the red after the tax plan will increase the deficit. a training rage. stocks posted record highs for a eighth straight quarterly gain. inflation fails to pick up vincent tempora. u.s. results are on the. david: welcome to bloomberg daybreak. we are right here with alix steel. jonathan ferro is off today. alix: we made it to the end of the month and the end of the week. the s&p is flat. euro-dollar is higher, up .2%. the 10 year yield goes nowhere. crude takes a break. it is steady as she goes into the end of the quarter. take a look at rent, bull markets are up. bigrtheless, there was a

move in the last few. emerging market stocks are up. 14 basis10 year is up points. that's a big move. david: coming up, it's personal income and spending data. at 10:00, we get data for the month of september. at 11:00, we have a full week of fed speak. that.ill be talking about we turn to emma chandra. emma: president trump is promoting his tax code to the national association of manufacturers in washington and the $6ased outlines of trillion plan. you can watch the president remarks at 11:25 a.m. eastern.

federal immigration officials say 500 people arrested during a sweep the targeted sanctuary cities. almost two thirds of those arrested have criminal records in the united states. theresa may is in estonia. this is ahead of the meeting, she spoke about frexit negotiations. they have made their lives in the u.k. i want them to stay. we've been negotiating for that. we want their rights guaranteed as well. is interested in the defense of your. the bank of england told bbc radio if the economy continues to be on the track it's on in the near term, you could inspect interest rates to increase.

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. alix: thank you so much. president trump announces plan for tax reform two days ago. the dollar rally slowing down as the optimism about tax cuts some hurdles. said andhat our guest why they are skeptical. since 2008.xisted 50% of companies are taking it down into that. currenty extending editions and knowing the history makes us skeptical this is going to unleash. opennk this is an question. >> don't react news headlines. investors should be focused on the things they can control. make sure they invest in a diversified way. tune out the short term noise of

what's going on day today. detailedis a lot to be as you pointed out. this is still a blueprint. we don't know about the balance between cuts and reform. we don't know enough about the impact on the deficit. i think of it as another step in the design process. there is still a lot to design and you have to implemented >> it can be a hard sell. senator corker might be right. i dubbed the health care pay plan, they kept going back to it with symbolic. i don't know that this is going to be a lot better. i don't the what they are trying to accomplish. alix: join us is the wells fargo asset manager. we don't know what we are working with.

the market still has optimism. this is the bloomberg dollar spot index. tvi assume in here, you can re-rating that we have seen in the last 48 hours. how are you playing that? >> good morning. we are dollar bullish short-term. with regard to tax reform, there are three things. one is the devil is in the detail. there is a much bigger story. no one has a clue how this will be financed. cutting corporate tax rates and reducing higher end income tax and getting rid of the estate tax, how is the going to be financed? right now, we are getting a positive perception. we see increases in earnings on the s&p and the banks. how is it going to be financed.

if it is deficit increased, rates are going up. if you are increasing cash flow estimates, you will see an increased discount rate. the reality might be more negative than higher rates. the biggest story, i don't believe it's the tax trade. the bigger story is the global reflation theme. alix: that's an interesting set of for what it means for yields. if it increases the deficit, we will have higher long-term yield in the u.s. if you're gearing up her global reflation, that means weaker yields in the u.s. how do you square those two views? long-term dollar bearish. cycle isthe earnings going to be big capital outflows into europe and the euro and

emerging markets. that means there will be dollar weakness. tax andbased on quantitative tightening. that will be dollar will us. rates will go up. yields will go up. we have seen the bounce in the u.s. going from a two o 52 230 in germany. we have gone from 30 basis 250.s in it's not just about the u.s.. this is global. the u.s. is leading in yields. there is a catch up going on all over the world. it is good for value investing. david: when you talk about being dollar bearish in the long-term, is that because of the u.s. specific? do you see the fundamentals turning around? is that more comparative?

dale: it is far ahead of the rest of the world. it's where we are in the cycle. we need to stop and think about this in terms of the bank value divergence around the world. the u.s. that it is an outlier. they are tapering the balance sheet in 2013. we might see tapering from the ecb in 2018. that is five years later. the u.s. started raising rates in 2015. we might be the ecb in 2019. that is four years later. outlier, they have raised rates four times already. they are going from qe qt. cycle,rent economic these are very long-term. we have a five year time line. in the next three to five years,

dollar capital is going to shift to where the better returns are. be better valuations and rates, we believe that is in the eurozone and emerging markets. david: are you discounting the possibility of tax reform that would encourage substantial capital investment? dale: as i said at the beginning, the devil is in the detail. haveve a small team, we constant skepticism. we are skeptical of everything. you need to be. we are also very long-term. i would suggest the hype around u.s. tax reform and the positive, that it is we have not seen the other side of that. how is it going to be financed? will there be pressure on rates

long-term? you cannot have your cake and it. there could the people who benefit short term from this. fulfillld re-create or animal spirits. the u.s. economy can keep going a little longer. much will bevery sticking with us. we will tackle some of those questions later in the hour with gary cohn. he will be joining us. just how far is he willing to take the deficit short-term. this is bloomberg. ♪

emma: this is your bloomberg business flash.

volkswagen will take a charge of $3 billion as it lands to buy back tainted diesel cars. it is more complex than expected. total damages of the cheating scandal is $30 billion. call this morning on chinese debt. by 2021. 134%, it is the highest among the large economies. credit suisse is lashawn germany. german stocks will benefit most from a short-term dip in the euro. manyt suisse also says are is better than expected with growth in china that has yet to match equity prices. it david: we are's ain't in germany. the hits just keep coming for deutsche bank. they have cut the long-term credit rate to three steps above

junk. the bank lost its a minus rating because it will take time to reach it earnings target. they have further to go than any peers. the stock has proven resilient. it had a four-day winning streak. joining us is that robinson. the first question is why now? deutsche bank's been struggling for a while. be catchingeem to up with where the market and investors have been for some tired -- time. ever since he took charge. i think that is why you see the stock not really responding to the pitch report. plan: he came out with a

that involved focusing on germany. why is it that the investors are not find the plan yet? ed: he thinks there are a number of us keep challenges. by doubling down on germany and that is pegged to the reintegration of the retail bank, that is a very low interest rate environment ross the eurozone. you have a tough retail market in germany were market -- margins are very thin. get aard to see how you lot of revenue expansion in germany proper. if the other challenge is the trading side with investment banking. it has been a stable quarter. there has not been that volatility. there has not been much opportunity to thrive. it's hard to see where revenue growth is point to come from on the investment banking side.

david: what are you hoping for? what could turn this around for you russian mark -- you? ed: it's time. he needs time and the market is impatient. the market likes to see things quarter to order. deutsche has been trying to put that out. we are restructuring, please give us the time. we are pursuing a strategy on this. it that is the rental or investors, will they give him the time to build the plan? david: thank you so much for writing this. alix: still what this is dale winner. you like european banks? dale: we like self-help stories. this is positive for european banks. to two. banks are closer times. we like the top-down reflation

theme as we were talking about. we think the german ten-year is going closer to 1% or it the banks will benefit from the yield curve. we are very stocks civic with european banks. the only banks that we own have two common care wristlets, strong capital. there could be a? mark with deutsche on that. we believe that the beginning of that we have to be careful on timing and magnitude. while that happens, we want stocks which can cut costs and improve margins. is going to wind up being when it comes to the yield curve like you mentioned. then we get data like we did today, where unemployment is still falling in germany, but inflation is stalling out. that prolongs the ecb from

hiking rates. dale: it's a fair short-term assessment. this is a lot longer than most other people. i think the reflation number today was in line, it is flat. our view is we have inflation around the world triggered by oil prices. it went from 57 to 47. brent went from 47 to 58. we believe over the next three to six months, that they might have then and exception, we believe that's going to be positive around the world. that will benefit banks and yields are going higher. it seems like your needs to be a structural shift in germany. the government needs to be ok with that.

dale: we would agree. we are value investors. we need to see change over time. we need to have a starting point. we believe the worst starting point is italy. worstalian market has the returns. markethe most overbank in europe. suggest if there is self-help, that is where you need to go. this has the most potential for cost cutting. i would agree with you the german banks potential. dale winner will be staying with us. we will talk to gary cohn.

