unnamed official to the press, saying that gary cohn was staying. the white number goes back down in the blue number goes back up after that. what happened later in the day was barcelona. right then, the markets were reacting to that news about gary cohn. we are now joined by bill cohan. he is written a piece for vanity fair, about gary cohn. thank you for joining us from nantucket. give us a sense of why gary cohn might be that important, not

only to this presidency but to the markets overall? he was number two at goldman very, a longtime trader, smart about risk-taking and risk management. he is one of a few in the white house with a sense of the markets -- the sense of wall street, who actually seems like he knows what he's doing. he is also a democrat by inclination. is viewed as someone who might behaviors oftreme someone like donald trump. the fact that he might consider resigning, which i think he should do on principle by the way, but the fact that he is thinking -- that people are thinking he might resign, unsettles the markets. david: you are joined by larry summers and thinking that. go back to that these. tell us why, he fell for donald

trump to begin with? >> a few things. first of all, he had been a long time prince charles. number 24 --loyd's number two, for close to 10 years. he got tired of waiting. as i reported in that piece, he made a play to be ceo of goldman sachs at a time when you will remember, lloyd had been diagnosed with cancer. since he be that terrible disease -- but during that time gary cohn native lay -- made a play with directors of goldman sachs to be named ceo of the company. that failed miserably in fact. it was clear after that that gary cohn would have to be leaving goldman. that came about the time of the

november election. to jeroden introduced and ivanka who quickly put him in front of donald trump. he had been a democrat and supported hillary clinton. but they quickly saw the benefit of each other and this position of national economic adviser had been one that had been held by bob rubin. it was a natural for gary cohn. he was offered the job and he took it. jonathan: as far as trade is concerned, some people would say this was quite a trade for him. the tax advantage of leaving goldman sachs and taking a white house administration position. is there any truth in that? >> absolutely. absolutely. that is not the sole reason he he haso this but basically $250 million of goldman sachs stock at a low basis so that would make -- he

would be forced to sell that stock unlike the president's cabinet officers and nutrition at the souls -- administration officials. he was forced to sell and turn them into securities in the benefit of that is he gets further capital gains tax on that sale. as long as he owns those treasury securities. that is the present value. it is huge. same thing for rex tillerson and wilbur ross and betsy devos, etc. jonathan: he is made quite a trade. forward, every time he comes on this program he talks passionately about how he wants to get through tax reform. you said he should leave. you think that passion to make change within the administration will go above what you think you should do? oni have talked to him

several occasions about this as well. casekes that passionate for first chance to reform the tax code in 30 years and while that sounds nice, realistically is that going to happen? it is off this year's agenda. maybe next year's. as donald trump blown through political capital to do that. gary cohn should take a principled stand here after what occurred in trump tower last tuesday with him having to stand there and listen to donald trump say those things -- gary cohn doesn't need the money or the job. he wants to be fed chairman and that is why he is hanging out. on principle he should resign and stand up for what is right. then he would become an instant hero which might benefit him more than staying in the subservient role to a man who he is obviously extremely frustrated by. david: it is hard for any of us to get inside his head and i

won't ask you to do that but you referred to the fed chairman issue. whatever the taxes of jack's -- of whatever the chances of tax reform, from what you know of gerry come, how important -- gary cohn, how important would that be to him? >> i don't know that he necessarily has the background for what we think of a typical fed chairman. that doesn't necessarily mean anything. the last time a wall street banker was chairman of the fed was miller and that did not last long. gary cohn has the temperament for it. he is gregarious and a quick study. he is very savvy about markets. i don't know whether he is an expert on monetary policy -- probably not. there are other people in the fed who could do that. in terms of his exit strategy for a guy who is frustrated -- being the fed chairman would be the perfect way to get out of this.

he would therefore be above the administration. above politics. there are plenty of politics involved with the fed job but he would be above it and he would best all the other goldman sachs senior executives who served in government because none of them have ever been before a fed chairman. that would be a crowning achievement for him. beautiful exit strategy for him to get out of this crazy administration and become an important position in government and do something that no other person a goldman sachs has done. david: that is very competitive in my experience. thanks so much. that is bill cohan, contributing editor for bloomberg television. andng up later, a columnist an economic adviser joins us about market reaction to yesterday. also the jackson hole meeting. and what we can expect and why it is important. live from new york, this is

bloomberg. ♪

>> this is bloomberg daybreak. i'm emma china and this is the green room. coming up in the next hour, this is bloomberg. now for your bloomberg business flash. china's largest personal computer maker faces a surprise lost. position as the top pc company. the smartphone unit continues to lose money. its first loss in six quarters. , the case with their

chip case is at a loss. the two sides have not been able to come to an agreement. china is putting further limits on overseas investment. domestic companies will be restricted from making investments in real estate, hotels, entertainment and sports clubs. notchinese pullback will make a dent in u.s. commercial prices. there were a lot of headlines around how much capital is coming out of asia. it is broad-based. the comes from a lot of places. we are selling assets to european investors, middle eastern institutional investors. chinese or asian investors were part of that but they were not the only capital. emma: real estate prices are hovering at record highs. that is the business flash.

whether real estate would hold up. david: it would not in australia. jonathan: ask a canadian. why does the united states think about china? top central bankers will gather jackson hole, wyoming for the annual conference. mario draghi will be giving an address. the event sets the stage for a revealing debate. guests, wenow, our thought, carl that the minutemen would be mario draghi. maybe it is janet yellen. >> there will be multiple in is eclipses -- multiple

next week. janet yellen has been more cautious. the likeliness of her sending the markets for a loop is less. i think mario draghi will try to be careful but he has had a less successful track record. i still think any comments -- we know what the fed is intending to do here. there is still a greater degree of uncertainty over what ecb policy will look like in 2018. speech will be interesting because it is about financial stability. they have been talking a bit a lot. can you gauge what that might mean for monetary policy? >> presidents in particular, and people, have talked about imbalances in real estate, equity markets. she does not appear to have bought into those concerns.

concerned about creating financial stability but she thinks we are at a much less advanced stage of generating those types of imbalances. i think she will echo those themes in her remarks on friday. david: as we read those minutes earlier this week, there was talk of financial instability with connections to the balance sheet and what that does to the long end of the curve. might that be more targeted to what is going on at the balance sheet? >> i think so. i think we have to worry about what balance sheet normalization means given that the incredible increase in the fed's balance sheet had repercussions for asset prices. that could be the core for financial stability. going forward. jonathan: how worried are you as many are not -- because many are not? >> that it won't rock markets.

i always worry about outlier scenarios. i think that it could disrupt markets because it is a powerful tool. especially janet yellen positive view that it can operate in the background while she focuses on rate hikes. she is the chief architect of data dependency. that is been a hallmark of her policy. >> operating passably in the background if launching the balance sheet means you clear the deck on rate increases which is largely what the market is now anticipating. has built in that safety valve around balance sheet normalization. if economic conditions change they can hit the pause button. david: she has five months left to take that approach. one of the outliers might be in the white house. thet of people, republicans, don't think they should run the balance sheet that far to begin with. you might have a new chair of

the fed which might have a new approach to get it down. argue about the market concern yesterday, might be concerned about gary cohn becoming fed chair. there is not a lot of knowledge about his policy and how he might treat balance sheet normalization. carl, what was interesting yesterday was the ecb expressed clearly that they were worried about the euro overshooting and it made me inc. of the other side -- it made me think of the other side and the dollar. for the federal reserve, there seems to be a bias. ony seem to think of paz rate hikes, the fx market would be ok and they can unwind the balance sheet. is that true? >> that is the view of governor brainard who said in his speech that it would be more sensitive to short-term rates and they may be able to get away with unwinding the balance sheet

without appreciation in the dollar. whether it is my research or anyone's research, we have zero data points of a central bank shrinking their balance sheet reversing quantitative easing. it is not happened before so we can have a great degree of confidence. when the fed expanded its balance sheet you saw incredible dollar weakness. when things go in reverse, i think we will see dollar appreciation. david: it looks like we will find out. if you have a bloomberg terminal all of your own, check out tv . you can watch us online, click on our charts and graphics and interactive record. live from new york, this is bloomberg. ♪

jonathan: from new york city, you are watching bloomberg daybreak. i'm jonathan ferro.

