day of shutdown and markets react, not yet. four months after general elections, angela merkel may be getting her coalition government. a new chapter for ubs. , butill buy back stock shares take a hit on disappointing results. welcome to "bloomberg daybreak." welcome. i want to get you caught up on where markets are trading. s&p futures are down, as well as , and the euro00 gaining against the dollar. i want to bring you some news that did cross this morning. for $5.56ing validus million cash, validus up 16% on

that news. also breaking, celgene agreed to junono therapeutics -- therapeutics for $9 billion. juno up 27% on that news. david: it is merger monday. brief.w for your morning 11:30, the u.s. treasury will auction three-month and six-month bills. is scheduled to vote on a temporary bill to end the shutdown. for clark, netflix releases fourth-quarter earnings. right now, let's get headlines outside the business world with first word news. >> the u.s. government shutdown now in its third day. congress failed to negotiate an end to the stalemate. a bipartisan group of senators is looking at a plan to fund the

government through february 8 and take up a bill to keep daca immigrants from being deported. many federal agencies will carry out closing plans. president trump and theresa may will meet in davos this week according to a spokesperson for may. the president said he canceled a planned visit to london for the opening of the new u.s. embassy. signalingussia are there are lines may be lengthy. productioneep oil cuts in place until the end of the year. alexander novak tells bloomberg he will keep cooperating with opec even after the cuts expire. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. david: we turn now to our daybreak first take. first, the government shutdown

and why the markets don't seem to care. second, angela merkel getting the go-ahead to put together a coalition again, and third the ubs stock buyback and disappointing results. lisa: with us to discuss these andes are michael mckee caroline gage. caroline, i want to start with you. we hear a lot of histrionics out of washington. down ay yields are touch. this makes no sense. you would expect them to be rising. what will it take for people to care? consequencese main of the shutdown seem to be political. the markets have been sanguine. you're seeing a little weakness in the dollar, but it is a blame

game between the two parties and the markets are shrugging it off. >> been there, done that, got the t-shirt. this is the 19th shutdown since 1977 and there is never any impact on markets. you get a little impact on the economy from reduced government spending, but most of that is made up. it does not have an impact on markets. unless it gets into the dea debate about the debt ceiling. the markets aren't looking for anything out of washington this year. if they are shutdown, it doesn't bother anyone. lisa: this is a hint at some kind of dysfunctionality. [laughter] lisa: i'm trying to be diplomatic on a monday morning. >> there is this functionality that threatens key policy. republicans actually

control white house and the congress. they have control of the government. thed: mike, you mentioned debt ceiling. the markets react to that. when is that likely to come up? >> people are guessing. the change inof tax laws, do we see a shift in tax payments that will help the government go longer with extraordinary measures to keep from crossing the debt ceiling, but the general consensus is march. david: the government seems a little less dysfunctional in germany. the second story is angela merkel. she got the go-ahead to go to the next round. breathed a sigh of

relief and picked up a little bit, not for medically. >> she only got agreement from the spd leadership i-8 56% margin. they still have to negotiate the terms of the agreement, what the spd will want as a platform. they will want loosening of labor and immigration restrictions. angela merkel will have to walk a tightrope to get that, and then they have to put that to the vote of the spd membership. government is expected to be formed, but probably not until mid-march. lisa: another story we are tracking is ubs, which kicked off with a disappointment as shares plunged the most since july after reporting weaker than expected earnings. in its wealth management unit, which is its hallmark. this is what has been doing well for all the banks, and ubs has a

strong wealthy unit. what does this say about what we can expect from other european banks? >> this is a particular ubs issue. they have had that emphasis on wealth management, but the key to the quarter is that it is underwhelming. investors were looking for something to get excited about. even though they announced the share buyback, it is smaller than what u.s. banks are doing. investors are not as excited they were hoping to be. they were going into the results hoping for new targets, new aggressive targets, and the market feels they weren't as ambitious as they were hoping. they downgraded expectations, and that's why you're seeing week is in the stock. david: many thanks to michael mckee and caroline gage. coming up, more on the shutdown and help markets are viewing it. life from new york, this is

bloomberg. ♪

>> a huge deal today, the company was spun off by biogen last year and is looking for new products to offset its

best-selling diabetes drug. luxury retailing is looking more to the internet. richemont to buy ynap. aig will buy validus holdings. that is your bloomberg business flash. david: thank you. federal agencies are closed as the government shutdown extends into a third day. chuck schumer spent sunday trying to work out a funding deal and met with the president on friday, where he said he reluctantly put the border wall on the table for discussion. >> most democrats don't think the wall is effective. we think it is expensive and a waste of money.

every expert will tell you drones and sensory devices and roads and personnel are far more effective than the wall. because the president campaigned on the wall come even though he said it would be paid by mexico, and demands the wall for the sake of compromise, for the sake of coming together. i offered it. kevin cirilli joins us from washington. this is a big give. said maybe wes will give it to him to get through this. are the democrats conceding something here? appear that way, but on the issue of daca, they hope to get something. every republican aide over the weekend saying they are not in a position to do that now. while chuck schumer is clearly

present some type of opportunity to move forward, mitch mcconnell meeting with his republican colleagues over the weekend about how to move forward hoped to have a vote by noon today. lindsey graham criticizing stephen miller over the weekend, saying as long as stephen miller is in charge of immigration policy, read dickens will not be able to negotiate with this white house. stephen miller is someone who was closely realigned -- aligned with the steve bannon and has realigned himself with the president. david: thank you so much. we will be talking to you throughout the day. lisa: something we will be picking up on. investors taking the news in stride. joining us now is rob finch. bob finch.

i investors to sanguine about what is going on in washington? this michael mckee said, is the 19th time. we have seen this movie before. is this is unfortunately politics as usual in washington. lisa: is it though? >> i think it is. the parties have changed, the names have changed, the positions have changed, but we have come to a situation where i almost think they don't like doing these budgets because the minority thinks the only time they can get some influence on policy is when they hold government operations hostage to these continuing resolutions. if you do a budget when you are supposed to an october, you don't have these continuing

resolutions for these confrontations. that is what we are seeing right now. the minority party is attempting to use this to get something they think is important. have seen thise before, and until we get to a debt ceiling, it is not that big of an issue for investors. david: the markets are reacting, but affects, let's put up the thear -- fx, let's put up dollar. is the dollar reacting to political shenanigans, if i can call it that? >> i think it is. we think of the dollar and cyclical terms, interest rate and growth differentials and things like that, and on that basis the dollar should not be this weak. this is one time where there is a structural situation heating the dollar, the u.s. continues to run a large current account

and trade deficit, and one of the thoughts at this point in the cycle is with the u.s. virtually eliminating its deficit on petroleum products, we would be seeing a balanced trade situation and the current account shrinking. it is not happening. we are seeing u.s. investors diversify into foreign markets, so you're seeing capital outflows at the same time we have a current account deficit. outflows capital contrast with the inflows we saw so long rum foreign investors trying to get yields from treasuries versus negative yields in europe. ,f you look at the bloomberg there has been an increasing disconnect since june last year with respect to u.s. five-year real heels. -- real yields. they have been climbing. to economy continues