-- is the point man for the president on tax warm. this is bloomberg. ♪

alix: the pound has its biggest monthly jump in warriors. the downside, services were weaker in the second order. the bank of england president's downs -- sounds hawkish. still with this is dale winner of dale's fargo -- wells fargo. of do you think the boe is going to have to hike because of the low over -- global reflation story. gail: we are bearish on this. we think it can go 10%. in the face of rates going up, it is the context.

up 25e a hike for the boe basis points from the emergency 25 point cut they did after brexit. hike is to get back to ultralow interest rates. on themwe bearish long-term western mark there are some poor fundamentals. the biggest one is brexit. the one certainty about brexit is uncertainty. no one knows about the divorce. no one knows about the deal. if no one knows who is going to actually be in charge of the deal. if even with the divorce and brexit, it could he 70 billion euros. -- no one knows. who is covering the

negotiations? we suggest there is risk in the conservative party of having a leader right now still negotiating for the next 12 months. there is so much uncertainty and that's bad the market and consumer confidence. we would suggest a recession u.k. in the next two years because of all of that uncertainty in -- uncertainty. been pricedhat not into the pound already? dale: we have a hedge on ourling we are hedging stock. to 136. just one up that was a short squeeze. it was over discounting one hawkish comment. now you see the trend.

the currency has two sides. it was a consensus short. it was a short squeeze. sterling rallied because of the short squeeze. now we are on the other side of that trade. the dollar is short-term positive because the news coming out of washington is good for wants. the u.s. fed is going to go through qt. we believe that will show some short-term weakness in sterling. long-term, we're still bearish on sterling. david: why hasn't the depreciation of the pound fixed the count deficit? we saw it go up again. why hasn't taken care of that problem. dale: it has improved in from the and this position from before. impact ine potential inflation from a weak currency.

there is an element in the system. we suggest there has been some impact there. we had the emergency cut last year. i think the boe is being responsible and prudent. this is not hugely bullish. there is some aspect of it. the uncertainty is a big one. up, the pimco cio will be joining us. is this is good as the global economy gets? this is bloomberg. ♪ what did we do before phones?

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see how much you can save when you pay by the gig. xfinity mobile. it's a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. alix: it is the end of the month, the week, and the order. if european stocks are flat area the the dax is getting a little bit of a boost as unemployment

continues to fall. that is is up here in the weaker pound story. the pound is weaker against the dollar as it prices in some more negative data we got today. euro-dollar is on the front foot. yields are shocking. we had a 19 aces move. that is getting a little bit of downdraft. a monster quarter for crude, back in a bull market it comes to brent. iemma is here with news. emma: president trump's tax plan will short of plans. it will struggle to win support. >> this is going to be a great tax bill for hedge fund managers in florida and the descendents of wealthy people. for everybody else, not so sure.

i don't think this bill is getting done. emma: while the white house is a one to drive company to band jobs, the tax proposal emphasizes new equipment. the relief effort is under control in puerto rico halloween hurricane maria. those who live on the island say food supplies are running low in remote areas. rex tillerson is visiting china for the second time since in office. he will be urging china to implement the latest sanctions against north korea as well as discussing trade with the u.s. he will meet with the chinese foreign minister. forlonia's campaign independence comes to a head sunday. they will hold a referendum and of high and of the spanish constitutional court and the government in the bread.

-- madrid. 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. investors are trying to sort out what the trump tax plan means for them. the nine page outline leaves many questions to be worked doubt by congress. a lot of that will be done on experts in the committee's charge with tax policy. joining us is someone who has done that work. he was the chief of staff to max baucus. he is a partner at the strategic advisory firm. welcome back. it is interesting to get a peek behind the scenes of what happens with the plan. it's a nine page outline with a lot of questions. who is going to fill in the blanks? ton: the white house wants give that to congress. that is the appropriate place be having these discussions.

congress is supposed to write laws. let them take charge. i think the question is as you say, this is a very broad outline. it's not really a plan. it is a set of asp rations they would like to do. it includes all the things people want and none of the things people know have to be done in order to make the revenues balance out. i think the best thing for congress to do would be to have hearings on the planet. it would be to have drafting sessions where amendments can be offered and pros and cons of the approaches can be debated. at the end of the day, that's what reduces it out comes historically. david: john mccain's been advocating that. it sounds like it takes a lot of time. the president says he wants this done i the end of the year. jon: it's unrealistic to try and

jam something through this significant in that short amount of time. crazy kept saying it was to try and reform the health care system. they didn't without the hearings and process that should have gone into it. taxes affect 100% of the economy. reform affects every big american corporation. what they are thinking about doing to small businesses affects every small business. there is nothing wrong with taking the time to edit right. if you don't get it right, you can end up with consequence you may not have imagined. at the end the day, you might not anything done at all. david: let's take a few of the biggest question marks out there. number one, 35% to 20% tax rates

area how much would that cost? how are you going to pay for that western mark jon: it depends and how you do it. it would be very expensive over the 10 year budget window. they cut the taxi merely from 35% to 20%. over 10 years, for every point you drop the corporate rate, it's 100 ilion dollars. it becomes very expensive, trillions of dollars in. one of the things congressional republicans of talked about behind closed doors is doing it in a phased in way. you are hiding the total cost of the cut outside the budget window. it depends on when they start doing that and how quickly they start phasing it in. how you offset it, realistically you would have two go after a preferencesajor

corporations enjoy today. they talked a little about the plan to modify the deductibility of interest. they didn't mention closing the interest loophole. symbolically, that is really important. there are a host of others. they talked about going the other way. has been very little discussion about the pain companies will have to take in order to bring the rate down. david: pat toomey was on with us yesterday. he said that expenses medical. we have to talk about health care or a little bit. we now have a report that there may be a bipartisan approach.

keep the subsidies going to keep obamacare going. is that realistic? positiveke to be a person. i hope they can get it through. everything the trump administration has said about health care has been very negative. they have told people at hhs that they should not be doing enrollment outreach. senatoroach that alexander and senator murray have, all of us should want this. it's the way we should want the government to work. david: will it save us money? jon: the uncertainty in the market has made premiums higher. the approach by senators alexander and mary by ensuring insurance companies that we continue to get the cost sharing

subsidies that have been part of that is coming from the insurance companies themselves, it would allow them to lower premiums for americans across the country. david: thank you so much for being here today. alix: thank you so much. coming up, the white house national economic council director will be joining us. if this is bloomberg. ♪

emma: coming up, you recently with the former u.s. treasury secretary.

alix: this is a big deal on wall street, it could cause major upheaval. more are using artificial intelligence. the former citigroup ceo warned. but everything that is happening with robotics and artificial intelligence, all of that is going to make processing easier and change the office. i would not be surprised if a lot of dobson are going to be replaced by automation. we've done a lot of work with some of our companies. we think 30 percent of the jobs are going to disappear. alix: there is a lot of savings to be have -- had. they have a manager for a new role. joining us now is the woman in charge of all of that it she is

the chief operating officer. it is her job to implement these changes. it's great to see you. first of all, in terms of what is critical, what is the number one thing technology has done for the markets? >> it is how we manage our business, it's how we take track of the risk we take it. it's how we engage with our clients. that's where you see products that drives that it. alix: there has been a lot of date -- debate on that. how many jobs do you create? >> we talk about this in terms of work force strategy. ande do we have our talent where do we find the best local markets were we can extract skills? york,nd this in new

london, and hong kong. we have places like poland, singapore, where we can extract the local talent antics what opportunities to create a more durable business model and create risk management in the way we run our firm and develop projects. reference, i just there are some utility operations. there are places where we are doing the same act of these are peers are doing. you can look for utilities where a third party can come in and do that work on our behalf. alix: when you move operations to india or poland, what does that do? how does that help you? >> you think about where you have your talent and how can you exploit the crop. how can you use the 24 hour cycle through the day. there are some efficiencies we can find. the labor markets have different

price points in the region. there is a more durable model that works together. alix: what about the front office? >> we don't see this in the institutional business, robots for example. we have people with relationships and institutional information. we do think artificial intelligence will enhance our people's abilities. they are relying on these abilities. alix: you are intimately involved in that from a regulatory and technology standpoint. what is your job in implementing that? >> we have an enormous metalwork you on our operating system. we have to adapt 100 different systems and synchronize our clocks down to a mike rowe second. it's getting into the

organization to make sure we are compliant. alix: the costs are kind of fascinating. everything is timed out. >> it is harder than it seems. it touches a lot of different systems. is going toporting increase 15%. we have only one minute now to do that trade reporting. it touches a lot on how we manage ourselves internally and the reporting we have to do extra early. place for morea technology in the front office? if it's not replacing the human, what is it western mark >> it helps us serve our clients more. this is where big data comes in it, artificial intelligence. it's going to end at what we are you have read looking at different sectors or stocks rid of person working with technology can create out. alix: i will be joining you or

the inaugural women's summit. roots effortgrasp i am proud of. they asked we put on this women's event. this is really about research evidence that women -- firms and have women on their work horse perform their peers. is an opportunity press the highlight to our alliance the diverse perspective. alix: we are looking forward to it. thank you very much for joining us. david: we turn now to the manistee center of president trump west to reform the tax code. gary cohn is the director of the council of economic and risers. it he joins us from the white house. you are at the center of this now. there is a lot of talk about the new plan. one question has and what are

