point. looking at the minutia of the tape, taking the news from washington to be better than good. term flattening, this is industry. it is engaging each and every strategist who speaks. i think of michael pond at barclays, had a conversation. that's the vanilla curve, coming in 273 basis points. 73 tenure -- coming into basis points. i'm going to bring in our next guests, then i want michael mckee to carry off our first questions. i can't say enough about vincent reinhart, who has led the charge for over a decade in listening and thinking about our monetary research. he provided leadership to chairman greenspan at the fed,

then one of our most eclectic fed presidents, gary stern with first-rate academics. i would suggest out of minneapolis, a really unique, regional aspect, minneapolis economics. >> all of the fed bank presidents take on greater importance, because there are fewer people on the board, which brings me to my question. a lot of people have suggested lotyou were a fed staff, of people say the fed staff runs the fed, especially in the absence of a lot of governors with academic and economic credentials. is the staff going to be pushing jay powell around? should we be looking to the head of the monetary policy division for guidance? >> i think it would be a mistake to try to push him around. he is pretty solid and he's been working hard. he's been around financial markets and policies since the 1990's.

he was in part hired for the job because he represents continuity. the destiny that he will be his own person. >> how much can he be his own person in the face of 12 regional bank presidents who as votingon the board members, now there's only going to be three people on the board until donald trump appoints new people. is this going to change the balance of power? certainly affect the balance of power in terms of the votes. the fed operates most of the time by consensus, anyway. part of the chairman's job is to form a consensus that he personally believes is the right policy, but the vast majority of the committee, including members who don't have to vote every giving your, also support -- every given year, also support. i would expect it to continue.

i would weigh in on one of the thing. i have one thought that the strength of the fed is the staff, both in washington and the reserve banks. the staff doesn't push the chair or the governors around, because the principles are the guys who vote. their job is to prevent -- ofsent a sound arranges policy as possible. >> you were educated at the washington university in st. louis. and you represent all of midwest economics, is jay powell eight white shooed banker from new york city? is there a risk that the acquisition of bearings and the sale of swiss banking corporation, is this the evil guy from wall street? >> not in my judgment, no. in fact, citing those things kind of answers the question.

if you reflect back on those events, the lesson i think you would draw is a healthy skepticism of the financial system is partial to the job. interview --t to interview -- interfere with innovation or lending, but it is skeptical about some of the things that potentially might go on. that's the lesson i would draw from the misadventures. scarlet: let's talk about what this new chair would confront when it comes to monetary policy. i have a chart, for those of you on radio, all you need to know is the fed funds rate has been going on since 2015. sincewas a lag in 2016, then it has been a step ladder pattern. financial conditions have been extraordinary loose. they are looser than they were in july, any point since it began tightening.

they say it's because central banks continue to have in -- on accommodative policy. what would tighter u.s. policy start to show up in financial conditions here? >> i bring back a phrase from the past, the conundrum was that as alan greenspan was raising rates, there was a question of how much fraction monitor -- traction monetary policy would get. the federal reserve is leading the procession toward the exit, doj is very far behind, the ecb is somewhere in between. that tells you it will be reflective in the exchange value of the dollar, rate differentials across the u.s., ultimately the federal reserve policy will get traction. the answer to what do you do if you tighten financial conditions, don't tighten.

it will mean you will have to tighten more. scarlet: how will it look? will it be a snap back, sudden, abrupt? used to say monetary policy cuts rates by going down the elevator and raises them by going up escalator. low, long, tends to be gradual in terms of policy rates what happens in equity markets, the exchange value, it could be much more abrupt. what a privilege to speak to:, who could be a president, a governor, even a vice chairman of the fed. let's listen to abby joseph cohen of goldman sachs. structural have big

changes in the economy as we shift increasingly from manufacturing to service, i would feel more comfortable if we had an economist either in that seat, or if he was surrounded by other economists to whom he listens. assuming it is jerome powell who is selected. there she is, talking about the big seismic changes in the economy. you mentioned a research staff that will have to brief the chairman. what will they have to do to brief the chairman on the american view from 60,000 feet? employs a lot of capable economists, not that the fed or any other organization always gets things right. but they have a lot of capable economists. they have devoted a lot of resources to the structural changes that are occurring in u.s. economy and goldleaf. i'm sure they can draw the implications of those changes fo

r and maybe for other policies as well. ultimately, the fed should not eachpected to deal with and every difficult challenge that comes down the pike in the economic world. that's not its responsibility, it doesn't have tools for all that. i think the fed's principle rule in these circumstances, we have had a long expansion close to full employment. the fed's role in this environment is to keep this going. >> what should be the role of the economic vice chairman? this empty slot that is there. you can qualify for that with your research skills over the decades. what do you perceive as being the vice-chairman that will drive the fed conversation forward? >> they've nominated me for a lot of jobs over the years.

the basic point is we expect three things. knowledgeable about economics, knowledgeable about markets, knowledgeable about that institutions. you never get one person th has l the. they look to the bench to fill it out. alan greenspan didn't know much about the fed as an institution, he relied on an administrative governor. didn't really have much market background, and relied on the governors in the new york fed. they're going to have to have important economic policy advisory making jobs, they will also probably have to fill out the new york fed next year. they can make that team complete to complement the quality that jay powell has. is on the chair of five of the eight committees and subcommittees on the board, including bank administration. he's just doing them all. administrative governor, he will