let's go to the market action. one hour and 35 minutes away from the open. 500,rday the dow, the s&p the nasdaq, all three down over 1% for the first time since may. it was the biggest drop on a daily basis since the s&p 500 in may. the dow with broad-based weakness, all stocks down across the board. nine, a 10th of 1%. morning, the dax off by a third of 1%. in europe, down across the board. in the fx market, a story of dollar weakness. euro advancing a 10th of 1%. ahead ofat coming up those jackson hole speech is week from mario draghi of the ecb and fed chair janet yellen.

the fx market, the bond market, 10 year treasuries at 2.19. we started the week at 2.18. voices coming up at jackson hole. guests lineup of said including robert kaplan and loretta mester. coming up, we talk about the bond market after we have had over $1 trillion worth of u.s. credit come into the market. from new york city, you are watching bloomberg daybreak. ♪ got you outnumbered.

the dinosaurs' extinction... don't listen to them. not appropriate. now i'm mashing these potatoes with my stick of butter... why don't you sit over here.

find your awesome with the xfinity stream app. included with xfinity tv. more to stream to every screen. ♪ andthan: global stocks drop

havens rally after a terrorist attack in barcelona. unease about u.s. policy paralysis. hazard -- hasate claimed responsibility for the attack in spain. the white house, talk of a need for radical change. this is bloomberg daybreak. i'm jonathan ferro, alongside it david west in. alix steel is on assignment. a big loss in the united states. the biggest loss since may. futures up 1/10 of 1%. down,llar is on the back the euro advancing 1/10 of 1%. treasuries, yields up a basis point. 2.19. that is your across asset story to get you set up 90 minutes away from the opening bell. there is emma chandra.

in spain, connections between two terrorist attacks. media reports say a vehicle broke through a checkpoint and ran over pedestrians. that after 14 people were killed when a van ran them down in ramblas area.s at least 100 people have been injured. the islamic state has claimed responsibility. gary cohn is expected to stay put as economic advisor. he was said to be upset after the president's remarks on charlottesville this week. but they say he is not quitting. the president says gary cohn is one of the top contenders to be the next fed chairman. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra, this is bloomberg. david: as we head to the weekend

we all wonder what shumate drop next on the trump presidency? prominent ceos withdrawing from councils and now bob corker from theessee questioning president's capacity to fulfill the demands of his office. >> i think we need radical changes. he is not yet been able to demonstrate the stability nor the competence that he needs to demonstrate in order to be successful. david: to put this in perspective, we talk to our senior editor for government and economics. marty, put this into some perspective. bob corker is questioning the stability and confidence of the press that -- of the president. that is harsh. >> it is. he has questioned the president's ability to govern.

bob corker is a very serious -- you can see from that interview he chose his words very carefully. .e is not a bomb thrower he is head of the foreign relations committee. he was considered for a cabinet post. or him to say that could be a turning point in this whole -- for him to say that could be a whole turning point in this presidency of donald trump. was only last monday when we had kenneth frazier withdrawing from a council. then a landslide. do we have reporting of what other republican leaders might be inclined to follow mr. corker? is that thee issues senate and house are in recess. there spread out over the country. there is no indication that anyone is going to follow senator corker's condemnation but the senate will be back in a

couple of weeks and then you may see some more activity. it is interesting to me that donald trump has not tweeted this morning or taken on senator corker's comments so you wonder what is going on inside the white house right now? david: lindsey graham came out a couple of days ago in you had it very fast tweets from the president that brushed him back. >> we are not getting that. fact -- whaty, the are they hearing from their constituents? if they are hearing some questions from constituents it might push the other way. >> sometimes you have to tip your hat to someone who takes a stand on principle. bob corker of tennessee is one of the most conservative leaning states, trump had strong support there and for him to criticize donald trump by name in his own town, may be a principled position and does not have

anything to do with holes or the voters. david: marty, thank you for joining us. we want to look at how the markets reacted to two events yesterday. on the one hand you had rumors about gary cohn perhaps leaving. that is the yellow band. the blue line which is the s&p comes down. the white line, the vix goes up. the white house says it won't happen so the blue goes back up, the s&p recovers, the vix goes back down and then there were terrorist attacks in spain and it reverses itself. i can't tell you how many people i spoke to who were nervous about gary cohn leaving the white house and what that would mean symbolically and in terms of policy. about -- stewart, will people stop asking? >> i'm glad we finally found the wall. i think yesterday's move was concentrated on this gary cohn story.

it came out, the markets went repudiated,r it was part of that was the market saying, it is a matter of time until this happened. he is the key architect of tax policy which remains to be entirely seen but him and steve mnuchin, the question is, is that time once on the table? what surprised me and other market participants was how sharp the the market reacted to what was essentially not priced in at this point. jonathan: there is what i don't understand -- we are a guest on that it wassaid rubbish, most people sit around the table and say it has been priced out. why are we having these moves around the administration when the consensus view is that there is not optimism in the price anymore as far as bc is concerned? >> i think it is a flow versus stock effect.

if you look at valuation of the s&p, it is not the trump policy that got us where we are. it is the dollar weakness -- the anti-trump trade. the sharp move yesterday, it is a matter of repositioning and market technicals. if we look at the corporate tax basket and overseas cash basket, on the bloomberg terminal, both of those sharply underperformed the s&p yesterday. that has to do with low liquidity in the month of august. repositioning technicals. you may see some version of these types of trades over the next two days. david: it is august and liquidity is low. you can have more violent swings. at the same time, i wonder, when it comes to gary cohn, clearly there is a reaction -- how much of it is tax reform and how much is having gary cohn close to the president in the white house? it is been perceived that he is

a steady, centrist person, experienced, is there concern that the president would lose someone of his caliber? >> that is a great question. it is circular in the context of , why are politics important for the equity market? generally they are not. in this case because of tax reform and infrastructure spending, which has died on the vine with regard to market pricing -- tax reform is still somewhat there. connect context politics become important. jonathan: help me understand how this position goes over the weekend. exitould be gerry cohen's and another would be steve bannon's dismissal. then another percentage went with drink. [laughter] jonathan: talk to me about how they are positioning? it is interesting

because what we saw yesterday was the market accelerated to the downside. we've seen an environment where the market moves 10 basis points or 1.5%. some of that has to be with dealers positioning in the auction market. -- in the option market. that is exacerbating selloffs but when dealers have long options near the money or the current spot of the market, it suppresses moves to the upside or downside. that gives us an idea of how the market is set up. on that basis, you would also expect the next morning, the futures to revert higher. we're seeing that now. knowing that any type of sharp move again will be exacerbated, most likely. on that basis you need to be careful when considering the potential for another spike in the korea news or in headlines related to the administration. david: you say careful, how are