the of fact on the national economy? we are talking we could pay for these tax cuts because of growth. we both know you're not owing to pay on day one. how far in the red will we go on this planet western mark >> thank you very much for having me and for the great question. everyone is using a 10 year number. all the numbers being talked about, where they are the deficit for the paid for, they are scheduled on a tenure number. when we talk about economic growth, we believe our tax planet will do, we talk about creating economic growth over eight 10 year cycle. 1%, wecan grow adp by can pay down $3 trillion of the deficit. we are very excited about the

tax plan. companiesack american to america, having them produce products in america and higher american workers are in. david: i know you are trying to grow the economy. company,have a startup you have to invest at the beginning. you go into the red for you know cash positive. when would this turn cash positive? gary: we understand the investment tackle. we are acute of that. when you look at some of the provisions we put into the tax code, we are encouraging front and investment. we have allowed companies to right off take 100% for any capital investment they make. that is what we want. we want people to invest capital of front so they can hire people, they can build plants

and equipment. we get paid back over a long term. it's't sit here and say day 365 or your five. the quicker we get going, the quicker we get a surety of where we are in the economy. that and i know that. that's how companies look at this. david: at the same time, you must agree i assume that this would hurt revenues in the short term. even under the reagan tax land, they lost $200 billion over the first four years. gary: we want companies to spend money in the united states, to bring jobs back to the united states. we are allowing them to do that. this is going to cost money in

the beginning. you invest that to create greater terms. we have to invest in ourselves. we are creating a tax plan that encourages you to invest in the future of our country. david: let's talk about how you will get this through the con -- congress. you are curtailing local taxes in order to pay for some of these cuts. mr. ruskin saying we will have to have some accommodations for people coming from high tax rates. are you going to have to modify that? gary: our plan at this point does not allow for deductions of local taxes.

we set out to achieve a couple of goals. one was to lower rates for everyone. number two was simplification. we are trying to get rid of all of the loopholes and all of the deductions that mostly wealthy people use. only 25% of families in america use the itemized deduction. that,ou are talking about you're talking about 25%. you are talking about the wealthier 25%. rate, forower the many american, the end of in a better place. it's not a redline porous. we told you where the red lines are. corporate entities, they cannot know higher that it is in our initial proposal and it has to be a tax cut for

hard-working middle income americans. we are willing to work with the tax writers. one of the things you are proposing to simplify the way we file tax returns. give us a sense of that. let's take a postcard. you have to eliminate a lot of deductions. what are some of the other things it will be eliminated western mark real estate taxes? that is a fair amount of money. is that going to go away western mark gary: we're looking to get rid of the itemized seduction. there are different types of unique deductions that have worked their way into the itemized deduction bucket over decades of tax planning. , i willically happens spare everyone history, we have

tried to modify taxes year after year. certain house member or senate member says i could use this. you could get my vote. we created all of these unique deductions to get the final vote we needed. you take your income, you take your standard deduction and you see your tax based on that. that is really are of check to. simplification, you don't have to hire a tax attorney. you don't have to buy software. you consider your table and define your on taxes. theefine middle-class as 80% of americans. $60,000arning between and $160,000 or in a it's not a

simple definition. we have different living standards based on cost of living. we have a very wide definition. pay 80% of the taxes. goes forward, will that number go up or down? : we think the 10% will be paying about the same amount in taxes. great read thank you so much. here now to react what he had to say is michael mckee. says we will have to spend money, but it will benefit. michael: economists are laughing at that. there is no study that shows tax

cuts pay for themselves. the best you can get is 30% back. you get a much bigger bang for the buck when taxes are high. when reagan it cap from 70% to 50%, we saw tax revenue come in. you don't get as much when you're cutting from 35% to 28%. it's not going to happen. the other thing that struck me, filing on a postcard is going to be very expensive. you're going to spend $81 million in stamps. now you can file electronically for free. alix: that's why i love this guy. david: what about the lesson of how much the middle class will pay? michael: we have no idea because we don't know what plans are yet. until we know what the amounts are, you can't really calculate here in david: you know they are

going to eliminate the estate tax and. michael: it is very small. the estatele pay tax. alix: thank you so much. fixed income cio will be joining us. in the markets, futures are a little bit softer today. european equities are on the front. lower as crudees is up. it's the end of the quarter. we made. this is bloomberg. ♪ what did we do before phones?

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daily trading rate since september. inflation fails to pick up in europe as the ecb debates. the fed is fine close attention. david: welcome to bloomberg daybreak it i am here with alec still. jonathan ferro is off today. alix: there is not a lot on the. 10 year yield goes nowhere. from the trough in the first quarter, it has moved 34 aces points. unbelievable move for the 10 year. taking a look at quarterly gains, these are the big ones. the dollar spot is lower. emerging markets are up 6%. u.s. rick evens are up 14 basis points. that is where we sit there and david: coming up, personal in cap and spending data.

at 10:00, we get the university of michigan data. at 11:00, we have a full week of said -- that speak. we will be talking about that. let's get in impact on what's going on outside the business world. ; president trump is promoting his plan for a rewrite of the tax code. will release an outline of the $6 trillion tax cut. you can watch his remarks live at 11:25 a.m. right here on bloomberg television. immigration officials say 500 people have been arrested during a nationwide sweep the targeted sanctuary cities. two thirds of those arrested have criminal record in the united states. european commission president said britain has no chance of moving brexit talks next month.

summit. has hoped the would see the start of sessions about the future relationship. as interest rates increase in the u.k., mark carney told abc radio if the economy stays on its current track, a rate hike could happen in the relatively near term. 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. alix: thank you so much. the story for tax reform seems to be dow. they cannot be sure they are going to get tax reform this year. pimco wrote yesterday that while outline,sal has a rod it's important to remember that the heavy lifting lies ahead it given many critical questions. we just spoke to gary cohn.

he doesn't see the impact in the deficit. joining us is andrew balls. ubs investmenthe strategist. i want to show this chart you. what this has done, you can see the re-rating and just a few weeks. the blue line is the dollar. andrew, what happens here? is the reality of tax reform enough to work higher yield on the backend? andrew: there is a lot of uncertainty about what will happen. so far, they have had big plans but not done a big deal. you expect republicans could agree on tax cuts. see a significant shift in the market over time. there could the implications of the federal reserve.

they are relying on the extent to which it would be funded or unfunded. we thought the market should be pricing in more in terms of the federal reserve. that is still quite shallow. to.s reasonable compared alix: the macroeconomic climate be as good as it gets. when you see a 30 or basis point move in the 10 year, you say? had the range, we are in the middle of that. thectations had and low or adderall reserve. -- federal reserve. they could go two or three times next year. it looks pretty reasonable to us. yes, it has been a significant move. there is optimism about tax cuts.

we thought about that at the start of the year. the jury is still out. chancek there is a 50-50 significant tax cuts will pass. david: is this real? is this a false positive? mike: let's not overemphasize the short term moves in the currency for the debt market area if you look at the treasury market, it's been relatively narrow. i do think we see a repricing and expectations that we could get them incremental tax reform. we just came off a good quarter. this puts some pressure on rates did looking forward in terms of rates, we think this is good. i agree with andrew. the market is underestimating what the pace of the fed will be.

it's going to be a very pragmatic fed. we were expecting the dollar to selloff. we are not willing to give a report here. solid, therein could be some tax reform. global growth prospects are growing as well. this is not a game where you look at domestic growth prospects, you have to look internationally will where we are right now in terms of the treasury market, we could see some yield higher. i do expect to see much strength in dollars. i think there will be a relatively narrow range. i don't expect to see a big trend in the dollar either way you. david: what about the shaky yield curve? now it is coming down. does that indicate some belief in the market place?

andrew: i would not push it too far. there is not a lot of risk premium in the curve. you mentioned the outlook. we think there is going to be less central bank support overtime in the u.s. and europe. the ecb is going to be tapering further. it's an environment we think you can see more term premium. in the short-term, with the tight cuts, you could see a letter curve. the market builds and more for the federal reserve. alix: what you make of that treasury option yesterday? you had the tax reform angle and it was the last time the that is going to reinvest.

andrew: it's in the middle of the range. we like u.s. duration here. when you look at the u.s. versus the rest of the world, it looks pretty attractive. there are some high u.s. rates. foreign buyers are looking at the long end of the european curve. u.s. interest rate risk give some protection. from our point of view, in the middle of the range we have gone up a little bit. alternatives,obal take your pick. we think the u.s. market still looks attractive in terms of interest rate risk. alix: are we talking i've years? 10 years? andrew: i think the five to ten-year looks most attractive. if you do get surprises with belation, i think they will

cautious. i think it looks pretty reasonable to us. they both will be sticking with us. next week, we will have a lineup of guest including mohamed el-erian. life new york, is bloomberg. ♪