have to go out to the reserve banks, talking to the boards of directors, talking to the presidents. this is mostly about how he can work and play with others. jay powell is a safe bet on that. >> this is his opportunity to put his stamp on the board. he will not make a major change in monetary policy, but what about some of the things around the edges? the weight of that communicates and things like that -- the way that the communicate -- they communicate things like that. everybody speaks, and everybody speaks, are we likely to see any changes? >> it's exactly right. the communications of t fom there are four meetings that have press conferences and others that we don't expect as much. jay powell, part of his resume includes restructuring the carlyle. he has to understand that when you go into an organization as

ceo, you have a window to make changes. i be more ambitious in his confirmation testimony. therecan say i'm going in because i have to improve our communication with the congress, the public, and he gets confirmed, he can turn around to choose governors and bank presidents and say i have a meeting for change. there are some changes you can do early on. >> we welcome all of you this afternoon on bloomberg radio, and on bloomberg television. i want to point out important earnings after the 4:00 time. scarlet will be bringing that to you, particularly looking at apple earnings. starbucks, as well. gary stern with us, the former president of the minneapolis fed. allen's exner writes a detailed note about what we would expect from chairman powell. she mentioned there was a mystery over chairman powell and

or economics. we don't need a ned phelps dissertation, but does it matte that he may have fuzzy knowledge does -- like numeral like mere mortals like me? >> i would view it as an advantage. that framework is frayed, at best, given our economic performance of the past years of x is not a small number. some open-mindedness on that framework is a distinct positive. i think it would be worthwhile for a fair amount of resources to be devoted to a pretty theough review of some of critical macroeconomic issues and frameworks of the day. they have not all served policy members well, they have not all served commentators well.

i think it would be a good idea to open some of that up. >> do you think we come to the end of the bernanke era of policy? setting on inflation target at 2%, and aiming for that as the way you conduct policy? could we see some sort of change? >> i think you certainly could, but i can't read the new chair's mind. i don't know where he stands on that 2% number. to me, that number has always been an arbitrary number. areickel on it is if you rning below your inflation target, that's hardly a big problem. urge review,again and maybe modification, of that particular target. it's not clear to me that there is great virtue in it. there may be a better way to formulate the inflation

objective. scarlet: you are saying that chairman jay powell may want to make his mark after he testifies before senate and the back to the fed and say i have a mandate for change. when it comes to the communication by the federal reserve, investors are accustomed to an over acumen native -- over munich eight of said -- over communicative said. you think that he will want to operate? >> an important part of what federal reserve communications has been is the economist talking to the other economist to convince each other and feel good about their decision. look at the length of the fomc statement, the reading comprehension test of the statement, you need a postgraduate degree. wasd to say that when i doing it i needed a high school diploma. i think the fed has made monetary policy more scientific. science is a little worn on the

edges, and i think more than anything it's the question of can you provide positive guidance? saying weernanke was are not going to raise rates anytime soon, he is saying rule this out. that's easy to explain. when you have to say where you will be in three years, the confidence spans around those estimates are enormous. are you better off being silent on that, or over specific about something you don't know? >> people in washington will tell you that people are policy. does he come in and change the heads of the fed's divisions to get different views? >> of course it is. he's been at the federal reserve board since 2012, he has been the administrative governor. in that capacity, he is probably helped step budgets of the research divisions. he has a good idea of works --

what works for him. when he is going to do is take that window and say this has to work for me. >> the historic moment in the rose garden, president trump introducing his chairman nominee, jerome powell. vincent reinhart with us, we are on a to bring you with us gary stern, who invented minneapolis economics and all of the interesting research that has come out of their that make a note of minneapolis fed's terrific work on child education. gary, i want to be delicate. but i have to ask, president stern, the heritage of minneapolis has been kashkari. when you see the outlier of opinions, whichever they may be, as we have seen from president

kashkari, does that assist the debate on economics in the nation to see any given outlier debate as we have seen? it depends on the quality of the argument. if you have a compelling reasons for the position you are taking, i think the answer is yes, it certainly does. if it comes across as some kind of whim the, that's a different matter -- then that's a different matter. yes.nk the answer is having said that, i have come to believe that the fed is speaking with too many voices. i was always of the view that if you want to save your best -- that you want to save your best arguments about policy for the internal discussions, the discussions at the policy meetings. you want it to be more general and generic in public.

i think the fed has, in the interest of communicating effectively, it is just confusing the world. it would be good from my point of view if some greater discipline were apparent in that arena. >> just to underscore what he's talking about, i think there are two core reasons. number one is the press conference, now that they have a press conference they don't have as efficient a discussion. they can say i don't know how to exactly put this in words, we can count on our chair. in fact it's the four pages of the opening remarks of the chair that should have been reduced and worked down to something they could agree on to be a statement. as a result, the statement gets repeated. is, i thinkhing it's revealing that the meeting is not as efficient in terms of sharing communication. a lot of what you have to

appreciate, a lot of what gary is talking about, they are giving speeches to signal to each other what they are going to do, we just happen to be eavesdropping. that's not the way to run a meeting. , garyt: vincent reinhardt stern joining us by phone. thank you both. once again, this is a bloomberg special on television and radio. we are following the president's selection of jay powell as his fed chair nominee. this is what the president said from the white house rose garden about one hour ago. we need stronger, sound, and steady leadership at the united states federal reserve. i have nominated jay to be our next federal german -- federal chairman. he will provide exactly that type of leadership. he's strong, committed, and smart. scarlet: a new chair nominee jay

powell spoke after president trump to say that politics would not influence his decision. we understand that monetary policy decisions matter for american families and communities. i strongly sure that sense of mission, and am committed to making decisions with objectivity based on the best available evidence in the long-standing tradition of monetary policy independence. in his statement, president trump praised janet yellen for her service. he did not explain why he's getting rid of her, but she is going down with her head held high. a statement saying "i congratulate my colleague jay powell on his nomination. his long and distinguished career has been marked by dedicated public service and seriousness of her in its. i am confident in his deep commitment to carrying out the mission of the federal reserve. i can committed to working with them to ensure a smooth transition."