you careful in that world? do you go to cash or safer assets? are there ways that you can play derivatives that will detect yourself? -- that will protect your self? >> the vix complex. if you look at volumes and vix relative to s&p, versus, we had a record volumes of the last 10 days. that product, especially the outperformance of -- the vix is moving a lot more than what would be suggested in the selloff of s&p. the way tot is protect yourself in this market. jonathan: what about drink? >> that is framing. absolutely. jonathan: you'll be sticking with us. , from new york

city, counting down to the opening bell. futures are stable after yesterday's losses. you're watching bloomberg tv. ♪

david: this is bloomberg. i'm david westin. for more on the terrorist attacks in spain and how they we areglobal markets, joined by the adjunct senior fellow at the council of foreign relations. welcome to the program. >> thank you. david: you're an expert in counterterrorism efforts. you spent time in europe and spain. , can thewe learn

spanish government and other governments learn from what spain tried to do to prevent this and what didn't work? >> you saw a quick and effective reaction from the authorities to the attacks that happened in barcelona and in cambrils yesterday. there is a larger question here. -- europevernments has had attacks in the last year, there is been an increase in interest in soft targets and using everyday items like a car to evoke great harm and destruction. the question becomes, are we creating a hostile environment for the ideology of groups like isis? the reaction on the law enforcement side and by police has been quick, there has been a slower reaction in our ability to stop recruitment from happening.

that is where we must turn our attention. jonathan: in terms of that issue, many of made the point that there are a lot of second around theeneration area of barcelona and those individuals are susceptible to the jihad message. because of an identity crisis. is there anything in that? >> that is been my argument for the last decade as we work on the issue of what is happening to muslim youth around the world. this is not particular to spain. there are some interesting facts that are important here. you're looking at a group of young millennials who are dealing with a crisis of identity but the expression of their own identity so that they see themselves as spanish as well as being comfortable with their heritage whether moroccan or pakistani as the case may be. in barcelona, how do they interact with peers?

learning about who they are and how they can be effective? ago, began toe look at the issue of culture and how they could do more. the conversation that was happening in cat5alonia -- catalonia -- how could muslims pray? whether they should build mosques. there were a lot of questions and the parents of the second and third generations of pakistanis and moroccans about the ability for young people to learn about islam in a way that made sense. these kids were going to garage mosques to learn. who was teaching them in these places that were not transparent? david: you talk about creating a hostile environment for this ideology. spain has thought about this and try to make progress? is that impossible? >> it is not.

this is not spain possibly it into carry alone. this is something that all countries have to look at. the ideology of us versus them that groups like isis and other habab,, al qaeda, sho they have created, they are looking at recruiting young muslims from the millennial generation and generations z. these are people who are connecting ideas around the world. it is not a question of region -- france, italy, the u.s., or spain. this is what is happening to the young person that during the crisis of identity, they are looking at groups like isis for leadership in terms of who they are as muslims. what we have to be able to do as government and society is to puncture that ideology of an us and them and create a different

type of environment for them to think about themselves. if we look at what is happened in europe in the last year where there is an increase of attention on what we would call the kinetics a, the law enforcement, the military -- we have not seen a robust effort in how to stop young people from finding this ideology appealing. to me, that is where we really must be looking in partnership with the kinetic side. unless we do that they will ure in younglowe muslims around the world. that number is huge. we are looking at almost one billion young muslims in the world in 2017. jonathan: we have a tense global stage. and they havetes, step back.

we face issues of north korea as market participants everyday worry and struggle about what it all means. as a participant, looking at the markets, do you see that tension? where is that tension bubbling to the service now? >> in the context of yesterday, the news in barcelona, collided and have no impact on the market -- and had an impact on the market. it is hard for the market to price and unknowns. so for that reason they can have an impact on the market. like a meeting is priced in ahead of time. but those events tend to be overpriced where is these events like north korea, took the market by surprise last thursday, was not priced in beforehand and had an impact. this goes to the broader i haveion -- one thing

found that is fascinating with investors is that there tends to be a grass is greener complex as far as risk is concerned. speaking with locals and investors in asia, last week, there was not a concern last week about the event. the sentiment was, why is the market in the u.s. selling off? even talking to european investors after the trump election they were highly bearish on the u.s. based on the election. you have to take all these things with a grain of salt. it is impossible to price them in but you always have to know that they are out there. still donald rumsfeld remains in our vocabulary. he left his imprint on all of us. thank you so much for joining us today. very interesting. cityg up next week, kansas fed president, and others, all

will be with us at jackson hole wyoming for the fed a meetings. live from new york, this is bloomberg. ♪

>> this is bloomberg daybreak. i'm emma chandra with the bloomberg business flash. no improvement in sales for the u.s. and canada. a 5% drop in revenue from the largest market this year but still, they raised their overall forecast. energy capital partners has agreed to buy calpine 45 $.6 billion in cash. ath debt, the deal is valued $17 billion. shares of foot locker plunging in premarket trading.

reporting second-quarter earnings that missed the lower estimate. sales fell 6% and foot locker says they will be down 3% or 4% for the rest of the year. that is your bloomberg business flash. david: thank you so much, emma. i won't ask you whether you buy your running shoes of foot locker -- but you are very skeptical about this right now, why? >> we follow trends in the sectors. in discretionary we have seen a reversal of trends early in the year. the sector still outperformed the consumer staples. sector technical and circular sector for why we are noticing trends in the sector. there is been a. there is been a -- there has been a span of earnings

weakness. compare that with a nominal gdp growth environment between 3% and 4%, how is that happening? in a positive growth environment? i think there is a weakness in the auto sector, and most importantly, the malaise in retail. especially apparel retail which is normally higher. jonathan: another company, it 19%,6 billion, premarket, these are monster moves in retail and a sector that apparently everyone was always bearish and. what is happening? >> in the retail sector, apparel retail, is momentum driven. you see large swings of earnings. basis, last wednesday's moves in the consumer discretionary sector, those were stark as well.

that potentially lead to the reason the market sold off last thursday. i do not think it is surprising in the context of the size of the move but relative to the sentiment on the street, it is something to consider. like yesterday, as far as the pricing of tax reform versus what actually happened with those stocks underperforming as well. david: jonathan: the markets first -- thathan: i can tell you foot locker was down 16%. we have seen a couple in a row. great to see you. from new york, this is bloomberg tv. ♪ ♪

track your pack. set a curfew, or two. make dinner-time device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. introducing xfinity xfi. amazing speed, coverage and control.

change the way you wifi. xfinity. the future of awesome. ♪ we were down in the close yesterday by over 1% across-the-board, on the dow, nasdaq, and the s&p 500. stocks deep into the red and finishing in negative territory.

today, some stability. up about 1/10 of 1% on the dow. -- on the s&p futures. when i came in this morning, pretty much every single industry group was lower on the day. we remain that way. in the fx market, euro-dollar 1.1741. pretty much every currency advancing against the u.s. dollar. treasuries stable after a wimpy weak. retail sales outperformed. yields went higher. yesterday. lower we settled down pretty much where we ended last week. let's get you headlines outside of the business world. here is emma chandra. emma: in spain, authorities saying there is a connection between two terror attacks. five suspects were shot in a town south of barcelona.

media reports say their vehicle beganer a checkpoint and running all pedestrians 14 hours rammed into a crowd in barcelona's las ramblas area. is claiminge responsibility. a top senate republican says that trump has not demonstrated the characteristics he needs to serve in the job. senator bob corker tells reporters there must be radical change at the white house. corker says the president has not shown the stability or competence needed to be successful. corker is chairman of the senate foreign relations committee. meanwhile, trump's search for a policy in the war in afghanistan is taking him to camp david. they will try to resolve the debate over the future u.s. role in afghanistan, where american troops have been fighting almost 16 years. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries.