accelerate, but the dollar has gone the other direction and weekend. this suggests foreign investors are not coming here. what does this mean to you? >> that is a perfect representation of the cyclical forces you would expect to be pushing the dollar higher. are in a world where global investors are increasingly looking at equity markets and returns because the level of absolute returns in fixed income are low. get 2%reat that you can more in a 10 year treasury than in a worldund, but where markets are looking at 10%, 15% returns and equities, why would you bother for an extra 2%? they are looking at a bigger picture, and european equities have lagged somewhat, so we are seeing global equity money, which is becoming more and more

important, flowing into those markets that have lagged, one is the eurozone, so they are running a current account surplus 2.2% of gdp and get capital inflow. that is the recipe for a currency to get strong. david: thank you so much. ifming up, the ubs che executive officer talks about his plans for a share buyback. that is next. this is bloomberg. ♪ >> we have a flexible capital return policy with an attractive ordinary dividend and an opportunity to complement it with a share buyback. ♪

david: ubs shares dropped the most since july on mixed earnings. a shareer is planning buyback and the merger of its wealth management businesses. 2.1ceo told bloomberg

million dollars share buyback is aligned with the banks overall needs. we are announcing an increase of our ordinary a share by 8% and buyback program that will partially be executed in 2018 is the highlight of this announcement. >> the share buyback is something people have asked you about time and time again, and the dividend. is that getting ahead of your u.s. peers? >> it is difficult to get ahead of our u.s. peers. alignede buyback is with our capital requirements and our needs for growth and regulatory requirements, so i would not inch mark it that way. what we do is have a flexible capital return policy with an attractive ordinary dividend and

an opportunity to complement it with a share buyback. >> you are putting wealth management and wealth management america together. joint leadership. ,hat is this in response to margin pressure, efficiency, why now? >> it is not a reactive response to anything. it is a proactive move we do following evolution in the last 5-6 years. those businesses went through changes, restructuring, focusing on their own growth path, and over the last two years both internally and externally come at we have started to communicate and make how ultra net worth clients work more closely together. and services were working already together. now?do we do

we go to the next step of our growth, trying to take advantage of our unique global capabilities we have so we can offer our clients the best. >> will you be able to take costs out of the business? plan to part of our continue to have efficiencies in our business, and this will help us. example, we will streamline support functions. have one chief operating officer of operations. we will streamline some of this. this is a story of growth and how we can do better, and partially helping us to achieve our cost targets that we have going forward. was the ubs ceo speaking with manus cranny in europe. bob, i want to talk about

european banks. this chart looks at price-to-book ratio. ,he yellow line is the overall in the blue is credit suisse, the white is ubs. european banks seem to be healthy. >> there are two things going on. amber one, we are seeing pickup and loan demand across the eurozone. the 2011 crisis, the corporate sector was reducing borrowing activity you'd we are now seeing corporate lending pickup. consumer lending has been strong for a couple of years. we talk about the 210 spread and curve'spe of the yield impact on bank earnings. the u.s. to-10-year spread is 50 basis points. in germany it is 118, so a much theper yield curve in

eurozone, and that probably is helping the banks also. they have a steeper yield curve and are getting improvement in lending activity. be seeing theuld benefit, and yet ubs disappointing. i want to bring in michael mckee to understand this. this should benefit them. why aren't they doing better? >> each bank has their own issues, and ubs has had a division between the u.s. and european operations a are now closing. they have gotten into a business that i a lot of ranks of try to get into, the management of wealthy people's cash. that may be a crowded space at this point. david: are all european banks healthy again? >> they are not all healthy. they are improving. .hey had a much bigger hole in absolute terms, the level of

yields has made it more difficult to generate income. itn you get negative yields, is tough to generate positive income. as we see the ecb heading 2019,s normalization into a steep yield curve, growth that is generating growth in bank lending. those are good environments for improvements in earnings, but that takes a long time to flow through into the balance sheet. david: you both will be staying with us as we turn to the subject of nafta. we will talk with eric farnsworth next. this is bloomberg. ♪

lisa: this is bloomberg daybreak. alix steele is off today. let's get you caught up on the premarket action in the u.s. s&p futures down just a little bit. ftse 100 is up, although pretty much flat.

10-year yields down just a touch, despite the ongoing drama in washington, d.c. spain's 10-year yield dropping further after fitch upgraded that nation. the dollar is weakening against the south african rand. people in south africa gain confidence the new leadership is going to support the economy. china 10-year yield dipping just a touch, but they are hovering near that 4% rate, up from about 3.1% back in the beginning of 2017. dollar weakening yet again as washington, d.c., continues its shutdown, and the dollar weakening against the canadian dollar as well. i also want to bring you some breaking news. american international group, a.i.g., agreed to buy valid holdings for about $5.56 billion. you can see validus, those are just phenomenal. they were up less than 20%

earlier in premarket trading, and now they're up 44.6% on the news. really phenomenal rally. we'll keep you posted on that. you can see that juneau shares up more than 27%, whereas celgene, which is buying them at a steep premium, shares are falling just a touch. david: good day for sellers, looks like. now let's update what's making headlines outside the business world. for that, we hear the first word news. >> thanks, david. more americans will start feeling the impact of that personal government shutdown today. many federal agencies will start the closing plans. the shutdown began early saturday when lawmakers failed to pass a spending bill. a bipartisan group of senators is now looking at a plan to fund the government through february 8 and includes the promise to quickly take up a bill to keep young undocumented immigrants from being deported.

the u.s. could send as many as 1,000 more troops to afghanistan this spring. according to "the washington post," defense secretary jim mattis still hasn't signed off on the idea. it's part of a larger strategy to help afghan forces fight the taliban. the u.s. currently has 14,000 troops in afghanistan. in saudi arabia, settlements from that crackdown on corruption could be more than $100 billion. that's according to a senior saudi official. about 95 of the richest saudis are still being held at the ritz carlton. cases have been settled by payments that are a combination of cash, real estate, stocks, and other assets. global news 24 hours a day, powered by seven 2700 journalists and analysts in more than 120 countries. this is bloomberg. david: the nafta negotiations begin tomorrow in montreal, and the parties have already extended sessions from three to seven days amid tough talks from the parties, at least to the outside world. we welcome back michael mckee.

thanks for staying with us, mike. you've been covering nafta throughout this negotiating period. there is a lot of tough talking. is that just negotiating? michael: no. there is definitely hard feelings between the -- among the three countries, and there's a lot of concern about what the u.s. is going to do. this may be a pivotal round for nafta. there doesn't -- they have made progress on a lot of the issues that they need to, to modernize the treaty. but they are not making progress on three major areas. one is how much has to be made in the three countriesing when she you're talking about autos, and the u.s. wants a minimum content for the united states-made products, on dispute resolution, and a five-year sunset clause. those three things, major issues. the u.s. isn't moving on them. david: major issues, and there's a lot at stake. put up a chart here. this is good, not services, but exports, and it shows the extent to the united states exports primarily to canada, mexico, and china is down the line here. there's a lot at stake for u.s.