there's two more meetings in which she will be residing with a press conference, and then before she loses her job. check.me do a day to equities, bonds, currencies, commodities. the market likes what it heard in the rose garden. we are up maybe 30 points, bursting through near record high. 9.74 as extraordinary chairman greenspan would say, this is the triumphant of the market. 2.35%.asis points, to drive the conversation into the next hour of earnings, the cash juggernaut known as apple. they really are advancing up. i did a calculation, apple is a one point -- $1 trillion market speculation. we are really getting near that.

to give us perspective, and what a joy to have somebody who probably lives and knows the kind of life of jay powell better than anybody we can talk to, chief executive officer of ewa court. kimmitt, is roger ok? >> i'm completely cleared>> -- cured. >> dillon read, with all of the drama, you know the life of jay powell. how does he, and how do you deal with the economic club of -- how do you switch to economics when you are transactional wall street person? >> economics of facts everything that we do -- economics affects everything that we do. the confidence about the direction of the economy,

judgment that they have a clear view of the direction of the economy. m&a activity transaction activities. for anyone in our industry to not be conscious of what is going on in the real economy, and also in public policy, we are probably not doing our jobs as well as we could. >> one thing we haven't talked one thing we haven't talked about is regulation. donald trump says we have to get rid of dodd-frank, there could be changes. powell house outlined the things he wants to do. more information to banks about stress tests, what is the most important thing that the fed and other regulators could do to make the financial systems easier? >> they are not a huge factor to us, we are in non-balance sheet business. atn you look historically

the legislative reaction to crisis, the pendulum tends to swing a little bit too far in the other direction. i would say some of the things that happened after the early ,000 financial reporting issues they maybe went a little too far. has somek i think elements of that, as well. the most important thing, and i haven't heard anybody want to step from this, is the dramatically higher capital standards that have been put in place, and the dramatically higher liquidity requirements for these large financial institutions. if you leave those two things in place, and i haven't heard anybody talk about weakening those or removing them, you can with and tinker perhaps even correct some of the

overregulation that may have resulted in dodd-frank. scarlet: how would the central bank correct that? elimination actual of rules, or perhaps changes in the extent of enforcement? >> it could be done either way>> -- >> it could be done either way. there are some that probably warrant a second look. one i would certainly put on that list is the volcker rule, i have the utmost respect for volcker. enforced,terally and it would say the bank if it buys 1,000,000,030 year treasuries at the request of a customer, that's ok. if they buy one billion to your treasure tease -- treasuries, that's ok. one response done in response to a customer, is more risk on the

system. volcker tries to regulate intent, why did someone do this? i think if you have very high capital standards and high liquidity requirements, you don't have to try to figure that out. >> is jay powell a republican chairman? is he a political beast? >> i think if you find in certain parts of public service, i would say in the form policy -- community, financial policy, economic policy community, there is less democratblican and a point of view. you are actually going to be sticking with bloomberg, he will be back with us at the top of the next hour. i want to thank everyone on bloomberg television and radio for joining us on this special

coverage of the fed german announcement. this is bloomberg. -- said chairman announcement. this is bloomberg. ♪

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julia: stocks in the green and the dollar under a bit of pressure. president donald trump nominated jay powell to be the next fed chair. house republicans unveil their tax plan. i'm julia chatterley. i'm joe weisenthal. if you are tuning in live on twitter, welcome to our coverage every weekday. julia: let me give you a look at closed theajors have session -- finishing little unchanged for the s&p 500 and nasdaq. the dow making a fresh record high. easing from some of the earlier downside we saw earlier. a huge day for policy. confirmation finally of the new central bank governor for the fed. tax reform proposal -- what does

it look like going forward? limited reduction on mortgages. also seeing some pressure on private equity named in the session. i did of debate on what exactly is causing this. is it interest to limit deductions or within the tax that is causing knock on pressure? overall, cut to corporate taxes and limits to property taxes. yields lower and a bit of pressure on the dollar as well. we will show you the dollar index. lower by just 1/10 of a percent. who knows the pressures and the moods. we want to move on and show you what is going on in sterling. the bank of england rate decision. this was a real winner.

governor markell carney raising rates as expected but this was one and done for a long while. watch the brexit headlines from here and that is resonating in the market. since 2016,the most post-brexit. that is the rat on today's market minutes. it would be hard to miss this 1 -- jerome powell nominated to replace janet yellen as chair of the federal reserve. president trump making that announcement last hour. let's get some insight from ralph schlosstein, a former economist for the congressional joint committee and now the president and ceo of ever core. i know you were talking to tom and scarlet and mike about this election. i want to take up on the last theme you were talking about about powell's political identity. see aurious if we might less independent fed that we have in the past or is that

something, even if it is not a reality, that president trump was hoping for? ralph: my guess is president trump has pretty strong views on what the federal reserve should do. those in the monetary policy followeduspect, generally in what would be a relatively easy money posture. i have never met a businessman who worked in the real estate industry who didn't like low interest rates. is then the second thing critical role of the federal reserve as the regulation of our financial institutions. i would suspect the president has a somewhat more deregulatory than the previous president

had. it is quite possible that the fed will move somewhat independent or not independent the fed chair will leave it -- .ill be once they get into the chair, they are independent. joe: president trump didn't say -- i was wondering if he was going to make a joke about expecting jay powell to lowe rates. it was a very traditional sort of announcement. governor markell carney raisg rates asno indication he wantedo overstate his role. was a i think it presidential choice and a presidential announcement. julia: they clearly were trying to underscore some of the market worries. let's talk about the market experience this guy has because -- way too analysts much emphasis on what he is going to mean for monetary policy going forward and you