i am emma chandra. this is bloomberg. david: thank you. one of the big events next week is the annual federal reserve in jackson hole, wyoming, where ecb president mario draghi is scheduled to speak. we learned that janet yellen is also to give an address. joining us now is gershon distenfeld. he manages about $50 billion across multiple funds. always good to have you here. talk about jackson hole from your point of view. people who lend money to people. is this important, and what are you looking for? gershon: investors will focus on it, because that is what they are to focus on. but i think they missed the bigger picture. there is a less than 50% chance of a rate hike this year. it is kind of a rounding error

when it comes to the economy. the bigger issue is we are five months away from a new fed chairman. onould not want to take bets what kind of person and philosophy that person will have. that is the bigger issue. where does monetary policy in the u.s. go 2018 and beyond. david: how much difference did we think a different fed chair will make? there is talk of gary cohn's a new fed chair. would he imagine anything different from janet yellen? anshon: gary cohn is unlikely candidate, but anything is possible. how do you handicap that? have you been able to predict anything this president has done so far? david: i have not. gershon: so did we get someone more hawkish -- who knows. very hard to say. jonathan: have you establish towards market bias is either candidate?

what janet yellen and another term would mean versus terry cohen. when larry summers was in the running, he was seen as the hawk and yellen was the dove. market hasthink the gotten comfortable with yellen as the fed chair. it is difficult to say if the market is expecting something different, but i think the unknown unnerves markets a little. credit isunnerve going to be the end in best a reaction. we have shaken off so many things. you can point to so many events, starting with brexit to the trump election to the turmoil today, the question is shouldn't have markets reacted negatively? and they have not. the question is what will spook the end investor. david: let's talk about speaking the end investor. suppose the balance sheet comes down faster with some different

person as fed chair who says they did not like the idea of this talent she anyway. and instead of saying it down to .5% to 3%, we take it down to 1.5%. what would that do to the investor? gershon: the and investor, mom investor, of the end mom and pop ones, they will not notice. they will notice how the big investors react. there is some opportunities in emerging markets, for example. there are places to go. broadly speaking, people think equity markets are overvalued. people -- where are you going to go? what people have to focus on is returns will be lower going forward. they will be lower. it does not mean we will have any type of disaster. the markets have shown a lot of resiliency. jonathan: it is not just the fed

chair speaking next week. is president mario draghi speaking as well. they have a corporate bond buying program. spreads in europe are incredibly tight. when we talk about sovereign, we often talk about how much money has come from abroad into treasuries. can we say the same about the credit market? gershon: there is no question that credit markets have ended up from stimulus. the difference in europe is there is not as much leverage. the high-yield market is much higher in europe. that is not mean we will not have our own version of the taper tantrum. investors will look. there is a lot of question -- it is feasible that they could start hiking before they taper. germany, what is tapering going to do for germany? not much. they could probably use a rate hike. investors should pay more attention to draghi than yellen. david: what have markets priced

in? speculation that they are at $60 billion now, then they will go to $80 billion. gershon: i have not looked at it that close. in the u.s., i think $10 billion a month, the equivalent of 25 basis points. probably not pricing in that much. it is a little dangerous to be in europe now. jonathan: get some distance. gershon distenfeld of ab will stick with us. "bloomberg real yield" at noon eastern time. dry me later is christian -- joining me later is krishna mema ni.

you are watching bloomberg tv. ♪

♪ emma: this is "bloomberg daybreak." i am emma chandra. coming up this evening on "bloomberg technology," the former chicago and d.c. departments of transportation klein.ioner, gabe private exit he bain capital have succeeded in their bid to buy stada. price, $6.3 billion. elliott management signaled it would back of it to firms -- back the two firms' offer. according to a person familiar

to the matter, failing to properly hedge bets in gas thees has made goldman lose gas that. to people familiar with the matter, so makers may go ahead with a proposal to offer digital rentals with movies weeks after they appear on the big screen. warner bros. and universal are in talks with comcast. jonathan: thank you. let's turn to credit. investment-grade bond sales are on the surge. still with us is gershon distenfeld of ab. is joining us now corporate -- talk to me about the driving forces that have driven issuance throughout 2017. 997 billion

dollars, very close to hitting $1 trillion. one of the drivers is m&a. but it is lower than last year. we are about 17% this year. a lot of refinancing. a lot of companies taking the opportunity, because i guessgershon is lending at cheap rates. jonathan: why are you lending at cheap rates? gershon: where else should i put the money. jonathan: the amount of people who sit around this table -- gershon: the $1 trillion number sounds like a lot. you have to put it in context. m&a is down. what matters is not the gross amount of issuance, it is the net amount. that is running closer to half a billion -- half a trillion on an annual basis.

that is 10% of the overall market. that was 14% of the annual 2013. in this is the type of market that is benign for credit. you do not want really strong economic growth, rick because -- because then you see more m&a. there are deals you have to be careful of, but the market as a whole is a little displeasing. david: the other thing you have to look at is leverage, what the balance sheet of these look like at the end. termsare we in historic in terms of leveraging of the balance sheets of these corporations? gershon: we are towards the higher side. the difference especially -- you mentioned the number in i.g. and high-yield, it is much more. in 2006, it was closer to 45%. and we know a lot of the deals that went bad in the 2008 period . jonathan: let's talk about the

issues we have had, where they are great -- not so great equity stories. i won you to say something on that particular issue. got in troubleab for saying something negative -- i will tell you what i told tesla management when i met with them. i happen to own a tesla. i am one of their biggest fans. i will tell you what a great product it is. just as much as i am positive on their product, i am skeptical on the business strategy. by their own optimistic forecast, it will take three years to become a free class -- free cash flow even. it should trade about 7% or 8%. and you have the technological obsolescence. you do not know what will happen to loan money to tech company seven plus years is risky. jonathan: or 40 plus years in

the case of amazon. nabila: and the way tesla has traded has probably proved you write. bonds are down a lot. market did get caught up. it is a storied name with a large equity following. i am not saying it will be a default candidate. i will say on amazon -- i am not an expert by any means on amazon, but i will say that 40 years is a long time. 10 years is a long time. gm was rated aa five years before it defaulted. jonathan: what is the signal from these issues the last seven days or so? is it complacency, a market that will take what is given to it because they have nowhere else to go? gershon: it is typical late market behavior. people still need income. managers will not return the money to investors, so you have

to invest in something. this is the kind of activity we have been talking about for a wild. we are starting to see this creep into the public debt market. i do not think why on that scale yet. what will break it -- what will spook investors is hard to say. david: to come back to jonathan's point, if you are a corporate investor trying to build -- deciding how to build capital, would you borrow money or issue equity? nabila: you look at what is cheaper, and it is so much cheaper to borrow money. things like shared buybacks are down. maybe you feel like you need to cushion them a little bit and go to the debt market. jonathan: that may be the strongest message, prioritizing the equity. gershon: that is typically what happens. abid: gershon distenfeld,

director of credit, thank you. and nebula ahmed, thank you -- nabila ahmed. if you have bloomberg terminal, go to tv on your terminal. live from new york, this is bloomberg. ♪