exporters here. michael: there is. the u.s. is a much bigger economy, so if the u.s. should pull out of nafta, it's going to have less of an effect, much more of an effect on the canadians and mexicans, but it isn't going to be good for the u.s. corporations because of the supply chain issue. when you had talk last week there might be an issue, we saw the automakers, parts makers shares drop on the news, because people are really concerned about the immediate he foket their ability to keep going. it will be a very short-term isruption. he has 90e days to put those into effect. the government shutdown and davos probably pushing these beyond the next week or so. maybe he'll talk about them in the state of the union or early in february. but with the way they talk, it's going to be hard to back down on some of these things,

and nafta may be a casualty as well. lisa: i'm looking at the trade deficit with mexico and canada. the trade deficit with canada has actually almost disappeared. i mean, i'm sort of surprised that canada is the main sticking point right now. michael: yeah, we don't have a real trade deficit with china. if you nad services, we have a small surplus with canada. what has happened is you've got major trade issues, the softwood lumber issue which is ongoing, and then this tariff on bombardier jets, the news print thing. a lot of tariffs on canada, and one of the things the administration wants to do is t rid of the dispute mechanism. they say we can go before a panel, and they can rule on it, and trump wants to get rid of that panel. lisa: so we want to get a little bit more on this. for that, we've got eric farnsworth, council of the americas vice president in

washington. still with us, so i'm really -- i'm struck by the fact we seem to be making no progress whatsoever, and i'm trying to figure out, eric, i want to start with you. what do we need to do to signify that we are moving forward, and we are going to get another nafta agreement? >> well, i think that's the question that everybody is asking right now, and what canada and mexico are looking for is for the united states to show just a little bit of flexibility and goodwill. the u.s. has made pretty extreme demands and has refused to even express any indication that there's going to be any movement there at all. from the u.s. perspective, what they're looking for is for canada and mexico to come closer to what they're looking for. so both sides have really encamped, and neither is showing a lot of flexibility, with one potential exception, and that is that the government of mexico has said through

their ambassador here in washington recently that they may be room to negotiate agents bit, at least on the rules of origin and autos. but these are very big issues. they impact a huge percentage of the economies, and once you've made really strong demands publicly and repeatedly, it's really tough to back off those. david: i have to say, it feels a little reminiscent of the negotiation going on over the shutdown right now, where it seems that the president and the administration are taking strong positions and they don't give themselves any way out. is that a negotiating tactic? i mean, what is that about? he's really gambling a lot here. >> i think gambling is the right word, because we're dealing with two other sovereign governments, canada and mexico. there's long histories between both of them with the united states. it's not like negotiating with a bank or a private entity. there's politics involved. and once you make public demands, it's really tough to back off those, particularly as they go longer and longer without modification. so if it is a negotiation

tactic, it's a high risk, and it depends on other sovereign governments essentially saying, yeah, we're going to knuckle under to you, and in a highly charged political environment, it's not at all certain they're going to be willing to do that. lisa: so bob, is the trade negotiation that we're looking at right now, particularly with nafta, another government shutdown issue where it won't have an effect on markets, or have markets been underpricing the risk of some kind of collapse of nafta? >> i think there is probably a wild card risk with this. you know, mexico is facing its own politics. they have a presidential election in july this year. sort of quietly, the mexican economy is slowing pretty significantly already. the unemployment rate actually bottomed out in the middle of last year and has been climbing. we get another report at 9:00 this morning. so thee got rising unemployment, a slowing economy, a presidential election. that's not a good recipe for a country to sort of say yes, we're going to take major changes in our trade agreements with our biggest trading

partners. so i think this is fraught with difficulty. there are certain sectors here, like the autos in the united states are going to be really impacted by these production agreements and movement of parts back and forth. so i think one of the wild cards, when we talked about 2018, was, in fact, that trade would be a problem for the first time globally we start to see some fraying of these trade agreements, and that could have some impact on global growth. and i think the biggest one to watch from the u.s. perspective is, are these nafta negotiations? david: if the markets are sang win about it, are they right? these remind me of labor negotiations. you don't get the deal done until you go through the night, right up against the deadline so. how worried should we be, really? michael: i would not worry until the end of this round. and it's very much like the government shutdown you mentioned earlier. when everybody started coming out on friday, instead of talking about how they were going to get to a solution, they were starting the blame game. if you see robert come out on monday afternoon and say the

mexicans are bad and canadians are bad, then i would start to worry. because the president also runs out of trade negotiating authority on july 1. they need to renew that. and to get that, he needs to ask for it by april 1. so you're working on a very tight deadline here for something to get done for some sign of progress. and as bob said, there will definitely be effects on individual american companies, if not on the overall economy. david: eric, bob, and bloomberg's michael mckee, thank you all very much for being with us. coming up -- merger monday. france ace biggest drug maker strikes a deal. more on sanofi's bid in the hemophilia business. that's coming up next. as you commute in today, tune in to our colleagues from 7:00 to 9:00 in the morning, and then talks from 9:00 to 10:00. that's on the radio. you can hear it in new york, in boston, the bay area, in washington, d.c., all across the united states on sirius

x.m. radio. live from new york, this is bloomberg. ♪

>> you're looking at the hewlett-packarder and prize greenroom am come up in the next hour, larry summers, former u.s. treasury secretary.

>> now to your bloomberg business flash. the commodity trading business could be rocked by a merger of two of its biggest names. according to a person briefed on the matter, archer daniels midland has sought takeover talks with bunge. they're buyers and sellers of grains and other crops. tiger global is betting that barclays is on the verge of a rebound. according to the "financial times," the new york-based hedge fund has a massive stake of about $1 billion in the british bank. according to data compiled by bloomberg, that would make tiger the seventh largest share holder in barclays. and that's your bloomberg business flash. david? david: thanks so much. we now turn to wall street, where we cover three things that wall street is buzzing about this morning. our three this morning are sanofi deal for a hem feel i can't drug maker.

second, report that tiger global has bought 2.5% percent of barclays. and third, credit lyonnais increasing its bonus pool, but -- and credit sweast is paid to plan low bonus pool increase. and there was a little football. lisa: my husband says it's unwatchable, because he's a giants fan. let's start with merger monday. we have a lot of big deals. sanofi finally getting something across the table, it seems like. and then we've got the cre lgene news. which is the bigger deal? >> well, sanofi, it's funny, there was a lot of deal chatter about this over the weekend, sort of going into today. and i mean, the sanofi deal feels big in part because they've been trying to get a big deal done. it's their biggest deal in seven years. they didn't quite get a couple of deals over the finish line. and, you know, in the drug business especially, m&a, as you guys know, is extremely important. because you need to -- that's really how you grow. mean, to put it simply.