kind of alluded to it already. the focus needs to be the challenges on the regulatory front, would you agree? i think one cannot underestimate the importance of monetary policy to economic and to balancing growth with inflation. i would say that has been particularly true over the last nine and to balancing years sinl crisis, because fiscal policy so overoap over -- its ease, that's what one normally would do to stimulate the economy more significantly were prevented by very high deficits. i could argue pretty strongly i

think that our stimulus over the last few years has been excessively dependent on monetary policy. julia: now we are going to get a tax reform plan. it is all going to change. ralph: one could argue it should have happened a little while ago rather at 4% unemployment. joe: when they were talking about the budget amendments in 2011, that might have been a good time for the deficit. powell, we are very very close to low rates. it is possible in the next session we could hit theits eas, requiring the fed to once again introduce new which ordinary ease, assuming that it want to cut rates below zero. is it a lack of a formal economic training give you any positive about what the fed might do? ralph: not at all. i think the fed under janet yellen and i suspect under jay powell once he takes the chairman's role is on a path of gradually raising the fed funds rates. but in response to economic circumstances.

if they see more weakness in the economy, they will go more slowly. if they see more strength, certainly if they see inflation, they will go a little bit more rapidly. i don't see a tremendous amount of difference in how janet yellen or jay powell would guide the fed. experience, to his he brings a wealth of private sector experience. he has been on the fed for a number of years, he has been in the treasury. he is not a trained economist, but that is not a ease, assumint it want to huge deal to be honest with you. there are hundreds of those on the federal reserve staff. julia: he is not lacking those. ralph: there are other members of the federal reserve board and the regional president to have deep economics training. i think what you look for is a mix of talents and experiences, and what you want in the chairman is someone who is extraordinarily professional and

brings a consensus from all of those views. ralph is staying with us. we have some earnings? matchingrnings estimates for starbucks coming out $.66 per share. less than estimated. the estimate was for a gain of 3.2%. the company says in its release of that again in global comp would happened 3% if you exclude the impact of hurricane harvey and irma. one would have thought that would have been incorporated into analysts estimates. net revenue at $5.7 billion, below the estimate of $5.8 billion. you can see the shares are dropping. a couple of other important items -- the company is selling brand and selling it to unilever. it says it will focus on its tivana brand and raising its dividend and committing to

returning $15 million to shareholders over the next three years. at least right now that is not medicating the decline inreturng shares. we will have more earnings and apple is coming up. we will continue to talk to ralph schlosstein in just a few moments. this is bloomberg. ♪

julie: we are back with president and ceo ralph schlosstein. talk tax reform. we think it is a rough draw. ralph: i think it is inevitable willthe first foray here be modified and i think any legislature will tell you when they put forward a first bill, there are things they feel passionately about and then there are things that they have done for one reason or another,

and sometimes put in there to trade away to broaden the support for a piece of legislation. i think in a broad sense we will see something not dissimilar from what was put forward but there are obviously going to the some changes. julie: let's say the corporate rate tax cut stays it and we are looking at 20%. what does that look like for your business and clients his business --clients businesses as well? ralph: number one is lowering which i think is unquestionably makes the united states a more competitive whichs place to locate businesses. you had a company today that announced with the president that they are redomiciling back into the united states. so, we today are in a noncompetitive position. the interesting thing is that if

you look at the average tax rate paid by all corporations, it is not for -- it is not far from that 20% but it is distributed very oddly because of this special benefit or this special benefit. a process that gets rid of those and lowers the rate is a good thing. the second thing that is important and certainly will time isur business over the repatriation of offshore cash. and some of that when it comes home will be invested. up innevitably will wind share repurchases and dividends. some of it will wind up in m&a up in share activity where people are investing in organically in the growth of businesses. is really the

question -- when you are talking about a corporate tax cut -- is it good for corporations and is a good for the american economy which are two different things? is it indeed going to go down to everyday americans? are we going to see more job growth or is it going to go to shareholders and go to -- ralph: the likelihood is it goes to both. we are ai can tell you full tax paying company because we don't have any of those benefits. is really the question -- when you are talking about a corporate taxevery redue our earningseases and should increase the value of the company somewhat and make us able to havemore investment -- in our case, investment in people which is what we do, rather than investment in plant and equipment. joe: the tax reform -- corporate taxes aside, the part that gets really salient is how it hits the individual taxes and the taxes people pay at the

year.ing of the it is pretty clear there are some benefits that are particularly going to benefit higher earners. in your view, when you look at these individual types, do you think it is fairly characterized as boosting the middle class? ralph: the aspects of the income cut are. increasing the child credit, increasing the standard investment -- in our case, investment in people which is what wededuction. and then there are parts that are not. eliminating the deductibility on interest of student loans. mortgage cap on deduction. i think the part to me that is furthest away from that are the proposals for the estate tax. that just inarguably goes 100% to the well off in our society. i don't know how anybody can stand up in front of anybody

without smirking a little bit and say this is a middle-class tax cut when it includes an elimination of the estate tax. julia: do you think they managed to get this done by christmas? ralph: i think it is probably advantageous for the majority in congress to get it done this year, but i think if they get it done in the first quarter, it will pretty quickly be forgotten that it did not get done by december 31 at 11:59 p.m. julie: do you think politically -- there is a potential wisdom gedt has a marriage -- emer that the gop needs to get this done to be successful in the midterm. do you think that is the case? ralph:that just i think the abst passage of some significant legislation in tax reform and tax cuts is the most popular. see whattty hard to

list of accomplishments the republicans are going to go to the electorate with when they controlled the senate, house and white house. joe: one policy that will affect voters in every congressional district is change in mortgage interest production. -- youys talk about this cannot touch people's mortgages. between the increase to the standard induction and housing amount you can theoretically take, and lust like a lot of this benefit is going to go away. do you think ultimately it might be painful in the short-term that it is good for this to go away? ralph: first of all, in the dark ages before all of you were born, the mortgage deduction had no limit on it. if somebody owned a $50 million home and took a $40 million mortgage out on it, the interest was entirely deductible.