: tyson foods say they top the previous forecast. the largest u.s. meat producer

is planning to cut 450 jobs. theon house prices have biggest decline since the financial crisis. .6% year on year drop was the worst performance since 2009. the capital housing market has suffered them uncertainty after brexit area. read all about it online. the wall street journal is closing down its print editions in europe and asia. the final print edition in europe is today's. alix: thank you so much. i am surprised by that headline. we've been talking about the death of print for a while. there was a good reaction in the brick bond market. they are telling us more about what traders are expecting. take a look at this chart.

it shows the volume in trading of bonds yesterday was the highest it's february. with us are andrew balls and mike ryan. andrew, who are the winners? i think it will be supportive for the u.s. economy for debt. some strategy the bank will have to benefit that. overall, credit does look pretty fair. it doesn't look cheap. where point in the cycle you want to be more careful in terms of your credit positioning and where you got to work hard. also, if the time when you need to be more cautious in terms of

credit. there are lots of risk in the outlook as well. they say they're going to have all of this money coming back. mike: there are some positives. i think the repatriation could trigger two things. it could see positioning where we begin to ship toward return to shareholders. include interest in does this investment spending. one concern is we haven't seen the level of investment spending because of a lack of clarity. because you have captive money overseas, the notion it is going to be repatriated is unlikely to happen. corporations will wind up mobilizing the cash through return to shareholders for some strategic acquisitions. could it be through some debt

repatriation? i doubt that is going to happen. i would not expect much of a room. i think the equity sector could benefit here it. david: have you model the possibility of interest reduction? what does that do to lending? andrew: i agree. the last time this happened, the big impact was in terms of equity buyback. we would anticipate that to be the key aspect here. i would not see this having significant impacts in terms of is this lending it. david: you agree with that? even if you eliminate the interest reduction, it won't affect it? mike: this is not the interest

connection. as you heard from people who commented earlier, the devil is in the details. we don't know what the proposals are. there are a couple of elements i think r orton. repatriation about . what happens is it creates a disincentive for the pools of capital outside the united states. capital is often avoid in not most economically rational way. the extent you can make prudent think theecisions, i change in the tax code could eat positive. you have a much cleaner dynamic. circling back to the credit market, you said investment rate is to write c. where is the valley -- value? andrew: look at generic credit.

it looks ok. it does not look cheap. you have to go name by name and look to the good opportunities. you need to go global. intend to find value structure rather than generic cash credit. it is slightly more complicated. we think can get paid a little bit more. mortgages the one example. becomeat what point you concerned about the price cycle? andrew: i think you should be worried. the u.s. expansion is getting old. it's hard to see any eminent recession risk. if you look out over the next couple of years, the recession risk is clear.

we think there is a point in the cycle to be more cautious. to eatve said, you need out the alpha. the generic credit rally could go a little bit further, but you don't need to be the last person at the table. alix: is there a short-term trade? if you wind up having repatriation, you won't have a lot of fun market. they could use that money to buy back some of that that. is there an opportunity to be focused on? andrew: i wouldn't say so. smarter people than me have better news. the share buybacks would be the most significant impact. the last time that happened, corporate american companies did a good job of turning out that already. be the maint

impact. alix: all right. thank you for joining us from london. up, the washington crossing and wiser on what tax reform is. is bloomberg. ♪

david: as the third quarter draws to a close, markets have had a turnaround with the dollar strengthening and the returning equities. remarkablyt, it's a

stable quarter. this shows daily average movement in the s&p. still with us is mike ryan. the question is if we will continue to the this quiet in the market. mike: we just came off two of the best quarters in terms of earnings growth. you had 10% in the second quarter. we beat the expectations by a healthy margin. in the third quarter, there are concerns. that afteroncerns two great quarters, the bar may be set to high. i disagree. i disagree. while the rate of earnings growth is accelerating, simply going into earnings season the expectations are shrinking the

balance sheets. i think that is going to be enough alone. what about that leadership at the fed? are they projecting any uncertainty? mike: they're mostly focused on the policy issues the fed is addressing. it's not just about the rate increase, it's about the dallas sheet reduction which will start in october. our expectation is it's going to be this targeted measure. the markets will handle it well. i think the treasury market is pretty transparent. that's where you will see a change in the prepayment rate. different than the treasury market anyway that's what we are focused on. i do think the leadership transition is something as we draw 2017 into a close and focus

on 2018, it's important that the chair and the vice chair will be new. this is a big leadership transition. i think we will go fairly well. there will be some volatility until we see who leads the fed. alix: what is your top trade? mike: we still like equities. we did take some risk off the table. it wasn't that we grew pessimistic or negative. had ourimply that we expectations about what we could see in terms of continued returns inequities. we did take it down a little bit. we don't have a strong geographic preference early in the year. we are now fairly weighted across the board. i'm going to look at the areas we think it's the right point in the business cycle. that is technology, energy,

national services and. the technology and financial services can be health on tax from or. the repatriation will certainly benefit the tech companies. i think financial services companies to the extent we see some improvement in economic and 74 if there is a lower corporate tax rate, that will help financial services. does put u.s. corporations on better footing in terms of being competitive. david: what about the small cap play. it picked up at the end of the quarter. there is the possibility of tax really. mike: i think we have to what the emphasis on broad-based tax reform. slamdunk.hink it's a

we think it's more likely than not. tax reform is already been watered down from the initial expectations. there is likely to be more horse trading on this. our expectation is not to be a small -- driver. alix: mike, good stuff. he will be sticking with us. coming up, billy given will be joining us. we are minutes away from the latest reports. equity futures are flat. this is bloomberg. ♪

. . is this a phone? or a little internet machine? it makes you wonder: shouldn't we get our phones and internet from the same company? that's why xfinity mobile comes with your internet. you get up to 5 lines of talk and text at no extra cost. so all you pay for is data.

see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. alix: this is "bloomberg daybreak." i am alix steel. we are minutes away from the u.s. employment data

out of germany. the weaker pound continues out of mixed data out of the u.k.. euro-dollar pretty much flat. the 10-year yield is 2.31. calm after a monster move in september. oil is a little bit higher, .08 %. here are the numbers. core pce lower than estimates, 1.3%. month increase, only 1/10 of 1%. this is what the fed looks at for inflation. losing a little bit of steam. in the personal income world, they in line with estimates, weaker than july, and july also revised lower. personal spending coming in at 1/10 of 1%, also down sequentially, but paying in line with estimates. and data territories are down

1/10 of 1%. let's bring in michael mckee -- .he weaker core pce is it weak enough to derail the hawks or the trajectory? what do you think? michael: no, and i am looking at the headline number, which is also down. the fed's actual target is the headline number. so they are looking down .2%. what islls you happening without energy and food and we know energy and food prices will go up because of storms. the fed will look at this and say, let's look at this in a couple months and see where we go. david: but if we were here in a stope months, would this the fed? michael: their belief is down the road we will see inflation pick up. i've got a look at the breakdown of where these numbers are

coming from and what is moving them -- i've got to look at the break them for these numbers are coming from and what is moving them. it's not great news, but some of we need toals say percent. we are in the vicinity. david: on the other hand, it's the -- unemployment issue. michael: they are forecasting that it will go down at 6.1 percent, and if you believe in the phillips curve, it should be going down so we can go higher. alix: the market is down right around the lows of the session on that news. yields are pre-much flat. not a big reaction. interesting, gold touched higher on that. expecting awere hurricane effect, and it doesn't show up in the headline numbers.

the income numbers, the spending numbers -- particularly spending. we saw a jump in some spending figures as people pulled forward purchases in august to get ahead of hurricane harvey, but that does not seem to show up in these numbers. they are about what was expect did -- expected. int is likely to come december. a much bigger distortion. alix: looking at a and a cloud, basically. bloomberg's michael mckee. thank you very much. joining us the head of the opportunistic fixed income group. i like it. "opportunistic." jumps 39 basis points. >> which is a lot by the standards. i remember taking my first --tgage at nine points 7

nine point 75% and thinking i was getting a great deal. you know what it means to bondholders. rates golosses when up. libor, the fed pushing 2%. aat is the vantage of buying 10-year in that environment. i don't quite get it. you keep doing it until it stops working. it works until it does not. isally when the fed tightening, in gauging in it'sitative tightening, not the time to get into these assets, but the money would tell you otherwise. people are pouring into fixed income, and extended sectors which are very, very sensitive to interest rate rises, and pouring into high-yield, which premiums tightest risk in history. it has a default rate of almost nothing. so, you look at fixed income and the problem you have now -- the tighter spreads get an extended

sectors, the closer you get to zero, the more you end up owning a treasury. there's just one factor. rising or falling interest rates. the problem with people's chronic failure to understand when and how to i the fixed live the how to fixed-income market, if i were a retailer and i put aside my 20% -- 30t said, up to 50%. you would not want a line out the door. 30 totrast, if it is down 50%, you hear crickets. no one is interested when spreads actually have value. but when the opportunity has shrunk to almost zero, people are trying to bring their way into his markets and it happens again and again and again. david: the question is why. the way you describe it, it does not make a lot of sense. not rational.