>> that's quite true, yes. lisa: so sanofi did buy this hemophilia spinoff. what about the celgene deal? >> it's really interesting, because this goes to something that's very much been in sort of the public eye, which is this new cancer therapy that essentially uses your own body to fight cancer, and that has become, you know, quite popular. people are pinning their hopes on that. a $9 billion deal, they are the deal that's actually $11 billion. so $20 billion of deals feels pretty good for a monday. and i do think when you step back and look at the context of what's happening out there in terms of m&a confidence, you know, bankers are probably puffing their chest out a little bit, makes some phone calls, some texts off to their big clients. hey, look, people learn to deal. david: and they will see what

the regulators have to say. that's the next shoe to drop. ok, tiger global. lisa: love it. >> we heard a little bit about this, kailey talked about t. i mean, the reason that this is interesting is you've got barclays, which has been sort of to say the least a little bit beleaguered. if you look at the stock chart and you go back over 52 weeks, november, it really hit a bottom. apparently there are reporting shows that is when tiger actually started to get in. you can see that little trough there in november. and apparently tiger global, which is, you know, arguably one of the best known hedge funds out there. this is run by the uber tiger cub in a lot of ways. and so this is a marriage of two pretty interesting brands here. >> it's also fascinating, because you have a hedge fund that is gaining a major stake, top 10 investor in barclays.

so all the sudden you have a and a major at has u.k. bank. this is an interesting sort of twist of fortunes. >> it will be interesting to see what the dynamic is. obviously we've heard a lot -- we've heard a lot from the big shareholders of big banks over the past couple of years. especially the european banks, you know, whether it's barclays, whether it is deutsche bank, high volume, or whether it's credit suisse. david: they must think the turnaround is on its way. they think that more good news is coming. >> if you look on a short-temple level, november versus where they are today, they did see a little bit of a bump. and look, these things are interlinked in the sense that we were just talking about mergers and investor banking. jeff staley is quite the deal maker, as you know, so we'll see if this is a vote of confidence or, you know, whether this is a situation

where, like, you've got a big, bad hedge fund knocking on your door and make you sit up straighter. lisa: credit suisse executives may be sitting up a little straighter, but only a touch. >> only a little. lisa: they have a modest increase to their bonus pool. >> yeah, i mean, everyone sets up straighter, did someone say bonus? everybody does, exactly. and, you know, credit suisse obviously has been under a lot of scrutiny. it has been a long couple of years of restructuring. i mean, he's really shifted the business, you know, toward wealth management, toward investment banking, away from trading. it has been -- it's been a hard road for them. so this feels like at least a little bit of good news. i love the lisa skeptical look. lisa: well, i just think it's so interesting, because european banks are struggling to compete with u.s. banks to recruit and attract the talent. you've heard some banks, like deutsche bank, actually putting

out pretty big packages in order to get people in the door who can create the returns. they have not, by the way, but it creates this real tension. how do you keep your talent while not -- david: that's what i don't know. because there's been a lot of cuts in these banks, and bonus pools have been cut. but have big talent really walked across the aisle? >> well, chris swith, some of the other credit suisse, they did just lose the head of china to go into sort of a smaller, boutique situation. so there has been a little bit of bleed. you know, lot of that tends to happen. lisa: a little bit of bleed when? because there was an exodus. i mean, there was a wholesale exodus over the past five years. it probably started to taper off about two years ago. but now there's a question of, which areas do you rebuild? i moon, if they've cut so much, and if they're rebuilding, how do you compete? and if you don't compete, then you're going to be left with the second-tier people, it's going to be a problem. david: and speaking of competition, football. two very different games

yesterday. one really close, really exciting. the other was sort of a blowout. >> and you have to think that from a programming perspective, the nfl probably thought it was going to be the exact opposite, right? the first game was going to be a blowout, and the second game was going to be quite close. i mean, the second game, i thought, i mean, think 13-year-old was watching the second game, he was like, this is not good news for the nfl. david: the catch in the back of the end zone, that was amazing. you know what the nfl really cares about? the markets. it's two pretty good-sized markets, which doesn't hurt, right? they've got philadelphia and they got boston. >> and you've got a lot of people, and i'm sorry to say this, in front of a lot of new england patriots fans in our newsroom, but who want to see the patriots lose. lisa: my husband is a giants fan, die hard, and to this me, this super bowl is going to be unwatchable. almost unwatchable. it's the eagles, which are competitors with the giants, and the patriots, which everyone outside of new england wants to lose. >> i mean, for a giants fan, if

the season wasn't bad enough, to have to watch the eagles and the patriots in the super bowl. david: the season was bad enough already, ok? many thanks to bloomberg's new york bureau chief, jason kelly. coming up, we'll look at the chinese conglomerate's debt concerns next. ♪

david: this is what i'm watching today.

h.n.a., they suspended trading. this is a conglomerate, private conglomerate in china. it started -- i didn't realize this -- with an airline, and then expanded out t. owns 25% of hilton, which owns the waldorf astoria, which is under ran ovation and closed right now. they've run up against it, because the chinese government said we're not sure about all these very muches you're making overseas, a lot of capital is leaving the country. lisa: and they also have had some concerns about whether they can repay their debt. they sort of signaled this back in december, and then increasingly investors have gotten nervous. you've seen their borrowing costs climb, and just in the past few days, the c.e.o. came out and said we're not going to be going to davos. i'm going to skip it while i deal with some austerity measures that we're implementing here. david: it's pretty interesting, chinese companies that want to invest in the united states, and it's not clear that they want that to happen. we're not sure about it, and china is saying we don't like the capital leaving the country.

lisa: right, and meanwhile, you have a company that has a pretty opaque capital structure and a pretty opaque business model. and so it's leaving creditors, you know, struggling to understand how to value this company. and i think it's a fascinating story, because it comes at a time when chinese deals in general are rising to the highest level. david: particularly fascinating for john, because they ona big piece of deutsche bank. they own pretty big companies there. ok, come up in the next hour, larry summers, the former u.s. treasury secretary, had op-eds today in both the "financial times" and "the washington post" telling president trump what he should say at davos. live from new york, this is bloomberg. ♪

david: when will it matter? the fwovet enters the third day

of shutdown, and markets don't react. at least not yet. four months after general elections, chancellor angela merkel may finally be getting her coalition to form a government, and europe breathes a sigh of relief. and a new chapter for u.b.s. they'll buy back stock, but shares a take hit on disappointing results from keyuo fits in the fourth quarter. welcome to bloomberg daybreak on this monday, january 22. i'm david westin with lisa. good to be with you, lisa. alix steele is off today. lisa: geets get you caught up. s&p futures down a bit. and euro strengthening against the dollar. let's get a picture of what's going on across assets. crude is down today, even those, there is optimism of extending some of the production cuts. 10-year yields unchanged, spanish 10-year yield down just a tick, and the bloomberg u.s. dollar spot down.

i want to bring you some breaking news. a.i.g. came out today and said that it was going to acquire reinsurer validus for $5.56 billion in cash. this is a sign it is emerging from years of retrenching after its near demise during the financial crisis. validus shares climbing, surging, up nearly 45% in premarket trading. also celgina greig to buy juno therapeutics for about $9 billion. this is one of its largest deals ever, and the goal here is to expand in the increasingly competitive landscape of cutting-edge cancer treatments. you can see juno shares up more than 27%, while celgene is extending declines in premarket trading, down more than 1%. david: it's time for the morning brief. 11:30 this morning eastern time, the united states treasury will auction three and six-month bills much at noon, the senate is scheduled to vote on a temporary spending bill to end the u.s. government shutdown.