today, only $1 million of that $40 million loan is that it will -- is deductible. i think it is a matter of taste whether the right limit is a $500,000 house. all of these limits whether it is on the state and local deduction or a mortgage interest, they tend to affect most negatively the high cost, high expense estate. a half $1 million mortgage in alabama is a darn large mortgage. in new york city, it is not that big. thank you so much for sticking with us. i want to mention some earnings that we have been watching in the past few minutes. herbalife is one of the companies that has been reporting and those shares are trading lower. the company is coming out and narrowing some of its earnings $262mates for the year to

a share in earnings. also, fourth-quarter earnings will be at most $1.04 a share. the estimate was $1.11. that is honestly disappointed to traders in the after-hours among a host of companies reporting the numbers. we will have more coming up. from new york, this is bloomberg. ♪

julia: aig earnings just crossing the bloomberg at this moment. we have had one of the costliest hurricane seasons on record. insurers have beaten results with the exception to the rule, aig. one dollaruld appear $1.19, deeper than the

expected.we just adding to some of the challenges aig has faced over the last decade. you can see the stock down more than 3.5%. starting back to washington, good news coming from both ends of pennsylvania avenue. kevin, bloomberg chief washington correspondent is on capitol hill. expected. just adding to some of the challenges aig has faced over the last decade. kevin: we are here with senator elizabeth warren from massachusetts. you called this republican tax, that it kicks third in everyone else's basis. is there anything about it you like? sen. warren: top line of what this republican tax bill is about is a true curling that $2 trillion giveaway to giant banks, the number one recipient is wells fargo. the company that opened fake accounts and cheated their own customers. numberto recipient is --

two recipient is overseas investors. they stand to make $700 billion. the big the third 1 -- multinational corporations that get a big incentive to put more jobs overseas and fewer here at home in america. can we stop it? i don't know but we will be trying. kevin: you have to lower the corporate taxes to be able to be top in the world and by doing that we could drop back business overseas back. sen. warren: that is one of the lies they like to tell. lies they like to tell. the tax rate for most of the corporations runs around 19%. that puts it right in line with germany, great britain. that is not what's going on here. what's going on here is a lot of big donors invested in the republican party and the republican party is going to pay them back with trillions of dollars in tax cuts. tax cuts that go to the biggest corporations. that's not good for middle-class

america. kevin: one of the things when i was interviewing republicans howier this morning was some of this will help middle-class americans. they say about $1200 tax break for them. they also think some of the expansion of the tax credits. sen. warren: i have been out there for years and years now talking about the enormous pressure the middle class families, how hard they are working. if the republicans were really serious about let's do a tax overhaul that really helps middle-class falies, then would be there. instead, this is all about how money to a handful of giant companies. today in america, those big corporations are paying about 10% of the total bill of what it takes to run the government. do you know how much they pay

just 40 years ago? they paid 30% of the entire ticket. who is picking up the difference? the answer is middle-class families. what i want to see is big corporations pay their fair share. that will help middle-class families. kevin: your office put out a statement you will wait and see for more on mr. powell. what are your thoughts? sen. warren: i am really disappointed that janet yellen was not renominated. since 1979, not to be renominated that happened. regardless of party, both directions. janet yellen made it clear she wants an economy that works for working families. jerome powell has been with her on a lot of that and that goes a long way with me. we have a hearing coming up. i will be asking hard questions. i will be asking hard questions and see what he has to say. janet yellen made it clear she wants an economy that works for working families. kevin: one final question in

terms of perspective. you had a tax bill today. pauly, indictment over manafort and several others. a terrorist attack in new york city. put in perspective for me and our audience about where you are in terms of this week. sen. warren: this weekend every paycheck toit is paycheck families will make it in this economy. and whether this government is just working for those at the top, tangled up in its own politics or whether it is actually trying to work for working people. just last week, there was something that congress brought up which was forced arbitration. that was a battle that had one side all of the veteran groups, active-duty military, aarp, people. on the other side, a handful of giant banks and the republicans set between those two, we are

going with the banks. this is a you washington that works with those at the top, could put in lots of money lobbying. it is not working for the rest of america. kevin: a floor speech on that very issue went very viral. we thank you very much for coming on blmberg television. back to you in new york. julia: thank you to kevin cirilli. kevin, are you still there because i heard it is a special day? kevin: it is, it is my birthday. julie: happy birthday, kevin! kevin: thank you. [laughter] kevin: thank you very much. julie: a lot going on, kevin's birthday. it's not over yet. he has apple's first-quarter earnings reports coming up.

apple will report earnings to celebrate. we will have the numbers in just a few minutes. from new york, this is bloomberg. ♪

julia: welcome back to "what'd you miss?" we are just getting some results out now for apple for the fourth quarter. they look pretty juicy at this level. revenue coming in at $56.2 billion, up 12% on a year ago, quarter. 57 -- $50.7 billion in terms of the deluded eps -- diluted eps. the adjusted eps estimate, $1.87, gain, beat on that line, too. services revenue reaching an all-time high, $8.5 billion in the quarter. it grew 22% in the last quarter,

too. the forecast here is what we care about, because we don't have any information on what's going on, particularly with the iphone x. this is what they are telling us for the fiscal first quarter of 2018, revenues coming in between $84 billion to $87 billion. that's the top end of estimates. $84.9 billion we were talking about in terms of estimates. in terms of margin, 38% to 38.5%. i see this as being a touch shy, definitely on the midpoint. what are we getting in terms of numbers? operating cash flow looks strong as well. returning $11 billion to investors through capital returns. anything else? julie: let's talk about units. iphone units in the fourth quarter, fiscal fourth-quarter. 46.7 million. that's above the estimate for