♪ this is bloomberg. i am david westin. wrapping up a big week of retail earnings. mixed bag from stores like macy's, walmart, and target. joining us now from his office is t.j. thorton, jeffries managing director. welcome back to the program. sort this out for us. it seemed like there were the misses and people doing alright but still got hit. who was successful in these earnings? t.j.: it was a pretty complicated earnings season. we actually went in thinking the

bar had been set very low for the quarter. that turned out to be the case. mediumcompanies beat, companies, by about 4%. many of the companies that beat did not go up. there were even companies that had down sales that still went up. so at the end of the day, a lot of it came down to needing to beat, meeting expectations to be low, which explains why home depot had a hard time rallying. by the market also needs to believe you have a sustainable is this model going forward. it was not enough to put up a good number for the quarter. there has to be some view as the ability to put up good numbers. david: let's go to walmart. a narrow beat, but a beat. but it still went down significantly. that is a good brand, so why did

they get hit? t.j.: that is actually a name that our retail analysts have been recommending for a while on this turnaround story. that is probably also an example of high expectations. the view has generally been that these guys can survive with amazon, owing with their scale and their ability to price successfully. they have had good success in the e-commerce of late. as was the case with depot, which had a good number, and that stock also couldn't rally. david: talk about someone who got killed -- jcpenney got hit hard. today, we have foot locker out. got really hit hard. the ceo get ahead of this, why not write it down, get it cleaned up so they can start building back up? probably -- that is what some companies have

done. that might explain why certain names did better. if you look at something like coach, the turnaround has been going on for a few years. that stock has worked pretty well relative to the rest of retail. they did not have a great quarter. thatohl's a starting to do right things. that was a big mover. they still had down sales, but they beat low expectations. they are doing a lot of things to get out of the channels that are less attractive, like the time when -- department stores. the companies that have tackled this head-on, you can argue that for ralph as well, though we do not cover that one, are getting rewarded. because people think what they are doing is sustainable. that they are halfway decent brands. they will not compete against amazon. jonathan: talk to me about

mitigation with management at the moment. there seems to be disconnected to lean what management is delivering and what the market and ask. if a stock is down 20% after earnings, at some point through the quarter, there has been a massive comedic asian -- .ommunication error i am wondering what your insight is at the moment. are you having those discussions with management on a regular basis, are you getting the access he would have typically gotten 12 months ago? -- i am nottell you the retail analyst, but i talked to our retail analyst all day long. we held a conference in june in nantucket, which, for many of these guys, was the middle of the quarter. indication and body language about how things were tracking, but people were reluctant to give explicit

numbers. that is part of the issue, but i agree with you. people should not be this surprised. another thing we have increasingly seen in the last two quarters is there is more and more data available, which is another reason why it is a bit surprising to see something like foot locker go down 50% or -- 15% or 20%. is promotional data online, all kinds of things that should prevent that kind of stuff from happening. and the original point, what is working, what does not work, what these companies need to do is people need to be confident ,hey have cleared the depths cut numbers for the final time. in many cases, they are not confident of that. david: and you know equities well. tell us how the market is positioned in terms of short interest on these retail stocks? t.j.: we have recently taken a

look at this. we looked at the s&p 15 -- the s&p 500. -- of the s&p 1500. we took the 150 stocks and looked at the median short interest among those stocks. the lasten rising several years. there has been a big uptick this year. it has gone from median short from 20%.o 23% some of this is legitimate. obviously, retail concerns are a bigger deal now. there are media companies there as well. people concerned about the long-term there. one of the things we think about is there are probably many areks in that basket that challenged, but they are -- there are also a number that have been unduly punished, and their future is better than

people would give them credit for pa these stocks are pretty cheap. there are likely opportunities. jonathan: thanks for giving us some of your time. t.j. thorton from jeffries -- t.j. thornton. coming up, brian jacobsen and bloomberg view columnist mohamed el-erian. big lossesrk city, yesterday. the biggest one-day move the s&p 500 since may of this year. futures up four points on the dow. positive two on the s&p 500. you are watching bloomberg tv. ♪

got you outnumbered. the dinosaurs' extinction... don't listen to them. not appropriate. now i'm mashing these potatoes with my stick of butter... why don't you sit over here.

find your awesome with the xfinity stream app. included with xfinity tv. more to stream to every screen. ♪ jonathan: global stocks drop to havens after a terrorist attack

in barcelona. five prospective terrorists killed by police after twin attacks in spain. islamic state claimed responsibility. republicans and the president look increasingly divided. senator bob corker says the white house needs radical changes. from new york city, good morning. i am jonathan ferro alongside david westin. alix steel is away today. 30 minutes away from the opening bell. big losses yesterday. the biggest one-day move in the s&p 500 since may. the dow, the nasdaq deep into negative territory. today, stability. s&p 500 futures dead flat. no stability for the dollar weakness. 49 is how the single currency trades. the treasury market does show up a bit of a stable reaction. across nasdaq.ry let's get you up this bead on

the movers. here is abigail doolittle. abigail: happy friday. lots of premarket movers. tradingshares of deere down after they missed estimates. they also provided a sales forecast and eps view that some are saying is unrealistic, since the company is saying its north american agriculture business is likely to decline. this stock up about 20% year to date. quarter. was not a wow also the indian-based i.t. services company. the ceo has resigned. this is not an entire surprise, because it has been a spat between the company and the board. analysterg intelligence saying what could be tricky next is finding a ceo that is not

from the inside. all of the ceos were insiders. and foot locker getting after an ugly 21% quarter. they missed earnings by 31 percent, sales by 5.5%, really showing there is slowing demand for athletic thirds. and you have to wonder what the effect of online commerce is on foot locker. really getting hit today in the premarket. jonathan: the lack of communication between retail and the analyst community is ridiculous. when: there is a bigfail stock went down that much on earnings. jonathan: when you miss numbers on the consensus estimates by that much, it is remarkable. markets. to the s&p 500 had the second worst day of the year yesterday. joining us for more is brian

jacobsen, senior investment wells fargo.t and the yellow line there is speculation that gary cohn may step down and the red line is what happened in barcelona. the first move was speculation about gary cohn. would he stay, would he go? giving the stamp of approval to gary cohn in a significant way. he matters in a big way. why? >> because wall street trusts him. he has been wall street's primary lens through which they viewed the trump administration as doing something effective. steven mnuchin, gary cohn, they sit on both wings of trump and are his economic advisers. marketsle that when debate whether or not these reforms and sweeping legislation will happen, they do not look to

trump necessarily, because there has been so much negativity surrounding his own comments, his own policy. but there are these people who are stalwarts of the financial industry, come from places where these guys recognize. he would be pro-business and progrowth environment. if he goes, a lot of that goes. mayome extent, some of that be that he is a force behind the trump trade we saw and the entire reflation reform expectations in the market. jonathan: that was the interpretation yesterday. i got a lot of messages myself, people asking about gary cohn. a lot of the market participants are nervous about the prospect of him leaving. is that an accurate interpretation of how much he means to the direction of policy or is it misplaced? brian: he certainly matters a

lot. it is one of the reason why there are rumors about whether he will be nominated to be fed chair that he better serves the investment community and the public at large where he is now as opposed to in the federal reserve. he is a breath of fresh air. he has strong opinions on a solid foundation. there is also the question of who would fill the void if you were to step aside. gary cohn, he knows what people want to hear. he seems to be a straight arrow. a goods to also be advocate for the things that investors are looking for, which is to have lower regulation and a reform of the tax code. pricing inhe market gary cohn now, and that is why it went south? we have been told the markets price out a lot of that upside. market priced out