at 4:00 this afternoon, netflix releases its fourth quarter earnings. now, turning back to the issue of the government shutdown, it was shut down last midnight on friday. since then, it seems that leadership on both the republican and the democratic side have spent a good deal of time trying to blame one another. >> americans know why the dysfunction is occurring, a dysfunctional president, hence we are in a trump shutdown. >> the democratic leader shut down the government to appease a portion, a portion of his party's left-wing base. >> i agree with majority leader mcconnell. the trump shutdown was totally avoidable. president trump walked away from not one, but two bipartisan deals. >> the democratic leader could end this today. we can get past this manufacturing crisis and get on to a host of serious issues before us that require thoughtful bipartisan negotiations. david: our chief washington

correspondent has been reporting from capitol hill throughout the weekend, and we welcome him now. kevin, they spent a lot of time blaming one another. are they spending time getting a deal? i know there's a vote at noon. coip not right now. i can tell thaw just within the last hour, since i was last talking with you, the white house is out in full force this morning, pushing back against democrats, pushing back against senate minority leader chuck schumer, saying this is the democrats' fault, and that the president has been engaged, he has been working the phones. now, that, of course, is a contrast with not only what democrats have said, but also what key republicans have said over the weekend, including senator lindsey graham, the republican from south carolina, pushing back against the immigration debate and how the administration has been negotiating on that front. you mentioned it, this vote coming up at noon, and by all intents and purposes, it looks like it could fail, and that senate majority leader mitch mcconnell is bringing this forward as a way to show that they are trying to reach some

type of deal. on the flip side is that government employees waking up this morning to the question of whether or not they are known as what's known as deemed essential. thousands of government employees will have to stay home today. they will not be paid until the government is reopened. and as a result of that, it is certainly going to frustrate people. if you do call the white house today, you're going to get a message, a recorded message in which they say that they are not able to answer the phone because democrats "are holding the government hostage." david: them's fighting words. kevin: welcome to washington! [laughter] david: exactly. kevin, thank you so much for reporting. now for a read on what the government shutdown is likely to mean and how long it might last, we welcome now our barclays head of public policy research. welcome back. what does it mean? the markets are not reacting very much at all. >> there's a lot of political posturing. we saw this walking in from the president's side, about border wall funding. both sides critically think they're winning the debate when

they go back to their own signs in materials of polls, and it sounds like they're willing to string this out. we put out a note on friday, we see this having a minimal economic impact. and we do think this will probably be a short-lived shutdown. the last one in 2013 was about 16 days long. we don't have a firm count on days for this one. it's really going day by day. lisa: you don't come in every morning and everyone says i think three or five? shawn: not exactly. i think the president cancelled his trip to florida, and not going to davos, he hasn't been as involved. you saw senator lindsey graham and others being critical of some of the staff at the white house in terms of them derailing the talks. that's a little unusual. it feels like you have democrats in the senate, first republicans in the senate versus the white house. david: so there's no question that senate democrats have it within their power to keep the government going. on the other hand, watching it over the weekend, it seemed like the democrats were willing to give some form of wall, which is a big concession from

chuck schumer, who said no way, no how. and then they're saying let's just promise us a vote on the daca thing, and it seems like the administration is even promising a vote. kevin: i think so. you're hearing the stories the president agreed to certain things. his staff update him, and he came back to say i'm not sure how i feel about that. i think some republicans in the senate were caught off guard by that. and you're seeing some of the moderates come together. just over the weekend in those groups at the senate, trying to find out a solution, but i agree, it is you be usual. to be totally frank, from the barclays' perspective, we did you not expect to see a shutdown. we put the odds pretty low. it seemed that both sides wanted to stand off. lisa: so moving to the dysfunctionality and what this means going forward, how much cohesion is there among democrats and sfleps how much is this a splintering, wholesale splintering that renders congress incapable of doing anything? shawn: over the last 30 years, you've seen the democrats and republicans move further and

further apart. this goes back to 1994, a poll shows the data, the median are just falling apart to the side. is it gerrymandering, political geographic shorting, people live in areas where people agree with them? it is also this ideological difference that's becoming more and more apparent after the last election. lisa: but what does that mean as far as policy? does it mean less likely things are going to get done? does it mean you could see nafta fall apart simply because there isn't agreement? shawn: in terms of simple things, government funding, debt limit might have a hiccup in terms of getting it done. we do not think they'll actually breach on that. but on issues of nafta, that goes back to the white house. the white house has that negotiation. if the president withdraws from nafta, congress did pass the implementation act, and they will have to act on that, or you're going to have a disagreement between what the law and says what the president is trying to do. david: and we'll talk more about nafta in just a moment, but go to the debt ceiling. does it not raise your concern at all, though we might have a

situation similar to this one, because that's something the markets would clearly react to. shawn: 100%, and that would be extremely worse, and everybody can tell. but, you know, this is going to come back up in a couple of months. we don't expect there's going to be a problem. the markets will react. you might see movement in the rates markets, but we don't think congress is actually not going to rapes the debt limit. i think they all understand the implications that have, and they're not willing to play too much politics on it. lisa: i don't understand why this hasn't factored into bond yields. at a certain point, foreign investors have to look at this and say i don't want to touch that. i don't want to depend on that government making sure that that economy keeps riding smoothly. i mean, do you think that that is going to be a factor with respect to the dollar and to the borrowing cost? shawn: at some point, yes. right now, i think the u.s. economy is strong. all the data shows that. we've had a lot of dysfunction in washington over the last few years, probably longer, over the last decade. but certainly over the last few months, it felt difficult to work in. i think for investors, they're

shrugging off this news, feeling like they're get it together, figure this out, let the markets keep going. david: this is an election year. is this a harbinger of what we expect for the rest of this year? because if they can't get this done, how are they going to do anything, like infrastructure? shawn: i'm very negative of them getting anything big passed before the midterm elections. i think for republicans, they're very concerned that they could see a swing he scomplecks a wave election, where democrats win north of 25, even 35, 40 seats. if you look back on this, one year before the election right now, going back, democrats currently have a 12-point advantage in the generic ballot. that's a historic lead. lisa: so what's the number one question that cure clients ask when you they call these days? shawn: right now it was on taxes. we're moving now to trade. i think trade was on the back burner. lisa: what specificly are they worried about with trade? shawn: will the u.s. pull out of nafta? lisa: more than china? shawn: more than china right now. i think that is important, but

people put less of an emphasis, considering the issues in north korea. david: shawn took us right to where we're going to go next, which is nafta. coming up, nafta enters a crucial phase. the united states turns up the pressure on canada and mexico. more on what to watch in this week's talks. that's next. and this is bloomberg. ♪

>> this is your bloomberg business flash. a huge deal in the farm industry. sanofi-aventis has agreed to buy a hemophilia drug maker the company was spun off last year sanofi is now looking for new products to sell off its diabetes drug. meanwhile, celgene is doubling down on cancer drugs. the company has agreed to buy juno therapeutics for about $9 billion. that will allow celgene to expand in the increasingly competitive field of cutting-edge cancer treatments. and pittal moment for negotiations on the north american free trade agreement. the sixth round of nafta talks gets underway in montreal. the u.s. has been turning up the pressure on canada and mexico to radically alter the trade deal in favor of american interests. and that's your bloomberg business flash. back to you, david, with more. david: thank you very much. we're going to have a preview of the nafta negotiations. we welcome back michael mckee, bloomberg's international

economics and policy correspondent. shawn golhar is still with us. mike, the thing i found interesting was a report in bloomberg that a lot of the problem is with canada. we focus on mexico, because that's what the president has done. it turns out canada is taking a pretty hard line. michael: they are, and they're the subject of some u.s. trade sanctions in recent weeks that have toughened their position on the softwood lumber debate, news print, and the 300% tariffs on bombardier jets. the u.s. and canada are not seeing eye to eye, because one of the things the u.s. wants to do is get rid of an appeals court essentially that's in nafta, that they would use on these issues. lisa: what's the percent chance that the u.s. pulls out of nafta? shawn: we at barclays haven't published an exact percentage chance. lisa: you're like, stop asking me for numbers. shawn: it's gone up quite a bit. it's surprising that at this stage of the game we're still talking about these five-year expiration of nafta. the canadian and mexican governments don't want to go through this every five years, and the u.s. has kept a hard-line stance on this.