$46.1 million. the average selling prices is below the estimate, $618 vs. an estimate for $633. that might not be that dire. if folks are looking for iphone x to sell big, it has a higher selling price, so it will bring up those numbers in the fiscal first quarter. joe: joining us now, john butler and in philadelphia, the co-chief investment officer, hank smith. great to have you with us. first take on these numbers? >> great numbers>>, actually. i'm really happy to see the guidance on next quarter, because the holiday quarter is going to be the first full quarter of iphone x sales. billion to $87 billion guidance is really good. the average selling price will go up as they ramp up sales of that iphone x. so, their important for them. joe: -- so, very important for

them. joe: apple looks solid, hard to find any weaknesses in this report. the market liking it, up over 3% after hours. what's your initial takeaway? >> first, i've got goosebumps. this is another great quarter, tremendous momentum, and we've got the iphone x to look forward to. here is the best part. this is still a cheap stock. being being -- despite up some 40% year-over-year, despite having the largest market cap, this is still a cheap stock, selling at less than a market multiple with over $140 billion of net cash. joe: this raises a really interesting question. it has been a cheap stock on valuations and its balance sheet for many years. why do you think the market has never assigned this a high multiple when it performs so great and has given investors amazing returns in most years? >> i think part of it is, think of what they have to do each year.

they have to sell millions of phones each year. so, there's always that chance that those sales could come in light, so there is a cyclicality component to that enings. here is the exciting part you mentioned earlier. services continue to be a bigger now of the overall picture, about 20%, maybe a little bit more of total sales. growing over 20% per year. that's a much more stable part of the business. that's very exciting as well. butler,ank smith, john both staying with us. we want to get to some commentary from tim cook, the apple ceo. emily chang just got off the phone with him, and she is with us from san francisco with the highlights. emily, what did he say? emily: i just got off the phone with apple ceo tim cook and the cfo. as you all have been saying, a very strong quarter and a very

strong forecast. there had been some concerns about the constraints -- supply .onstraints around the iphone x would that impact the holiday quarter? we are seeing wait times of up to six weeks. tim cook told me, never fear that this forecast, -- told me never fear, that this forecast has a lot to do about how optimistic they are about the iphone x. and other orders are going well. he is pleased with how things are going, particularly considering that this is the most advanced iphone ever. when i asked him about supply constraints, do they have to do with new technology or the oled screen, he says it has to do with it's the most advanced iphone we have ever done and we are beginning -- just getting started. he said they will make some reductions in those wait times in the next couple of days,

today or tomorrow, as the iphone goes on sale. about half an hour from now, it goes on sale in australia. they told me there are already hundreds of people in line at the sydney mall, the apple store in sydney, waiting for their iphone. another important highlight is china apple returned -- china. apple returned to growth in china. the mac was extremely strong. invices hit an all-time high china. the ipad grew double digits in china. other businesses are doing very well. i suspect that china will really love the iphone x. that was in response to a question about the price. $999, very expensive. you have a lot of other much cheaper alternatives. he was fairly optimistic about it. i did get in a question about tax reform. we saw that proposal from republicans where the tax rate is more like 12%. we were thinking it might be closer to 10%. this would have a big impact on

apple, given all the cash they have overseas. , "we've always been a strong advocate for comprehensive corporate tax reform. it will drive investment in the u.s. it will drive job creation in the u.s. -- the u.s." given all the legislative roadblocks in washington, it sort of indicated what we see now is not necessarily going to be what we see later. that's the highlights from my discussion with tim cook and luca maestri. julie: a lot to chew on in those comments. i want to take the iphone x optimism that it seems tim cook is projecting here. john butler, i want to bring you back in. hank smith is still with us as well. what did apple do right this time? over the last few product cycles, the refresh hasn't been that exciting. it hasn't drawn people in. what is it about the iphone x?

is it the facial recognition? what is being people excited here? >> it's two things. number one, it's the size of the screen. smartphones are just getting bigger because people are doing more and more on them. they are watching movies, reading books, reading their morning paper on the phone. they have increased the size of the screen again from the plus size on an iphone numeral -- vii 8 plus. iphone 7 to an it's brighter and crisper. you can really see a difference there. they have done a lot with the camera technology, without growing integrate -- going into great detail. smartphones are people's primary camera now. on those two fronts, they struck a good chord with consumers. one of the big questions here at about the iphone x is

whether or not people will delay and not buy into the iphone 8 in order to wait for the iphone x, if and when that arrives. mark gurman is making some interesting comments. if you look quarter to quarter, iphone sales grew 14% in terms of units, 16% in terms of revenue, suggesting strong iphone 8 and iphone 8 plus sales. these guys launched in september. what do you make of that? it's a very interesting point, an important point here. >> first of all, can you ever imagine 10 years ago saying that iphone -- apple will eventually $1000?it'sone for almost beyond remarkable . and yet, it points to the fact that consumers are -- will pay for quality. they will pay for value. and it's a very loyal consumer base that apple has, and that's the other part of the whole ownership of apple is that loyal

consumer base. i'm not going to get too caught up over cannibalizing sales from the 8 to the x. i just think the direction is in the right direction, and it's across all product lines. apple is showing renewed strength. julia: great to get your insight. hank smith of haverford. john butler of "bloomberg intelligence." plenty more apple discussions ahead. this is bloomberg. ♪

c.: time now for "first word news." house republicans unveiled the tax-cut plan that slashes the corporate rate and lowers taxes for most americans.