is a question of global demographics and a lot of money meeting to go someplace and the question is, if not there, where? bill: i think that is part of it. you have a trillion dollars is from the central banks. imagine if the central banks trillions world spent of dollars on stocks? would you feel good about the level? no, that is overvalued. but with bonds, they feel just fine. there are negative interest rates in parts of the world, like germany, where you are paying for the privilege of lending your money to governments that are not -- that's crazy me. you are locking in losses for your investors. to go onat is going for some time, it would appear. we talk about the federal in on the balance sheet. but you still have the bank of , and they ecb buying

will be doing that for the next year. is there a fear of losing out? bill: it's a matter of looking out what is priced. we know that qe is over in the u.s.. the ecb is not that far behind. they made a couple hawkish statements in the past couple of weeks. do you want to buy long duration in that type of environment? the answer to me is no. i'm obviously a multisector investor. i can be long. i can be short. i am not tied to a benchmark. in fixedf the capitol income is tied up in areas of the market that are sensitive to interest rates. go up 1%, you lose 6%. mike invention is this. the minute you see a 3% to 5% drawdown in those funds, i think you will see massive disintermediation, which will

become more tractive as the fed begins to tighten. people are saying, i am taking 3% losses when i can make 2% in account, which is probably where they will be at that point. nobody wants to think about that. it's uncomfortable. you have not experienced losses mainly due to the central bank intervention, which is at an end. they would have to say in two weeks, we think, we will raise our prices. then there would be a wine out of the door to buy. how do you invest? where do you find value and where are you appropriately compensated for your with -- for your risk in the next to the wakes versus long-term? a great question. the way i handle it, when the opportunity set is thin and sparse, i tend to move more assets into cash, which is not

trash -- alix: how much is cash? bill: about 52%. that is a fixed income class. say, 50 2%? i am fully invested and i'm taking massive risk on your behalf that i'm not getting paid for. that cash was only in the teens not too long ago. now the opportunity has gone. when i was buying it a late 2015, everybody hated it. it was uncomfortable buying something that was going straight down. the problem with extended sectors now, and this is really changed over the last two years, more and more capital is held by quick trigger money. currencyd, loans, market debt and you are giving the ability to trade the saw -- trade the stock. you are likely to trade the

portfolio of the stuff by the second. that is a problem. people got scared and they started engaging in panic in, panic out trading. pipo. time.e it all the and etf lends itself to this. it's unfortunate -- is fortunate for people like me who have liquidity, because when that occurs, bond prices do not drop by have a present. it, massivetrolling supply hits the market every day and did strop, 2, 3, 4 point of a point.ne half that is what you had a massive 2014 that was not accompanied with a default rate or a recession, which every prior cycle at been a company by. david: if you go to cash because it is not worth taking the risk, what is the event that will change that and say, yeah, it's time going back into the pool?

are: there are places that good to buy, including lower rated high-yield stash alix: i want to know where that is, 20. bill: absolutely. the margin of safety and fundamentals and the technicals have to line up. the margin of safety has to be havenable because i don't the benchmark tied up in government bonds, investment have very., which all tight correlations now. technicals for me, they are underrated, and that typically will be accompanied with a good margin of safety. and the fundamentals can line -- if the fundamentals are really awesome, but they do not look to be getting better, i will avoid decision. that includes capital set aside for short positions. one of the larger positions we have right now, which is only a

third of what it was, which is lower rated high-yield, b minus them below. if you're a believer this economy will continue to expand, equities and capital structure, that is one area that still has some spread attached to it. it is tighter than i prefer, and i'm hedging a lot of that exposure by being short market debt. that's trading at almost the highest prices we have seen in history. again, that is not bashing the market. that's a very cheap insurance policy for me to have. also, there are some securities s on housing.l we think housing will do well. spreads are tight. but we think that we will cash, 1% to 2% on our kashmir and we have macro trades. we are short on the belly of germany, the german curve.

it does not make says that you get paid to put on a short position there is interesting. that is a new experience for me. and that has started to work. you have seen rates start to come up. probably going to continue because they are so low. the argument, what we're talking about is common sense. a lot of people do not want to common sense. if you walk into a chevy dealer, about a ford. if you ask their opinion about ford, their opinion is not going to be good. with me, i am free from all of the shackles because my job is to outperform cash. year-end, you're out. we have been able to do that for the last decade. freedome to have that

to speak about how you feel about each fixed income sector, because the basic problem is about correlation. alix: not just fixed income, but everywhere. it's really asking my daughter if she wants to go to bed. pretty much. really great to see you. eigan of j.p. morgan asset management. personal income, 2/10 of 1%, personal spending up 1/10 of 1%. spending is a little bit softer, inflation a little bit softer, and that's good news for the fixed income bowls. you see them buying on the margin. david? david: alex, coming up next, do you know where we are going to go? or's alone. and -- barcelona. and right now on the radio you can tune into our colleagues tom "eene and david gura on

bloomberg surveillance." you can hear them all across the united states on sirius xm radio. live from new york, this is bloomberg. ♪

emma: this is "bloomberg daybreak." in emma chandra and the hewlett-packard internet greenroom. or guest.-- this is bloomberg. sunday, in spain there will be a vote on catalan independence even though the

constitutional accordance state has declared illegal and the prime minister has deployed thousands of police to seize ballots to stop the vote. maria, one of the questions i --e is -- spain has through has been through a rocky time economically. it has come out of it. it's doing well. why is this press for catalonian independence numbing up now? that's exactly the right question. it's outperforming the euro. essentially it started with the crisis. now you have to go back to 2012. this is an economy that was really doing that, and in the time, the catalan ministry started to hurt. they say that this is hurting the regional economy, so we need a new deal. tensions have been escalating from 2010 -- 2012 until now. a lot of people talk about how

it is identity, but a lot of it has to do with financing and money. david: what to expect on sunday? will the vote happen? is the possibility of conflict? maria: there is a this is downtown barcelona. an hour ago, it was shut down. traffic was shut down. the was a massive protest. we expect that on sunday there will be tension. we know the police have been deployed. right police are ready to act. we have seen escalation from both sides. the government said, if you take part in this, you will be held accountable, and yet the catalonian regional administration providing details on voting on sunday. there's tough stands on both sides here. question there any about whether they will vote for independence? maria: that's a great quest. the last time there were polls,

and there is the question about this being an illegal referendum. a lot of the rules that would go to a normal but would not apply here. they have not had polls. vote would win, but catalans could decide to stay in spain. but this is an illegal referendum here is none of the normal rules apply. so we don't really know. david: thank you, our colleague, maria tadeo. alix: the 10-year spread has not them that much. main yields.other you see there is under performance with spanish bonds. do we care? do you care? abouter: if you asked me if i care about political developments in europe, i always

care. anyone who is underestimated them for the last seven years has paid for it. this is an internal issue in spain. not also something that is a sanctioned vote. were not talking about a referendum like brexit. were talking about an internal discussion. i do think it is distracting. i certainly think it leads to further digression in spain. this is a moment that could heavily impact the eurozone or the eu -- i don't think so. half,the last year and a if you wind up overestimating the effect of brexit or the french elections are the german elections, you get hurt. mike: we do not want to be sanguine, but we do not want to exaggerate the importance. as we lookone thing at the eurozone. was thesk me what biggest development, i would still say the fact that we are

eurozone doing negotiations beyond the brexit, the fact that europe continues to do better from a macro perspective, the fact that we are starting to see lending activity improved, global manufacturing certainly helping european companies disproportionally benefit from that. the fact that the central bank remains accommodative, and we are talking about in october we will begin to discuss when they start to taper. the european central banks still has negative deposit rates. that is a pretty attractive backed up. i have double-digit earnings growth. i have a cyclical improvement in a fundamentalrom standpoint, and at the same to him, i have the support of the european central bank. alix: how do you play that? is it regional or general europe? mike: it's general europe.

you want to focus on areas with strong growth prospects. we think energy is a good area to be. we think financial services just like the u.s.. but also telekom is an area where we can see topline growth. alix: thank you. mike bryan of ubs. ofyou have -- mike bryan ubs. this is bloomberg. ♪

with we had a discussion this founder yesterday. just the company is supposed to be making money now. to be makingosed money by 2020. i'm guessing by 2019 will hear 2025. unprofitable.s

it's way too leveraged. alix: wow. stop fore price of the tesla has gone up. the shorts of gone down. it has gone down quite a bit. alix: is it a short covering by in tesla? is it fundamental belief? if you believe it will be profitable, that's a good deal. point is there's a lot more competitors in the electric vehicle market than when i started out, including china. alix: all right, coming up next, chad morganlander will be joining us. tax specific stock picks on reform. we will discuss. this is bloomberg. ♪ who knew that phones would start doing everything?