we're seeing u.s. governors start to seek out more members of congress beginning to get very worried, as foreign governments have said you're going to lose a lot of jobs in your state. i think it has escalated. but keep in mind one thing, the president has done this before, paris climate, he says he's going to withdraw, and nothing significant happens for four years. the iran deal, the u.s. says -- he said we're going to withdraw on national security grounds. congress, come tell me what to do in terms of triggers. we could see something similar on this. so what we've said at barclays, you might see the president, and now the withdrawal, a six-month window, in which case he's going extract concessions, as well as ask congress for additional details or suspend elections. david: haven't the parties said they're not going to negotiate if they've given notice? why should we negotiate if you pulled snout shawn: absolutely correct, you could see a two-track system on that, where publicly things like that are said, but privately folks are talking. david: does the president want a deal on nafta in the end? does he win both ways?

lisa: please go inside his mind. shawn: no idea. david: that's the problem with negotiation if you have no idea. michael: and that's the problem with the government shutdown and the immigration issue. nobody has any idea what donald trump really wants. that's why it's hard to put a percentage on what's going to happen inch because a lot of the people, put it this way, who are telling him to hold firm on immigration are telling him no, don't suspend nafta. american business doesn't want it at all. members of congress, particularly from agriculture states, are now lobbying him very hard not to withdraw from naff tap to find a solution. it's hard to do where he's going to come down, if he is indeed the last person he talks to is the person who per swadse him, that it's going to be interesting to see who gets to him in the oval office. shawn: on the border adjustment tax, you saw a lot of people go against this, we'll increase prices by 10% and lay off 10% of american jobs. you don't see manufacturing

companies come together in the same way ads nafta. it's not as easy to quantify we're going to lay off employees. so i think that sort of advocacy effort has been a little slower. lisa: when i hear you talk, i understand a little bit more why markets are pretty much shrugging off everything that happened, because nothing could happen that quickly. is there any one item that could happen that would cause a more immediate response? shawn: absolutely. there is a slew of potential trade acts against china, and this has been talked about for quite a bit. it's beginning to really pile occupant president's desk. he always said he was allow china to continue on this, hoping to pressure them on north korea. that may be coming to an end. you can see trade actions on steel, on aluminum, as well as other things. that could begin the spark. david: mike, it's the 2-3-2, the national security thing. michael: that's the complicated issue, because we import a lot of steel from china, going

through third countries, and canada, actually, said there's more steel than the chinese do. so that is part of the issue. the other is, when you look at the china -- when you start putting stakes on china, it becomes a geopolitical issue as well because of north korea and everything else, and also the idea that the chinese could retaliate against u.s. exporters. lisa: walk us through what happens if there are some kind of tariffs that are imposed on steel and aluminum imports. shawn: you're going to see other companies go to the w.t.o. there was a summary where they talked about this, u.s. sovereign sit more important than w.t.o. rules on this issue. you're going to see them go to a conflict and dispute resolution, which would take years. from the president's side, it's a winning argument much his base wants to see this. he's going play this out a lot longer. there's no deadline on nafta, so he can continue this out all year, and again, he could basically say we're going to suspend talks given the mexican election and the u.s. midterm and just continue to say it took 25 years to have nafta, this terrible nafta in place, it's going take me longer than

one year to make nafta 2.0 a lot better. david: you know, we watch the automakers and others for the nafta story. if you get something on china, you may want to might commodities. the chinese quietly last year put tighter restrictions on soy beene imports from the u.s. if they went into the agriculture sector to retaliate, that could be tough for american farmers. david: shawn, mike, thank you both for being here. coming up, we'll hear what the coca-cola c.e.o. thinks about trade, nafta, and what he'd like to hear from president trump in davos. this is bloomberg. ♪

david: as candidate for president, donald trump made his views clear on nafta clear, it's bad for the united states and will either renegotiate it

or pull out all together. many global companies, such as coca-cola, have a different take. last week i sat down with james quns i, coca-cola's c.e.o., talk about trade and global issues. i began by asking nafta has been good or bad for the united states. >> my view would be that free trade deals with good for all participants, and i think it's been good for north american and all the countries, all the countries in it. doesn't mean it's perfect. very few trade deals are perfect. so can they be made better? yes, i hope they can make it better. but i don't think we should start destructuring global trade. i think it's been a powerful engine for lifting both. doesn't mean it solved all problems. there are questions of income inequality, there are questions of not all the rules were perfect and need to be improved, but let's go forward, not backwards. david: when president trump first came, in he was very closely aligned with many people in business. he consulted panels. do you get to talk either president trump or the administration about things like nafta?

do they consult you, or do you mack your views known to them? >> when there are things where we have a view or it affects our business, we mack our views known either directly to the administration or through many of the business forums like the business roundtable. there are enough points of intersection, collectively and individually, within the administration that they know what they think. david: do you have any sense of where we're headed with nafta? there are conflicting reports. the canadians seem to be preparing for u.s. withdrawal. there are a lot of people who say we're not going withdraw. do you have any sense of where we're headed? >> my view is negotiations is let the negative fors negotiate. if you're innocent room, you don't know what the answer is. i think the important thing for those in the room is to keep saying what they believe to be true, what they believe to be the area where things can be better, and negotiators have got to thrash it out and work out what color the smoke is coming from the room doesn't believe you anywhere until they

come out and tell what you the answer is. david: the president is on his way to davos. you're going to be in davos, as i understand, as well. what do you expect, and what would you like to see from the president? this will be a challenge for him on the world stage. >> yeah, i don't know what he's going say. obviously he'll be the one sharing. but i think, you know, davos, for all the sort of strangeness of being in a very isolated part of a mountain, it's an opportunity to hear diverse views and debating. there's no better way to try and make progress and go forward than considering all the views. just kind of staying above and talking to yourself doesn't help. it's important to focus on the issues and try to find a way forward. i'm sure the president will put in a point of view and contribute. david: that was james quincey, c.e.o. of coca-cola. we got about half an hour with him. he's only been c.e.o. for a short time, and he's really trying to move the company forward. on immigration, on trade, on issue after issue, just as

c.e.o., he's saying we need to be more open, not more closed. lisa: this is a theme across corporate -- to want say america, but frankly, the world corporations. one thing that's interesting about coca-cola is when the dollar was strengthening, coca-cola was saying that that was a head wind and that that was actually hurting its earnings. now we have the weaker dollar, interesting to see. they're sort of going to benefit from any kind of continued weakening, which i kind interesting. coip they're a series of small local companies, because a lot of the businesses are local. but they a big new initiative on recycling. that's why he came to talk to us. by 2030, they want to make sure they're taking a bottle back for every bottle that goes out. scomploip they have a huge p.r. challenge ahead of them. not only do they have the plastic issue, the diabetes sandishte sugar issue and how do you get people to go to healthier drinks. david: that's the other thing that he's really embraced, the total beverage company. they're not going to run away from coca-cola and diet coke,

but build up all the things that don't have sugar in them. lisa: right, but from a p.r. perspective, they need to double down, there's been a lot of concern about the sugar intake, particularly of younger people. david: interesting, what he said was worldwide, it's the consumer that's driving that more than the government. the consumers don't want sugar. lisa: that's what he says, at least in the u.s. perhaps, but outside of the u.s., i don't know. david: ok, coming up, why president trump doesn't deserve at least all the credit for good economic news. that's according to former u.s. treasury secretary larry summers. he's written op-eds today in both the "financial times" and "the washington post" to that effect. we're going to talk with him about that, why he says it. that's next. this is bloomberg. ♪