some of the upside as far as the timeline for time -- tax reform. if you think about the beginning of the year, we had high hopes as far as when things would get done. now, we have shifted into lower expectations as for the timeline for when things get through congress. it is not just a matter of the president pushing for it, it is also getting a divisive public and controlled congress to go along with that reform agenda. it is tough to know when it happens as opposed to if it happens. the move down in the markets with the announcement from gary cohn, in the grand scheme of things, it was not mature. if you look at the movement .tself, we are up year-to-date a percent here or there is a rounding error. jonathan: i wonder if we are looking at this the wrong way. not whether gary cohn can help the administration with tax reform as opposed to what he can have them stop themselves from

doing. vacuumleaves a void, a in the white house, the has to be filled by someone like steve bannon and the kind of things the market does not want. oliver: that is fair. people like to envision gary cohn as a poor second tell the president if you want to get anything done, you have to see the forest for the trees, you have to see the bigger picture. that even if you want to fight these battles that the president has so far, most recently this ofe discussion out charlottesville, he is the first person who will stay if you want to bring wealth to the country, you have to put those aside. this will be the primary focus. he is not there to do that, and that vacuum is there. bannonn: the dan and -- interview is interesting, because he said it was they gary cohn coalition that is holding him back.

david: going to economical war with china, and gary cohn is holding him back. when you look at equities, the things that affect your decisions, where do something like gary cohn tax reform appear on that list? towards the top or what is at the top? is moreowards the top of the fundamental view. if you look at market reactions, barelyap stocks are treading water. because of a good tory government. stocks can still be the way even if we do not see lots of reform. that garyth the idea cohn is an important figure, especially when it comes to fiscal policy. but when it comes to some of the other things, as far as being able to navigate things through congress, i do not know if he has proven he is able to get that done yet. ofis not exactly at the top

my list that are important. underlying that large-cap companies are profitable year-to-date. according to the international investment name, only about 30% of investors are anticipating continued earnings growth the next year. most analysts are expecting some earnings growth, but a moderation of the growth rate. a growth rate of earnings continue, which means i continue to be bullish. jonathan: these changes are fascinating. at the start of the year, the s&p 500 forecast was lined up. a lot of people saying we will get great, juicy tax reform. now we say we will not get that anymore, but the s&p 500 of them have been revised higher. can you help me understand that? oliver: revisionist history, flexibility. here's the thing -- i will push

back a little bit in that there has been fundamental excitement about what is happening out of base earnings and profitability level since the election. we have come out of this long slump from earnings towards the end of the year. we had future -- huge first-quarter earnings. people knew that was coming. a degree ofmp was xml that comes from here is an outcome we did not expect that could potentially have a different environment and ramifications for business. i am not sure if people are saying we can ignore the trump turmoil happening right now and go on with our lives and put 10 the trump bump did not push the market up 13%. the basis of what they are saying is there is enough strength fundamentally to hold on and not sell out, to look at those guys who have lowball bets on the vix and say i will hold on to that that, because we will keep going up on the fundamentals story. david: when donald trump ran for

president, he did not say he is running so we can hold on. he said we would get growth coming in. that is what got the. he excited, they wanted a progrowth environment you do you think the environment a strong enough to do it without donald trump? brian: i would push back a little bit on what oliver was saying about the trump bump. it did a little bit. , we will getiment another reading for that in august at around 10:00 your time. that still stays high. as far as fundamentals in the global growth story, that was approving that is improving at around the same time. the election of donald trump being a bit of a catalyst, but most of the foundational support was because of the economic outlook.

things are not all that bad as far as policy. things could get better. even if we maintain status quo, it is not that bad in the situation. we can still have 21/2 -- 2.5% growth. maybe 2.5 percentage points. it matters on the margin, but i do not think you can attribute all this to a trump bump. jonathan: brian jacobsen alongside oliver renick. to investorsing during the commercial break to find out what they really think. coming up next week on "bloomberg daybreak," we will catch up with bill simon. from new york, you're watching bloomberg tv. ♪

♪ this is bloomberg. i am david westin. a wild week in washington. trump came under fire for his comments about charlottesville. ceos fled his counsel. and senator bob corker says the president has not shown stability or competence in the job. public policyf joined us yesterday on what a tax policy reform will now. >> look like>> the best you get now is tax reform lite. at the end of the day, it is more like a tax cut. that we do not think it is a powerful enough to affect the economy. david: joining us now is grover norquist. great to have you here.

care about this deeply. where are you on what you think can actually get done this calendar year or in 2018? a couple of things did you will see significant rate reduction on the corporate side the goal of the white house is 15%. i think you're looking at something between 15% and 20%. anyone would go to 50% if you could make it fit. what you're looking at dramatic rate reduction on the corporate to talk about higher numbers. that is what obama was willing to do. this will go further than that. aptern the sub-ch partnership side, that will go from 4%, depending on how you are structured, down to 15% to 20%.

the question is what else fits in the box? what you need is it needs to be 11 tot neutral in years 50. not the first 10 years. yearu raise a dollar in one or year nine, it does nothing to make the tax cuts fit somewhere. it is all about the future. what will happen, to make it to cbo, jointg tax, everyone who makes predictions, and push them for a more dramatic expectation of what revenues you get from a dynamic score. that will get the box bigger. and it will make some of the tax cuts temporary. but as you saw with the r&d tax credit, good, progrowth, temporary tax credit becomes permanent. weid: to what extent -- and will call it slight of hand, because we have seen it before,

is essentially not make it permanent and therefore able to abide by that deficit neutral in years 11 through 15. will that really helped corporations if they do not have permanence in the tax structure? grover: several things -- you can take that 10 year window and make it any number you want. there is nothing magical or legal about 10. at has been 5, 7 -- the largest number is bigger than five. you can take a further out if you wanted to. i think they want to do 10 because that is what they are used to. some of those tax cuts will be made temporary on the understanding that when you get to year 11, of course it will get kicked out permanently. you can also make sure the business community gets this, because every year, you have to do one of these. years, and for 10 the next year, to get out another 10 years, meaning this will be here forever, and we have some stupid rules we have to live under, but this rate

will be down. i think you see 100% is this expense for three years, not permanent. which gets you past two elections and would help incentivize people to make more investments. finally, when you said 15% to 20%, when we had gary cohn on last, he used 23%. would you take a deal at 22%? grover: it depends on the rest of it looks like. there is room to do better than that. 20%, wemind, if you did have, on average, state corporate income taxes at 4.8 percent. so 20% is 25%. you are not at the european average of our corporate rate is 20%. average.bove european you need to be digging deeper. i think they will be able to.

the one thing that would make this the trump tax cut as opposed to the republican tax cut would be getting closer to 15%. the republicans' opening bid was 20% when paul ryan put his together. republicansd to directly, but they are talking to each other every day. their staff is talking twice a day. haha -- go back to her three months. .hat keeps moving the republican congress needs to have a tax cut now. because of elections in 2018. david: grover, thank you for being with us. , president oft americans for tax reform. later this hour, we are joined by bloomberg view columnist

mohamed el-erian. live from new york, this is bloomberg. ♪

♪ tensions as political mount, the futures of the u.s. equity market remains uncertain. financials and technology have been some of the best performance -- performer since the election. but sector growth has slowed as concerns mount on the trump administration's ability to achieve its business friendly agenda. the tech sector there has rebounded up 22% with big games from apple, facebook, and microsoft. the question from here is a where did the outperformance, from? still with us is brian jacobsen, it and around the table is oliver renick as well. ways, tech was the anti-trump trade and financials

were pro-trump trade. where you stand on those sectors now? brian: i am in an uncomfortable spot, sitting on the fence between the two. that is a good way to think aout how to position portfolio. you can straddle those sectors. both of those sectors under waiting certain sectors, perhaps materials, consumer staples. the reason is if we get decent growth, the federal reserve will likely continue to hike. that will likely steepen the yield curve and will be good for financials. when you have better growth, sometimes, growth stocks do not get the same date as value stocks. p.e.'s areks, there typically higher when growth is scarce. so i expect that sector to underperform a little bit. but there is still good cash flow generation in those companies.