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see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit or go to xfinitymobile.com. alix: the return of the

reflation trade after one of the federal most radical inflation indicators slumps to the lowest level in two years and the dollar at its best level since 2007 on reform optimism. but economists and the treasury secretary disagree on the impact on the deficit. stocks still sit at record highs, poised for an eighth straight quarterly gain. david: welcome to "bloomberg friday,," on this september 29. i'm david westin at my colleague alix steel. jonathan ferro is off today. alix: the dow is on is longest winning quarterly streak in 20 set 14nd the s&p has record closes this quarter. the future is relatively flat. a you're wondering about stronger euro dollar on the day, the 10-euro is relatively flat. it did pick up after we had the

weaker inflation data in the u.s. let's look at julie hyman you as a look at the stoxx on the move ahead of the open. julie: let's start with the the year, atipo in least in terms of his first day performance. set-tope seller of the taxes allowing people to cut the cord -- yesterday the shares soared to 2350 and now they -- 23.50. as we know the market for tech ipo fell have been choppy, but this is a notable expection -- this is a notable exception. home, also looking at kb though shares rising by 4%. that's after they came out with earnings that beat estimates, revenue likely beating estimates and the company says the flood in texas only caused short-term

disruption to its business, net orders of 4%. the ceo commenting on the ongoing scandal over his feud with kathy griffin, the comedian, a neighbor of his and a conflict between the two. he was reported using foul language. call today with another apology for that. and tyson foods. that company started to price in , more known for chicken, but beef helped it beat estimates. these account for a bigger portion of revenue then does chicken, about 40% last year. andaller portion of profits gains with these prices have been helping across the industry with this company. 450 job cutsing

after it buys a prepared sandwich maker. and heating -- david: this is bizarre. alix: i keep reading and something is going on. david: you have janet yellen -- the inflation data put a little bit of a damper on information, so what does it wind up meeting for the next quarter? hit investors after-tax or firm was announced. here is what they had to say. to bed: there's a lot details. as you pointed out, this is a blueprint to read don't know enough about the balance between cuts and reform. we do not know enough about the distributional impact and the impact on the deficit. 1%if you can grow the gdp by , we can paydown $3 trillion of the deficit by a 1% change in

number. over a 10-year we are very excited about our tax plan. we think it will be stimulus for the u.s. economy, bringing american companies back to america. only around 50% of companies are taking advantage of this, so basically extending current conditions and knowing the history makes us a little bits technical this will unleash some to -- some type of. it certainly does not hurt. but this is an open question as opposed to a definitive, yes, this is happening. this is another step in the design process, but there's a lot to design. it can be a hard sell, scarlet. senator corker might be right. i have dubbed this gop stalingrad, because -- i have care, gop health

stalingrad because they kept going back to it and it was just a morass. i do not know this will be better. i don't know what they are trying to accomplish here. guy. ok, you are the macro how does this play out? chad: the tax i? alix: where do you stand on it? chad: you remember i had the one pager-- they had the one in april. this is the freshman high school effort. this is seven pages, 12 pages, whatever it is, but there's no details, as the speakers on the monitor suggested. i would have a better chance of being a quarterback in the super bowl than this package passing in its entirety as designed. and i would say the idea that it can raise u.s. is -- u.s. gdp growth to 3% on a permit basis

is a little farcical. it is a function of labor force growth and productivity. the biggest issue we have had in this country is productivity growth and history suggest that what companies do with tax cuts stock and paidk dividends. the homeland investment act in 2005, for example, which was the tax release to bring foreign profits back home, to of that money was used return funds to shareholders. how does that boost productivity and potential gdp growth? i think that's probably consistent with the private sector. .he math does not add up alix: you want to buy treasuries. you want to buy financials. how does that play out? chad: he is 100% right.

alix: don't give him a big head. chad: i don't want to give him a big head. you can only torture the number so much. there's one benefit. that's depreciating capital investment in one year, and that gooses up spending for 18 months, but nonetheless more sustainable, three, 5, 7-year time horizon, it's not going to fix the problems that camera is saying. what do you do? you go to the long end of the yield curve. you go into more of this safer investment at this point. we think that u.s. growth is 25%ng to be between 2.2 -- 2. and 2.5%. we don't think the freedom caucus will allow a huge deficit because that's what you would need to get a 3% handle on gdp. david: what to do with dynamic

scoring? hn says, sure, we will go into the whole for a while. it's clear enough about the capital investment point, but they say that we are combining taxationhe personal cuts and the reason that corporations have not been investing capital -- and i'm arguing for them now -- they have not had demand. we will stimulate demand to put money in the pocket subordinate americans and give a real incentive for companies to invest. what about that? chad: the demand from lowering taxes for u.s. based consumers would the moderate the way it is laid out right now. it does not look as though it's a huge tax benefit to all upper or lower -- to all, upper or lower. what it -- where comes down to in demand is critical, for reddit growth. growth.t

we will not see a tremendous boom like we did in the mortgage cycle in the early 2000 pro. moderate assett inflation. moderate income growth, and moderate credit growth, but you're not going to get that three, 3.5%, what economists would call escape lob city. it's not going to happen. the 1.3 pceh deflator, is that even moderate anymore? cameron: in terms of -- alix: inflationary, what chad was just talking about? is it moderate even? cameron: well, what else would you call it? alix: flat or weakening. cameron: it is weakening, but is phenomena.u.s. the entire world outside the united kingdom is wrestling with this. we talked about this before. there's a number of factors in terms of globalization, global

excess supply. pce you look at the deflator for durable goods, it has gone down, i think literally every month since 1995. there is nothing they can do to fix that. companies are incentivized to make things in the cheapest place possible. first it was china, then it was vietnam, bangladesh, namibia -- may be next as the supply chain moves. that is something that monetary policy cannot fix, and nor should it, really. it's a good thing the rest of in theld can participate world for largess, as it were. an arbitraryng losingis ultimately a battle. look what happened in japan where the boj said we are going

to make 2%. i might as well say i am going 7'2" anden foot to -- going to be in the nba. just because i say that does not mean i can do it. david: bloomberg's cameron cries. -- cameron crise. thank you. chad morton later, you're going to stay with us. live from new york, this is bloomberg. ♪

alix: u.s. stocks have the

largest outflow in 14 weeks. , it was really intense, $23 billion about close from the u.s. while the rest of the world saw $41 billion of inflows. us. morganlander has joined is the trade globally going to that?ersing chad: we are considered overweight international and we areight u.s., and considering flattening out that trade based on the stabilization of the u.s. dollar going forward. that is something we are considering. we think the federal reserve will continue to raise interest than anyone is expecting. we also anticipate the ecb will get more hawkish, but we do believe you can see that trade reverse in 2018 a bed. 2018 a bit. we also like large-cap value growth over that point.

alix: so now you're pivoting back to more of a growth trade? chad: we are currently on the growth path. we are overweight on our large-cap growth side. we do like the technology companies that are real-world technology companies, but on that trade, we are considering flipping that trade to companies that are equally weighted. david: most people we talked to say they are a little weaker on the u.s. right now, not the u.s. so much, because of global reflation, global growth, the picture that is stronger and what we have in the united states. to you take a different view? -- do you take a different view? chad: a bit. we are looking a couple quarters out. we think that china will change their policy in a material way. if that happens, if china

catches a cold, and the european stocks will catch the flu from an economic standpoint in there's a bit of disruption from the financial system. that is what we are anticipating at this point. a bit of concern is the valuation concern and then there's the global growth and also central banks are now reversing course. though, you have that convergence of things occurring, to somethingd lead more disruptive than the consensus is anticipating. david: if china comes off of their credit high, what does that do to emerging markets, particularly in the asia spear? chad: we are underweight. we think the equity side will take a hit and currencies will be disrupted again and this will unravel overall. alix: what yield does that imply for the 10-year in the u.s.? chad: we are looking at 2% or

sub-2%year as -- or 10-year. alix: wait, so yields go lower than where they are now? chad: they go lower and the fed continues to raise interest rates -- david: and that will be bad for -- alix: and that will be bad for emerging markets? chad: it will be bad because of the fear trade and commodities, steel, oil, whatnot, aluminum, will start to trade off. roughiron or had a really quarter and you think this will all be happening as the fed does that change is what it does after the national people's congress? chad: yes, that will be the push and pull. that is what we are thinking. we think the fed will hike two or three more times in the next 12 to 18 months. we've got that. the real driver for global growth has been credit coming

impulse inand that to global trade, commodities, and whatnot has been just remarkable, and i don't believe market participants have a clue how great that has been. overgeneralize -- are you just taking a notch or two off of risk? chad: we were overweight through the entire year with risk and what we did was we brought our portfolios back to neutral. carefulre much more about what congress will take. your number one trade for this quarter? long on thed go yield curve. i would expect that would take back in. onid: coming up today bloomberg markets, an exclusive interview with jack lew.