>> this is bloomberg daybreak. let's get you caught up on market action. s&p futures have turned green, although perhaps just a little bit, up to .1%.

ftse 100 is also up, climbing a bit more. you can see the 10-year yield have declined by one basis point. 10-year yield in spain declining after fitch upgraded that economy, and michael mckee of bloomberg television was pointing out that the gap between spannish and german 10-year yields has narrowed to the least since 2010, sort of key measure that people look at. let's flip up the boards and get a sense across assets. the u.s. dollar is weakening against the south african rand. this come as a growing number of investors believe that the new government in south africa will prompt the economy to do better. chinese 10-year yields do dip just a bit after almost reaching 4%. he highest level since 2016. basically the idea is that china has been definitely tightening up some of the controls in credit markets. bloomberg dollar continuing,

u.s. dollar continuing to decline as gridlock in washington grinds the government to a halt. the u.s. dollar weak being against the canadian dollar. this is interesting, and we're watching this, because the nafta negotiations, the next round, i believe the sixth round of nafta negotiations, conduct off today in montreal. i want to bring some merger news across the markets. we can look at how american a.i.g. has agreed to buy validus for $5.56 billion in cash. valudus continuing their climb, up more than 45%. a.i.g. is just climbing out of a sort of sleep for many years where they were retrenching, rather than expanding. this marks definitely a change in a strategy, or at least the outward strategy of a.i.g. also looking at sanofi. it's saying that it's going to a $11.6 billion for

hemophilia drug maker, a french drug maker. and their shares up, oh, my god, shares really climbing up early 63%. sanofi extending losses, 3.74%. the idea here is that sanofi is paying a pretty hefty premium for dick vermeil. and also in this merger monday raziness, celgina greed to buy genotherapeutics. the goal here is to expand its offerings in a very hot cancer therapy market. juno therapeutics up more than 27%. celgene down more than 1%. david: it's a wild merger monday. but going back to a.i.g.t. does strike me that they should break it up, so they don't have the designation anymore.

and now they're going to start acquiring it, as you say, that's a beg turnaround. lisa: that's what i'm looking at right now, for them to take their cash and buying a reinsurance company and just to be clear, this comes at a time when reinsurance is frankly becoming ever more important, especially with all the storms that we've been seeing, you know, these insurance companies are going to take on a lot of risk. david: it does take them back into the sweet spot. that's what a.i.g. was fundamentally. scomploip they're going back to it. david: ok, and now let's get headlines outside the business world. this is first word news. >> the u.s. government shutdown is now in its third day. members of congress failed to negotiate an end to the stalemate over the weekend. a bipartisan group of senators is looking at a plan to fund the government through february 8, along with a promise to quickly take up a bill to keep young undocumented immigrants from being deported. many federal ago will start the workweek by tearing out closing plans. vice president mike pence says the u.s. will open its embassy

in jerusalem next year. pence is in the city right now, where he met with prime minister benjamin netanyahu and spoke to israel's parliament. israeli-arab lawmakers plan to boycott the speech. they're unhappy over the u.s. decision to recognize jerusalem as the capital. owe and he can russia are signaling that their alliance may be a lengthy one. they have reaffirmed they'll keep their oil production cuts in place until the end of next year. this year the russia energy minister tells bloomberg he's ready to keep cooperating with opec, even after the cuts expire. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. david: thanks so much. larry summers, former treasury secretary and former president of harvard, has written in the "financial times" and in "the washington post" this morning about president trump's planned trip to davos this week. as he puts it, while trump will probably try to take credit for all the economic good news, it is unlikely that he deserves it.

he is president of the united states, not the world. we welcome professor summers, joining us from boston. larry, welcome back to the program, thank you for being here. >> good to be with you, dade. david: i want to start with something you said about the dollar, which really strikes me. if we really were expecting capital flow back to the united states, which is the dollar, the dollar is going the other way, which strukes me not just because of the regulatory changes, but also because of oil, no longer a big impart. why is it like this? >> i think it's because the biggest news in the global economy hasn't been anything about donald trump. it's been the resurgence of europe, which was a long time coming, but now seems to have come. and that has led to strengthening in europe, increased investment flows, the expectation of higher interest rates, and the stronger europe. and to some extent, that same

thing has taken place in a number of emerging markets. it may also be that there's some long run hedging out of the united states, reflecting the substantial political uncertainty. but in any event, if your theory is that you're creating ronald reagan-like domestic boom by making the business environment more attractive, the first implication of that theory is that the currency should go it, as indeed it did when president reagan was president. so the fact that it's gone meaningfully downwards is, i think, a powerful piece of evidence suggesting that the trump narrative isn't really right. it's corroborated by other fairly simple things. if you measure the world's stock markets in a common currency, the u.s. has been a

laggard over the last year. if you look at i.m.f. forecasts and how much they've been revised upwards, the u.s. has been a laggard over the last year. so what we really looks like is happening is there's a global phenomenon that probably doesn't have much to do with who the president of the united states is, in which the united states has shared, and, you know, president trump isn't the first president to take credit for good news that he didn't cause, and in fairness, he'll be blamed for bad news he didn't cause, so that's what presidents do. but i think objective analysts should understand that any good economic news, at least the good economic news we've seen so far, is not sensibly attributed to the president. lisa: i want to pick up on that idea.

you know, perhaps president trump does not deserve the credit for the good economic news in the u.s., but have any of his policies actually contributed to any deterioration of economic indicators or economic fundamentals as you see it so far in his tenure? >> no, i don't know that they've contributed to negative indicators so far. i wouldn't want to argue that he has yet depressed consumer sentiment, for example. i think that the fiscal policies, tax cut in particular, is highly improved to expand the deficits substantially at a time when the economy is already near full employment. and i think that's setting the stage for problems down the road. i think the moves, which so far

are not that large to dismantle inancial regulation are risky. nd raise the risks that will have a problem down the road. you know, there's a notion that was popularized some years ago, mostly talking about latin america, of a populist policy cycle where if one looks at populist leaders, they tend to be able to produce some economic benefits in the short run. but over time, the effects diminish and even turn in the opposite direction. and i think some of the deals-based capitalism the president has been engaged in is likely to have that tendency. this is going to be an important -- this is going to be an important year. so far, the bark has been much,

much worse than the bite on trade. but we'll have to see whether the president means what he says about substantially adjusting u.s. trade policies in a protectionist direction. if he does, that will have adverse impacts on the economy. david: we have a question, a viewer, larry, that i want to ask you. a viewer writes in and says, how do you think that the tax cuts are going to expand the deficit? i mean, how big a problem is that? it's $1.5 trillion is the estimate. > it's $1.5 trillion, but it's actually more than that, because there are a variety of tax provisions that are only ut in place for a new years. and almost certainly congress will extend when the time comes. and there are a variety of other provisions that don't