the plan limits deductions for homeowners as president trump and the gop seeks to deliver on the first tax revamp in three decades. house speaker paul ryan praised the plan. speaker ryan: with this plan, we are getting rid of loopholes for special interest and we are leveling the playing field. we are making things so simple that you can do your taxes on a form the size of a postcard. mark c.: middle income americans would pay less thanks to the doubling of the standard induction and an increase in the child tax credit. willthe americans would benefit from the repeal of the alternative minimum tax -- wealthy americans would benefit from the repl of the alternative minimum tax. a spanish judge has ordered nine ex-members of the government in arelonia jailed while they investigated on possible charges of sedition, rebellion, and embezzlement. returned toakers

barcelona and were greeted by pro-independence supporters at a train station. the officials were questioned as part of an investigation into possible rebellion charges for having declared the region's independence from spain. the former president of catalonia and four other ex cabinet members are in belgium summons to court appear for questioning. attorney general jeff sessions is defending the ability of the american justice system to prosecute terror suspects. summons to appear forhe spoke today near tf tuesday's new york terror attack. sending suspected terrorists for prosecution at guantanamo bay remains an option. attorney general sessions: terrorists should know this. this administration will use all lawful tools at our disposal, including prosecution in guantanamo bay. if anyone has any doubt about

it, they can ask the more than 500 criminals whom the department of justice has convicted of terrorism or related offenses since 9/11. mark c.: president trump said wednesday he considers sending the suspect -- considered sending the suect sayfullo saipov to guantánamo. i'm mark crumpton. this is bloomberg. julia: "what'd you miss?" apple's results, i've called them "juicy," and i will continue to do so. the record high we have seen, it touched $169.04. we are well above that. the high is $174.29. we are a touch lower than that now. we are back with hank smith an. give me the fly in the ointment

here. is there anything that worries you about these numbers? hank: well, look, you want to make sure that there is nothing that worries us about the numbers. you just want to make sure that the production of the iphone x is actually in good shape, so that they can meet the demand there. but there is nothing in these numbers that gives us any concern. and, frankly, i think we are a little relieved that it wasn't one of these buy on the rumors, sell on the news. the news was so good, you had to keep buying. julia: you're confident they can hit these forecasts? these are pretty punchy. hank: yes. let me go back to what i said earlier. we are not talking about a stock with a stretched multiple. we are not talking about a 50 or 100 or 150ultipe. we are talking about something that's selling at abo 15, 16 times 2018 earnings. that's a below-market multiple. joe: a few quarters ago, before

we were talking about the iphone x and all that stuff, there was a meme going around. in order for apple to keep rising, it needed to real you -- realize more value from its services business and investors were not appreciating the amount of money they were making on the services side with the services multiple. do you think that is the case today? do you think this is still an underappreciated aspect of the apple business? hank: well, i think as it gets more appreciated, i think you will see a multiple that comes up, for sure. and so, i think you are absolutely right that this was a blowout quarter on the services. the previous quarter was also a blowout quarter. so, there is tremendous momentum there. i think that will help drive apple to getting a better multiple. look, as an investor, you also have to be encouraged with their ability at any point in time to buy back a lot of stock, if and

when apple has a severe correction. julie: we heard emily chang a little while ago talking about the company's tentative comments on that repatriation tax. the proposal that was introduced today, talking about as much as 12% rate on that. is that a concern for you at all, or is apple just -- does apple have so much cash that they don't have to care, even if it's 12%? hank: well, it's -- let's say it's a little bit of a concern. they probably wouldn't be borrowing as much as they have if they could repatriate that at a very low or no tax rate. you probably would not see as much or any debt on their balance sheet. so, but they borrow at the rate of the u.s. treasury, so, that really is not a concern all that much. it would be a better story if we

could get a territorial tax system and allow the repatriation of all the overseas earnings without a tax. julia: we shall see. china, one of the concerns from the third quarter, softer numbers on the revenue line. quarter on quarter, we have a 22% increase in china, in the fourth quarter. what do you make of that? hank: i think it's a terrific -- again, there is nothing bad about this earnings report. julia: i'm trying. hank: that's just a lovely bonus, because you didn't have that in the last quarterly report. if we have a concern with apple, it is such a beloved stock. sometimes the history of these darling stocks doesn't always end so well, but it's hard to one is going to end

one is going to end up continuing to be very -- a very good story. it is truly a beloved stock. joe: it's interesting. when people thought they needed watch -- the julie: those products are doing ok. joe: there flagship -- their flagship business is crushing it so hard that all those old stories about how they needed to get a second business -- we are not even talking about that. what do you think? do they need to get a big second moneymaker like that? , i think ityeah would be helpful. but again, that's all about expectations. when the iwatch came out, there were tremendous expectations that it was going to be something jetson like. but it is improving. there's no question about that. i think that will continue to improve. i think you will see

contributions to the bottom line from the iwatch. trust'saverford director and co-chief investment thank you sosmith, much for talking with us about those apple earnings. obviously, hank, a big fan. julia: despite my best efforts. president trump has nominated j. powell for fed chair, but he still needs to be confirmed by the senate. heavens a really spoke -- kevin cirilli spoke to the republican chair of the banking committee and asked him about the next steps. >> i will support mr. powell as this nominee. at this point, the fbi investigation needs to take place. since he has already been through one of those, i'm hopeful that will move rather quickly. then some necessary paperwork has to be filed. i'm ready to move as could be as we can as soon as we get the paperwork. kevin: do you anticipate that