that's coming up at 1:00 eastern time. live from new york, this is bloomberg. ♪

typically mega tech stocks have driven a lot of rise this year. will it keep up the pace? still with us, chad morganlander. chad, we saw a little bit of a dip, but is coming back up again. where are we going with tech in the fourth quarter? chad: i would reverse the trade. we are currently overweight large-cap growth, but in our shop some a we are starting joined is debate we will have to move slowly to moderate, become

more neutral with the large-cap value. david: is that more or less a technical issue, that you think they are fully valued and there's not much more expansion in them? chad: we are much more cautious, claimse trying to advise to up the quality spectrum at this point. we have had tremendous revenue growth, as well is when it comes to earnings, but we just want to pare back at this point. gina, we know: that you have been conservative, but when i look at the bloomberg terminal, it is the same price target based in the actual where the average analyst estimates are versus the price and all of them have their price below what the analyst price target expects.

the biggest ones are amazon, the purple line, facebook is the white line, apple is the blue line. what happens in the next quarter? do the analysts come down to the stock price? tough thisre morning. i do not have a quarter timer is him. we have done some work on the meaning of analyst price targets. when you take the s&p 500 and make it up, you look at the stocks were analysts are the most bullish over time, it actually over performs. there is a sweet spot where they are relatively conservative. i think you want to keep that in mind. generally analysts forecast prices will go higher overtime, you want to avoid the area of the index where they forecast the most price growth and look for opportunities were they forecast a little bit less price growth. with respect to tech, it is tough to work with tech in the fourth quarter.

seasonality favors tech. they typically perform well due to the retail season, the holiday season. and cyclical sectors outperform. you want to pick your spots carefully. when you look across the tech sector, i think this is more than a story on fang stocks. top were one of the performers in the s&p. there's a lot of distribution of returns in tech that have been very strong. for otheru look opportunities in tech to ride the cyclical wave. look at theu ultimate fundamentals for tech, how many times have we refer to what technologies are doing across the world, whether there is workforce or violation -- we keep saying about tax, over

time, tech seems to be taking we keepworld -- over time,ttech, texting to be taking over the world. oh, absolutely. gina is right. over time with fang stocks, you can make a great deal of money in tech and we are long time bullish on that sector, but we want to be a little more cautious going into 2018. when we did do that is to lighten our overweight position. david: in part of this is a question of leadership. what determines who will lead next? gina: we rank sectors based on the five sectors we think are most important with leadership at the sector level. earnings momentum is one of the

biggest drivers of stocks over time. if you want to see analysts decreasing price targets, valuation is another thing that is meaningful. you want cheaper stocks generally to outperform. you also want to see sequential earnings growth. in an environment with cyclical recovery, you want sectors with recovery and the sector that shows the most growth right now is health care. alix: we will talk about the rotation over the last month and what that means in a moment. gina fromnlander, bloomberg intelligence sticking with us. this is the last etf trading of the third quarter. the s&p is flat. this is bloomberg. ♪

coming up on >> now we are 30 seconds away from the opening bell. here is where we stack up. futures flat on the day, the dow jones on its longest quarterly

winning streak in 20 years. the realasset classes, action is taking place with the dollar. weaker inflation rate, core pce coming in 1.3% below the fed's target, well below estimates as well. the dollar hit the love of the session around that. however, a very strong month for the dollar. the 10-year yield having some strength, a little bit of buying . points from basis truck to peak during september, a huge move for the 10-year. crude marginally weaker on the day. let's open up the markets to see where we are trading. julie hyman has more. julie: all three major averages are up a bit. the nasdaq unchanged. initially, ending the third quarter on an up note.

speaking of, we want to go through some of the best and worst performers in what was a strong performer for stocks. here are the best individual performers in the s&p 500. energy rising. gap, michael kors, boeing gaining as well on the corner. in terms of some of the worst we saw in the quarter, mattel declining, especially with the bankruptcy filing of toys "r" us . envision health care, and health care. foot locker lower along with athletics generally. definitely some winners and losers. speaking of which, we talk about the small daily moves that we had in the s&p 500. indeed come in all three major averages. i also wanted to look at some of the 52-week highs and lows. we had some divergence when it

came to individual stocks, even though we did not see much movement on an individual basis. this is a look at the percentage of 52-week highs between 52-week lows. even as the s&p continued to make new records, the percentage of highs within the index diminished, even as it continued to make new highs. this speaks to the convergence, movement of stocks within the index. something to continue to watch as we head into the last quarter of the year. alix: talking about the rotation, chad morganlander is with us still, as well as gina martin adams. let's talk about the rotation in the quarter. tech, energy, materials. consumer and real estate got killed. what are we going to see in the fourth quarter, chad, what is the rotation play? chad: go into health care.

i would overweight staples as well. i would overweight industrialso. i, i would start to -- oil, would start to fade that trade. alix: we are seeing some action under consumer discretionary. gina: the only thing i disagree on is consumer staples. we are a bit of a breakdown on negative momentum. havedollar weakness we seen all year is coming back to bite some of these companies, so they are seeing higher import companies -- prices, and they cannot push that down to the margin levels. the result is that sector struggling. there is value emerging in that sector for the longer-term investor, more value emerging , ife, and overlong cycles you think we are going to have a recession in the next two years, you want to start migrating to yields. i would struggle to make the argument short-term for stable.

david: health care covers a lot of companies. separate pharma and providers. they had different businesses, subject to different regulatory constraints. we do notree, but believe there will be a trumpcare solution. we think government spending opportunity to increase as a percentage of gdp, health care will continue to increase. we like that not come united health, abbott labs, amgen, pfizer. we like health care across the board, high-quality companies that have consistent revenue growth. david: does that mean you are assuming health care subsidies will continue? chad: absolutely, we think it will continue as it is, or moderate changes overall. we are not looking for this massive flipping over of the chessboard at all at this point. alix: we saw a bit of this massive flipping over in the

past week, leadership moving over from tech and energy into financials. endyou understand that as of the quarter rebalancing, or something material going on? in the middle of august, energy was an extreme oversold levels. we started be selling in august. then the inflation narrative changed. a lot of that is driven by the fed moving toward a more hawkish stance in the market was repaired for. that means the market is now a visiting higher levels of inflation. we didn't get that today but i think we have a path on inflation data because of the hurricanes. we can always blame the hurricane for anything that goes wrong. the inflation trade has started to elevate some of these stocks. whetherns to be seen september's rotation is a profound change or a bounceback. these stocks were losers for the entire year. there is a bit of deja vu going on in the markets. is this rebound and inflation

expectations, is this narrative going to play out for longer than a month? i think the federal reserve is struggling. they know inflation will be low. janet yellen has made that clear, signal to the market. the real concern here is they are keeping a careful eye on asset inflation, and they are realizing they are creating more of a bubble within the financial system. that has basically been the general fanatic of the show i've been talking about. thatave this expectation things are going to be perfectly fine, and they are concerned about that. we anticipate they will methodically raise interest of thever the course next 18 months, as well as lower their balance sheet and stop or shift and signal differently, if the markets start to actually get into more of a volatile situation. but again, inflation is dead in

the water, based on globalization. volatility, we definitely did not see in the quarter. gina martin adams, chad morganlander, just calling the death of inflation. when it comes to etf flows, what happened to the spy? it is set to be the first time in a decade that we have seen under $1 trillion of turnover in the quarter. what is going on? eric balchunas is joining us. i look to spy volume. this low volatility volume affects spy's volume. spy is what active managers hold or liquidity. there are options around it. so when you see volume crank up, people are truly scared. sometimes the vix will go up and

spy doesn't. the other thing is that spy is not in a heated competition within the etf world with blackrock, which is now three basis point in cost. cost ofn this whole session in iraq so a lot of people are moving over to ibv. they will try to peel off some of the people that don't need the oceanic liquidity of spy. 's low-volume.spy first of all, that's fascinating. secondly, what etf's and we see the strongest flows in the quarter? >> i hate to be boring, but it was ibv and those others. people are generally going with cheap beta. it is going across all asset classes. , we saw a huge

stock flows, now balancing out. the flows are also clouded by the fact that there is a lot of shifting from the ritual funds to etf's. that money is coming over as asset allocation money, not hot money. alix: where is the hot money going, what kind of etf's saw outside close? eric: we look at a percentage of increases in assets. which etf's when from oblivion to the big time? i have two to show you. arobotics etf has now crossed billion dollars. did not have a hundred million at the end of the year. attractinghium etf, battery producers and miners. these are the fastest-growing etf's. there is a third, the china internet etf. these need to think to go out of oblivion, a good performance story, and a good story story. people need to understand why it's going up.