the flipside is if growth is not that good and financials underperform, the tech sector is likely going to outperform. for a diversified portfolio, i like those of them. jonathan: is that where you see the values get exposure? brian: if you look at the u.s. markets right now with the financials, they remain attractive, but if you look outside, say in europe, those are trading at more favorable multiples. historically, you can think about price-to-book being a better metric for looking at financials. european financials are trading at a discount, whereas u.s. stocks discounts are trading at a premium. i would prefer to look at more european financials and maybe u.s. tech. david: quickly, do the numbers indicate tech is running out of steam? oliver: if you look at the

earnings expectation, look at bloomberg, right after technology stocks, you have material stocks. financials are there in terms of exciting double-digit earnings growth over the next year. however, if you were to pick one part of the market that has mostlyrated that they care about what will happen in washington, banks are a big part of that. oliver renick again brian jacobsen staying with us. coming up, the opening bell about four minutes away. futures turning a little lower. softer. down by 1/10 percent on the dow. from new york, you're watching bloomberg. ♪

♪ york, let'som new get you updated. futures are soft on the dow and s&p 500. by about a 10th

of 1%. yesterday, broad east weakness -- broad-based weakness. stocks onw, all 30 the index in negative territory. equity story coming into the open. let's get to the bond market. retail sales are solid and yields are higher. yesterday, yields lower. this morning, yields are lower at two. 17. the dollar down against everything, including the euro and sterling. picture, 30set seconds into the session. here's abigail doolittle. abigail: after yesterday's big selloff, the worst of the dow, looking at a mixed open in the u.s. the of the dow and s&p 500 lower. the nasdaq ever so slightly

higher. it looks like the bulls are in a battle with the bears. it will be interesting to see how it plays out, especially as we are looking at weekly declines. fourth weekly decline for the nasdaq. first time that is happened since the middle of may. cautious,r has been saying he is less inclined. not a buyernky is of the dip. let's take a look at the movers on the open. looking at the retail space. a mixed bag. gas trading is a little higher. theyrday, the premarket, put up -- ross stores up in a big way, soaring 10%. retail is doing very well.

finally, look at foot locker. getting pummeled. ugly quarter there. they missed sales by more than 5%. and they are closing 135 stores up from 100. that is telling us the story that e-commerce is taking a chunk out of the locker cost business. big loser on the day. we did have a big selloff yesterday. charts the year-to-date showing the percentage change on a daily basis. that may not be the best way to look at it for the vix. it does tell the story. we see lots of small moves. the complacency we had been seeing for most of the year, but we are starting to see bigger most. lastly, we had that 44% spike. yesterday, more than a 33% spike higher in the vix. it'll be interesting to see whether or not more volatility is ahead. typically, volatility breeds more volatility. jonathan: this foot locker story

struck me. i woke up this morning and realized that e-commerce exists. david: the company is worth 25% less because of e-commerce. jonathan: what happened this quarter? and why are not they talking to people about what is happening with the business? david: that is what they are supposed to be doing, communicating. jonathan: apparently not if you woke up and lost a quarter of your market cap. david: but they are taking the hidden closing many stores. jonathan: i am learning about that this morning. they are never done. the market looking resilient. yesterday, risk assets have recovered impressively from a

selloff triggered by concerns about a north korean nuclear attack. they have highlighted the defense and was traders and investors are confident about the environment they operate in. joining us is mohammed ek l-erian. mohammed, let's talk about what you have learned for the last couple of days. mohammed: any fluid and geopolitical environment -- in a political any geopolitical environment, there will be risks. this is a market that still has its own stabilizing, and for good reasons. there is confidence about a goldilocks global economy, and central-bank support, and there is money being put to work. this is difficult.

perspective,al's from a tactical perspective -- from a tactical perspective, their people buying into the dip. but you have to worry about the volatility. jonathan: there is as underlying, quiet fragility that comes to the surface. yesterday, some speculation that gary cohn would or would not be the white house. you saw the market reaction. what did you make of that yesterday? mohammed: that makes sense. the market at some point realizes that you are going to need better fundamentals stability asset prices. in the better fundamentals require significant policy -- and the better fundamentals required significant policy measures. when there were questions about gary:, sector input, and who was the best team in place and is very involved in wasrowth, when the question

brought up, market get were repaired david: we have spent trillions of dollars to keep the boat upright. what is the price? you suggested that perhaps governments don't have the pressure to make fundamental reforms. is there a danger the private sector level were companies and investors are not making tough decisions? mohammed: absolutely. my major concern about this all --iod of liquidity support and we have been in it for a long time. before the crisis, it was about private factories and leverage, and now it is about central-bank down sheets. my central concern -- my main is --l -- my main concern you can boost asset prices. but at some point, you have to handoff to fundamentals. you have to validate the asset prices. the longer it takes for that

handoff, the greater the risk of financial instability. so yes, one should be worried. the simplest way to think about it is the distance between a journey and a destination. you can have a really enjoyable journey, but at some point, you have to focus on the destination. david: foreign equity investor point of view, are you concerned about asset prices being inflated? >> not in the near term. if you think about valuations, they are terrible market timing tools and don't tell you when the markets are going to go over the next few months or couple of years. they might be good predictors loosely good predictors over the longer term, say five to seven years out. but if you are thinking over the next few months is this a good entry point or not are good exit point? values will not tell you much about that. it is about where you are going to want to deploy capital for the long-term. that is where i look at more relative valuations. i understand people are worried about valuations trailing 12

months of the next 12 months, but most investors should be looking out the next three to five years of earnings. if you do a price to earnings on the basis of where we are going to be for years from now, regulations aren't that unreasonable if you assume we are going to keep a decent pace of earnings growth. we have had 10% year on year earnings growth. i don't think that pace will continue. but if it moderate something close to 6% of 7%, that is not a bad earnings environment. i think the fundamentals have been catching up to the support that mohammed has been talking about. jonathan: let's talk about something regarding credit. we know that historically credit leave equity. from speaking to so many credit investors, we are seeing seriously cycle behavior in the credit market. what is the signal in the credit market at the moment? investor, an equity you should be paying a whole lot

more attention to that asset class? mohammed: normally, you should be paying more attention. the signal is that the yield compression has gone too far. two things -- massive issuance. lisa has a great piece today showing just how much has been issued in august. so, companies are rushing to issue. on the other hand, people are worrying about valuations in the high-yield market for the yield compression has been very large. the problem, jonathan, is there a lot of liquidity around. people are 20 train playing the fundamentals, which says, you know, it is flashing yellow, be careful. and playing liquidity this is the right thing to do is to buy on dips. and people are really torn. you will see this play out in barry's market segments. jonathan: that tug-of-war is becoming a problem. there's a disconnect between acid fundamentals. -- asset fundamentals.