process will happen by the end of the year? >> i certainly hope so. kevin: do you think on the floor he will be confirmed by the end of the year as well? >> yes, i do. it's hard to predict anything, but i think he will get support. kevin: one of my final questions. some folks, including yourself, have voted against him in the past. how do you reconcile that record? >> my vote in the past was primarily a protest vote against a long of the -- a lot of the scoring that was going on, a lot of what i considered to be inappropriate activities of the fed, in terms of quantitative easing and things like that. and so, you know, this is a whole new look. we are looking at this candidate, this nominee in the context of this administration and the confidence that i'm hopeful to get an think that i will get that he will work with us on regulatory reform and on proper monetary policy. kevin: my final question, first and foremost, you were trying to get an agreement on regulatory

relief with ranking member brown. that has faded. are we going to get a bill? what's the timeline on getting a bill? have you taken a look at the house tax bill, and what are your thoughts on that? >> i have not had a chance to look at the house tax bill yet, so i don't have any comment on that yet. with regard to regulatory reform, i'm committed to moving ahead and building a bipartisan solution. although this last effort was not successful, i'm going to head as expeditiously as we can to get the yes as an answer. kevin: by the end of the year? >> i hope far ahead of the end of the year. julie: mike crapo with our own kevin cirilli. the fed's top of mind for wall street. lloyd blankfein talked about what he thinks the financial markets need from the fed as it enters a new chapter. >> the federal reserve has to again extract us from the store mary measures that were taken -- the extraordinary measures that

were taken. i think that's going to occur. i don't think that's so dangerous. we also have to prepare for a cycle where rates rise. and for a very long time, interest rates have been very low. by the way, that has not been obnoxious to the economy. inflation has been very low. but i suppose that money around the world won't continue to be a free good, and it will be properly allocated. priced tory, properly be properly allocated. while that's occurring, we have to sort of remove that extra stimulus, reduce the balance sheet, raise rates, and, the big that in a be -- to do way that it doesn't shock us into a bad position. this is a little bit like moving an unstable, dangerous chemical, and you want to treat it very carefully. everybody knows it has to be done. transparency, again, is part of

the implementation remedy, to make sure everybody knows what's happening, so there's no sudden, quick, jerky move with respect to it. but it's going to take a deft touch to do this. all the while, bracing for the fact that there may be some bubbles that pop into place as may be money has gone into some places it shouldn't have. >> you've tweeted about various subjects. one of the things you tweeted about was bitcoin, that you are still thinking about it about a month ago -- that you were still thinking about it about a month ago. saidcm -- cme said -- are two tangible for the london metal exchange. >> exactly. if goldman customers come to you and say, we really want to have this as part of our portfolio, do you have any choice but to get involved in bitcoin? > i have a level of discomfort with it. i have a level of discomfort

with anything that's new, but i've learned over the years that there's a lot of things that worked out pretty well that i don't love. i remember when they first came out with cell phones. i'm thinking, why would anybody want this thing? the battery lasts about 10 minutes. it weighs a ton. you have to have it on your back. there are phone machines every 10 to 15 feet. guess what? i missed that one. here, i read a lot of history, and i know, once upon a time, a coin was worth five dollars if it had fivedollars worth of gol. a piece of paper was worth five dollars only fit was backed by gold or silver. even then, people were -- suspicious -- people were suspicious. now we have paper backed by fiat. maybe in a new world, something gets back by consensus -- backed by consensus. instead of government fiat, maybe it's consensus. it's not my natural state of

comfort. but if you told me that, we went into the future and bitcoins were successful, i would be able to explain how the natural evolution from hard money-- by the way, why is gold worth anything more than the jewelry value of gold? that's kind of the consensus people have. no government says i'm going to pay you $1300 per ounce of gold. why is it worth that? you can't eat it. why is it worth that? because it's been like that for a long time. maybe 200 years from now, even someone like me might be comfortable with it. but right now, i'm not willing to pooh-pooh it that's -- it. that's why i say i'm open to it. julie: that was lloyd blankfein with our david westin earlier today. speaking about one of joe's favorite topics. joe: he's well-versed. i was listening to him. i bet he spends his nights

reading reddit bitcoin forums. he is pretty articulate about it. julie: i hope you have the opportunity to ask him about it. julia: let's recap what's gone on in apple today as well. i feel like we need to mention this as we head towards the end of the show. a beat as far as the revenue line is concerned. record services revenues. the forecast here -- we don't have a sense yet in this quarter what the demand for iphone x is going to be like. higher on the revenue forecast. a bit of softness on the margin, but overall a great set of earnings. julie: and the share is trading at what would be a new record. julia: that's all for "what'd you miss?" julie: bloomberg who knew that phones would start doing everything? entertaining us, getting us back on track, and finding us dates. phones really have changed. so why hasn't the way we pay for them? introducing xfinity mobile. you only pay for data and can easily switch between

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washington, and you are watching "bloomberg technology." president trump chooses jerome powell to become the next head of the fed. if confirmed by the senate, he would succeed janet yellen when her term ends in january -- february. president trump once the gop tax overhaul signed into law in time for the holidays -- president the gop tax overhaul signed into law in time for the holidays. president trump: we are giving them a big, beautiful christmas present in the form of a tremendous tax cut. it will be the biggest cut in the history of our country. the planmocrats say primarily benefits large corporations and wealthy investors. trump's national security adviser h.r. mcmaster says north korea could be returned to the list of countries the u.s. believes sponsor terrorism. his comments come on the eve of president trump's trip to asia. the 12 day