robotics, easy to understand, robotics, lithium batteries. you can go from nothing to actual legitimate volume. let's talk about bitcoin. a lot of people want to have a bitcoin etf. south korea today said no more initial coin offerings, like china. eric: there are now eight issuers that have filed for bitcoin etf. there has been this whole slew of new issuers trying to file for bitcoin futures. the cboe said they would try to list them. then the sec said, wait till the futures trade before filing. that is how hungry people are to get a bitcoin etf. the winner of this race is probably be very deed in billion dollars in assets. it is probably as close to a sure thing. alix: you like bitcoin etf, chad? chad: i would stay away.

i think everything is getting a little too rambunctious with lithium, bitcoin. short bitcoin a etf, so you can go the opposite way. alix: thanks very much, eric balchunas. we are about 11 minutes into the opening trade on the last day of the third quarter. here is where we stand. the s&p flat on the day. jones off by about 35 points. the nasdaq up by .2%. individual sectors performing well, tech and health care. telecom, energy, and materials getting hit on the downside. this is bloomberg. ♪

>> this is bloomberg daybreak. coming up on bloomberg markets, an exclusive interview with former u.s. treasury secretary jack lew at 1:00 eastern. this is bloomberg. david: i'm david westin. we have breaking news. word coming out of the ap that the united states will shut down , or will shut down a good portion of its embassy in cuba. this comes after some curious ailments, brain injuries and hearing loss. people cannot acclaim what it is, they think it may have to do with electronics. the cuban government has denied any responsibility. that we mayn says

close down our facilities there. we will keep you updated about the possible closure of the u.s. embassy in havana, cuba. in the meantime, people are winnerso pick some or not so big winners, if president trump his way on taxes. banks are expected to be among the biggest winners. the six biggest banks could see their net income rise 7%. joining us now by telephone from st. louis is david george, a senior bank and it must, and still with us -- analyst, and still with us is chad morganlander. have you taken a look at the possible effects on the banks from these tax cuts? >> we have, and this goes back to the period of time in november postelection when the banks experienced a significant rally on the hopes of tax reform . we found a bunch of different scenarios.

the devil is in the details, ultimately, but we think the benefit from an earnings per share perspective could be aswhere from 5% to as much 15%, depending on the nuances of the policy. from your analysis, explain, is it just as simple as the fact that the banks do not take as many deductions, they are closer to the nominal rate in what they pay, so going from 35 to 20 would benefit them more? >> that's right. the bank group as a whole has about a 29% tax rate. that is below the statutory of 35, but it is one of the highest tax groups in the s&p 500, so that's really the driver of the benefit relative to other sectors. alix: what about the impact of the reduced deferred tax asset? >> that would have an impact over time, not something that from my perspective is a big negative.

there is, obviously, a lot of excitement about tax policy. we are of the view, trying to curb people's enthusiasm, about tax overall. we think the ultimate winners -- the banks will benefit for a time, but in intermediate to longer term, if this happens -- and stress the word if -- the true beneficiaries will be banking customers. banking products are growing and only 1% to 2%, and there are 6400 banks. we think there will be stiffening competition for loans and deposits it taxes get lowered, and a lot of those benefits will be passed on to consumers. alix: what about investment banking with ipo's, m&a, if tax reform goes through, any boost to that? >> it should create more activity broadly. if you think about knock on effects, if we get some positive movement in tax, it should stimulate some capital issuance on the fixed income and equity side, should be fairly

constructive for m&a. be a near toould intermediate-term positive for investment banking, capital markets. david: this all sounds pretty good, if it comes to pass. what if i can no longer take a deduction for business interest? great point, something being lost in the euphoria about potential tax cuts. theof the provisions of discussed framework is the potential for the elimination of business interest. corporate loan growth has been extremely robust over the last three years, about 8%, 9%. to the extent commercial loan interest is not deductible, you could see a fairly market deleveraging on the corporate set were economically it doesn't make sense. you could probably see, to your other point, more of a shift into the fixed income capital markets, to the extent that takes hold. david: a fairly marked

difference. have you been able to get a sense of the entity on this? with some deductions limited, a 5% decline in loan growth, that takes the earnings benefit for banks we think to about 5%. that is significantly less than some of the more constructive expectations of 15% to 20% benefits. in that were the case, we think it would be a net negative for the stocks. chad: we have a neutral rating on banks, we believe regulatory issues will lighten the burden for banks, but we believe the yield curve is really what is driving banks, hence, why they have had great performance in the past few weeks. the 10-year has gone higher. we would be cautious and feed the trade in the short run. alix: great stuff, we appreciate it, david george, chad morganlander. great to see you both.

if you have the bloomberg terminal, check out tv , watch us online, interact with our graphics. if you want to talk about lithium, you can go back and check it out. this is bloomberg. ♪

david: we have more breaking news this morning. there is a report that kevin moore, former fed governor, is meeting with president trump about the possible position of chairman of the federal reserve. has been talked about wildly as one of the candidates considered to succeed janet yellen, if she is not renominated. warshs now are that kevin is meeting with the president about this position. joined -- i'm sorry, here is more. these are the six people most

often talked about as possible candidates to succeed janet yellen as chair of the fed. we are now joined by marty schenker, our chief content officer. you know kevin warsh, what do you have to say? >> the most interesting part about this is it clear donald trump has begun the process of vetting these candidates. previous to this, there was no indication that he had begun to focus on what he would do about the fed chair. now, obviously, he is starting the process. is true, iting this may well be that the president meets with all six of those people, and others. and don't forget, he has not taken janet yellen's reappointment off the table. he said specifically she is still being considered. gary cohn was out of favor in this white house, now back in favor. we will see if he is still a viable candidate. the betting markets are all over

the place on this. david: what do we know about mr. warsh position on revelatory policy? >> i think you would fit broadly into the category of people who are not pro-regulation, who support a very limited then mandate. basically, the mainstream candidate, not somebody on an extreme position one way or the other. mentioned gary cohn. earlier, we spoke to him, director of the council of economic advisers. he says some aspects of the tax plan could be up for negotiation. this point does not allow for deductions of state and local taxes. we are willing to work with a tax writers on the other dials we have in the system. david: they put their plan out, the president says redline on 20% corporate taxes but now they are backing up other parts of the plan, in particular, a lot

of republicans pushing back on the seduction for state and local taxes. it's rather extraordinary for him to go out onto bloomberg television and negotiate with himself. i don't think he is indicating that it will disappear, but he is maybe suggesting there is negotiation on limiting the extent of the deductibility. they have not even begun hearings yet and he is saying we may be able to move on that, which is interesting. david: he is also having trouble with his own leadership. cameead of tax planning out right away and said we have to accommodate people. >> i really think this is an outgrowth of the process they used to come up with this big doors,s big fix, closed did not include democrat or other republicans. no one really had a stake in this proposal. david: if they want to get it

done by the end of the year, they cannot spend too much time consulting. >> and that is why everyone thinks this is a truly aggressive timetable. taxes is one of the more emotional issues for a lot of these people looking at reelection. it might not be easy. alix: marty schenker, thank you. we are 26 minutes into the opening session of this last day of the third quarter. smp flat, one point away from a record high. the dow jones off by 1/10 of 1%. in other asset classes, yields higher by two basis points. this is bloomberg. ♪

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delivers consistent network performance and speed across all your locations. fast connections everywhere. that's how you outmaneuver. york, 3:00:00 in new in london, and 10:00 and hong kong. >> live from london, i'm mark barton. welcome to "bloomberg markets."

vonnie: a record high for the s&p 500 as we end the third quarter. we start with more breaking economic data. here is julie hyman. the final rate on the university of michigan confidence index. this is a slight revision from the preliminary reading. 97.1 for the overall number, .2% lower than the preliminary reading. current conditions at 111.17. expectations lower at 84.4. consumer confidence remaining relatively strong here as we head into the fourth quarter. we have new records but we have -- they are pretty tenuous as we see stocks bounce around, particularly the dow between gains and losses.