we had a viewer writing a question on the bloomberg, talking about what could cause asset prices to come now materially? mohammed: you need either a worry big lec mistake, or -- you mistakeher a vary big or -- more generally, and i keep stressing this. the right trade in this environment is fewer dollars at risk, but that those dollars at risk in underperforming markets. for example, you would have been better off taking some money out of the u.s. and putting it into american markets and in europe. tech, you would have been better taking money out of the tech in the u.s. and putting it into alibaba. there is a trait with your dollars at risk, but pick your spots where your remaining dollars are invested. jonathan: talking about momentum

to the downside. great when you see strength and futures and in the market negativity is strong enough to turn it the other way. one thing we are thinking about that is different within his breakdown right now -- we're seeing more companies making lows and more companies breaking down. i am looking at a chart that is momentum. it does tell us something interesting. if you look at the number of companies that got sold really quickly, it is not that much come about 12% of the s&p 500. that is the most that we have had this year, but if you look at right before the election, before brexit, go back to 2015, we are not even close. what this tells me is when you think about valuations, there are plenty of companies that are trading at -- trading within

this five-year. of -- within this five-year period. jonathan: we will wrap it up. thank you. mohammed will be sticking with us. we are counting down to jackson hole. we hear from ecb president mario draghi. 12 minutes into the session. softer weakness in the u.s. 1%t of about a quarter of for the downside today. the dow up i-43 and the s&p 500 negative six. from new york, this is bloomberg. ♪

♪ >> this is bloomberg daybreak. i'm emma chandra. cio andmer fund hockey had a fixed income is coming up. next week, central bankers will be getting together in jackson hole, wyoming for the annual event where janet yellen and mario draghi will be speaking. still with us is mohammed a bloomberg. mohammed, you mario draghi, janet yellen, who will you be paying more attention to and why? mohammed: from a market-perspective, i will be paying more attention to mario draghi. why? simply because the fed is well in marked to borrow rate of values. a beautiful normalization.

the fed is not going to want to shake that process. i don't expect janet yellen, as chair of the fed, to be saying anything. i think she will focus on financial stability and not a monetary policy. very different situation from mario draghi at the ecb. they are about to embark on a process -- on a tapering process. they will have to explain how they are going to do that. the economy there is more fragile than the u.s. so, i think that draghi cost comments will have more information content at this stage the new yellen commented david: take those comments and put them together with the accounts this week. how much did they take away from what draghi might be saying. ? are not seeing strong evidence of inflation and focusing on the strength of the euro. does that take a little thunder away from mario draghi? mohammed: no, if anything, it

shows you the dynamo they are in -- it shows you the dial-in they are in. dilemma they arte in. inflation at a time when i getting the inflation you want. at the same time, mr. draghi has to respond to other things he a seeing in the economy and politically. if anything, what you saw from the minutes yesterday, radel much increased -- very much increased my interest in what he's saying. jonathan: we know at some point next couple of months, and what we understand is that they want to hold off until the fall and communicate to the market what the next move is. qe at his current pace set to

the end of this year. what is next? mohammed: less qe will be very gradual. you will see central banks remaining cautious. you're going to see central banks erring on the side of being more dovish than they would otherwise, and they will remain data, dependent -- data-dependent. central bankers are trying to soft land this plane they are in. are givingent panels them very strange readings. they're trying to figure out what instrument panel to trust. if you are in that environment, your ultra-cautious. that is what you're going to see from central blanks -- banks. jonathan: i want to get your thoughts on the federal reserve. the ecb has drawn a line in the sand. they don't like what they are seeing. the last thing janet yellen needs is a stronger dollar story because they have had a very marketable environment.

how do expect policy to evolve? at the moment, the take away from the most recent minutes is that it is a very confused federal reserve. they will potentially hold off on rates until the end of the year or maybe longer. should we be paying more attention to the most recent comments from mr. dudley? mohammed: the fed will not assert itself on markets for a while. they're comfortable with the notion that if there is a high, it will be in december, not september. they are going to waiting get information and react. side, they the qe are going to try to make the production in the balance sheet is born as it can be. so, look at the fed right now not to want to make headlines are news. just a monitor the developments. and hold up at the possibility of a december hike. david: ok.

mohammed will be staying with us. if you have a bloomberg terminal, you want to check out tv . you want to watch us online and click on our charts and graphics, and watch what mohammed had to say. just go to tv -- just go to tv on your terminal. live from new york, this is bloomberg. ♪

♪ similar powerful imagery decorates the compass of the new yorker, the economist, and time. still with us to discuss is mohammed. us from washington is a governor of economics. really powerful imagery. who is in control of the white house message this weekend, and can they control the narrative? >> currently, john kelly has had a challenge in front of him. everybody remembers those iconic pictures been a tuesday press

conference. donald trump does not have any public events this weekend. so, he me be able to control the message, but we will see. donald trump goes to camp david, let's see what comes out of that. david: how big a problem is the president doing that the republicans? as we been on the air, mitt romney has come up with a facebook post and is a marginal powerful one. this is a defining moment for president trump, but a moment that will define america and in the hearts of our children. they are watching. the soldiers are watching. the world is watching. mr. president, act now for the good of the country. their is a growing -- there seems to be a growing chorus, calling for the president on fundamental change. is a possible? >> so far, we have not seen any possibility of that. i think mitt romney, as a rival

to president trump, is not as important as people like mitch mcconnell. and now, and i would say that donald trump paschi attacks on mitch mcconnell earlier this week are much more potentially damaging then anything mitt romney might say. mitch mcconnell is very popular in the republican caucus. in the senate tends to rally around its own. he is going to have some damaging control to do. jonathan: think about markets and investors. you have run investment committees and sat around tables. if you had that meeting this friday going into the weekend, how on earth would you want to be positioned? never mind next week, but thinking about the weekend events in the things that could happen. you would stayr, somewhat more cautious, but let's not overplay this because economic and financial fundamentals have tended to shrug off politics.

the really interesting thing is as much as how the u.s. is perceiving itself, is how the rest of the world is forcing the u.s. like others, i got lots of calls from people in europe, asking what is going on, mohammed? how is this going to play out? in -- and this concern outside of the u.s. because the u.s. remains at the center, at the core of the global financial system. the u.s. is meant to anchor the core, not to be this politically, volatile place. damagenderestimate the that this does to the u.s. standing in the global economy. david: completely right. at the same time, to what extent does the united states help build the rest of the global economy to the point where it is strong enough that we can stumble a little bit, but still go ahead? mohammed: we can stumble a little bit, but we still are the issuer of the reserve currency.

people still trust us with their savings and investment our security. we have veto power in many international institution, and on the most powerful country. so, we still matter a great deal. it is not like you're going to handoff to someone else to stabilize the core. if this continues, we are going -0, which iso the g inherently more unstable. jonathan: mohammed, appreciate it as always. 26 minutes into the session. futures were former -- were firmer. the coverage continues right here on bloomberg tv. ♪

vonnie: it is 10:00 a.m. in new york and 3:00 p.m. in london, and 10:00 p.m. in hong kong. i'm vonnie quinn. cherish andnew

welcome to "bloomberg markets." ♪ u.s. stocks open lower after the selloff yesterday and we will get to that in a moment. university of michigan sentiment coming in at better than expectations. the current conditions where little bit less than forecasted at 111. remember that this is the preliminary data and we will get it revise later in the month. one-year inflation is coming in at 2.6%, same as last month. five to 10 year inflation disappointing a little bit. a batch of data that is pretty mixed. consumer sentiment and business sentiment pretty good when it comes to the future, but expectations for inflation not so much. let's get a check on how markets ar