contribute much to the 10-year cost, because they only go into effect a few years hence. so if you look at the new tax structure, we're looking in place, it's a substantially more expensive tax structure. it's going to take on the order of 1% of g.d.p., perhaps a little more. is that a lot? the 5% of the revenue that government receives, actually probable a bit closer to 6% of the revenue the government receives. is that a prudent thing to do when the debt to g.d.p. ratio is already reaching highs except for post-war periods? is it a prudent thing to do when we're already assuming a very, very strong economy with unemployment at 4%? i think not. david: let me talk about complacency. back in the late 1990's, and

again in 2006, you said the only thing we have to fear is the lack of fear itself. and i want to remind you of something you said at davos in 2017, 2007, you said it's worth remembering that markets were very upbeat in the early summer of 1914. so as you look at the horizon right now globally, where are we? do you see any indication that we may be heading into one of those sorts of situations? >> look, i'm an economist, not a geo politician. but it seems to me you have to look around and think that this is as continuous a year geopolitically as we've had since the berlin wall fell. you look at what's happening on the korean peninsula. you look at the degree of tumult and change in iran and the u.s. looking like it might back out of the frame work that

it has with iran. you look at the rise of increasing thorn tarnism in .ussia, in china, in turkey you look at growing tensions between the united states and china on trade, on issues reementing to the south china -- relating to the south china sea. and probably most importantly, you look at an american president who is less predictable than any american president has been in a very, very long time. and it seems to me all of that geopolitically much

greater than we've seen in a long time. and none of that is in markets. very low e priced for volatility, perhaps that will improve correct, as it has proved correct over the last year. but it seems to me that it's a moment when complacency is higher, when people learn that you can always do well by buying on the dips, when people think that monetary policy is a salve that can always keep things calm and stable. that's when you have the or ter risk of a disruption an accident.

and you have -- i think it has o be said, a team of leaders in the united states who most of the t give rest of the world great confidence in their ability to manage a financial crisis, if one were to come, secretary of the treasury has sacrificed his credibility quite substantially with extreme forecasts about tax cuts paying for themselves and growth rates, forecasts that are way out of the mainstream. i'm a big admirer of jay powell's, and i think he's oing to do a fine job at the fed, but he is new in the position of being the chairman of the board. lisa: i wanted to pick up on that. in particular you're talking about potential deepening of

the deficit. we know the fed is withdrawing stimulus. right now the 10-year u.s. yield is a little bit over 2.6%. where do you see that heading, should markets start to realize all of these things that perhaps they are being, in your mind, too sanguine about? >> i think it's hard to say, because if markets become more alarmed, treasuries are where they go. so i'm not as confident as many, many observers that yields are going to rise sharply from here. i think there are two areas. there's a scenario where the economy continues to grow strongly and where markets stay calm and there is no geopolitical disturbance, and i think in that scenario, you'll

see the fed tighten more than is now priced in to the market, as i suspect you'll see some meaningful upwards move in long rates. but there's also a scenario where some of these uncertainties come more into focus. nd i think if that were to materialize, you could see equity markets sell off. and in that scenario, i think 10-year yields would meaningfully move down wards from here. lisa: what's the potential low for 10-year yields in that scenario? >> potential low? lisa: yeah. >> oh, look, i think if we have -- i guess the way i would approach that is to say resessions come every so often. the odds on an annual basis of the economy moving into

recession are somewhere in the nge of 20%, perhaps slightly lower, and i'd be very surprised if we saw a recession where 10-year yields up didn't fall by over 100 basis points. and so i'd expect that sometime in the next half dozen years we'll again see -- we'll see 10-year rates make a new low, probably below 1.5. david: so larry, finally -- >> but again, it could easily go the other way for some interval beforehand. david: so finally, larry, come back to your piece that you wrote this morning. one of the things you really urged the president is to show that he's a rescomplible predictable partner. you just talked a minute ago about the team around him and whether there's real confidence they could handle a substantial economic down turn. the big news this morning out of axios, will already ross may obtain outs, fairly controversial powerful commerce

secretary right now. i don't know if that's true. you don't fn that's true. but are the people around him, are they contributing to some of the apparent instability or the unis not that's being communicated? >> yes. yes, i think in some ways they are. but something i've learned, whether it's in business or whether it's in government or whether it's in universities, leaders tend to get subordinates they serve and the subordinates they want. and so i think responsibility for the contours of economic policy and for any issues of edibility that may arise really rests with the president.

d i think he would find, i suspect, his team better able to implement his desires, if he was more steady and predictable in those desires. as i wrote in the base, david, it's very, very easy to go on and on in a lot of different ways, being critical of the president, but i think that the president was elected president because he tapped into some legitimate feelings that the united states needed to look inwards, as well as altruistically out to support a great global system, that there were areas of economic diplomacy in which the united ates needed to be more ssertive than it had been at

some point in the past, and that there were many americans living in the middle of the country who had been forgotten to a great extent and needed to e more a focus of concern. and i think people are prepared to respond to that message and those concerns, if they're led in a steady, predictable, reasonable way. and that's the hope that i have for the president's second year. david: yeah, a point you make powerfulful if these two pieces. please take care of that cough. i'm a little worried about you. that's larry summers. don't miss our special coverage. we'll hear from a variety of guests, including bill gates and george soros, as well as the c.e.o.'s of the biggest banks. and coming up next, if amazon can't come to you, they're hoping you can go to them. details next.

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>> this is bloomberg daybreak. i'm here in the hewlett-packard enterprise greenroom. come up, oppenheimer chief market strategist. david: amazon makes a play for the struggling $550 billion u.s. convenience store industry. they're set to launch a cashier-less store. it's amazon go. it's in seattle today. for more, we get more from washington. sarah, explain this to us. we were waiting for this for a while. sarah: they announce this had about a year ago and said they were going to open it in spring of 2017, and here we are, almost a year later, because they ended up encountering bugs. but essentially, you download an app before you go into the

store, and then as soon as you lift stuff off the shelf and put it in your bag, that is essentially the checkout process. it is tracking your movements to the store using a combination of cameras and sensors, and then when you walk through sort of a turnstile on the way out, you've checked out. lisa: so, sarah, i mean, basically you're opening up your credit card to amazon the second you walk into this store, and they can just sort of charge at will. i mean, there's a lot of potential for bugs. how much have they worked through them? sarah: i think we're going to find that out today, right? if you happen to be standing next tie person with a similar look for you, because it uses facial recognition, could it confuse your purchases? there's a lot of things that are still to be determined here as to how successful this technology is going to be. think about your own experiences with self-checkout machines at the grocery store. sometimes those are a little buggy. this has promise in terms of convenience, but we have to see how well it actually works.

lisa: sarah, do you have a sense of what products are going to be in this store? sarah: yes, it's definitely going to be more upscale than 7-eleven. they have meal kits, for example, and freshly prepared sandwiches and salads. they're going for a high-end, affluent millennial customer. david: sarah, thank you so much for joining us from washington today. coming up on bloomberg markets, the open. the oppenheimer chief market strategist will join us shortly, live from new york, this is bloomberg. ♪

>> from new york city for our viewers worldwide, 30 minutes until the count of trading, this is countdown to the open. ♪

jonathan: the blame game continues in washington, day three of the government shutdown . a weekend of negotiations failed to lead to a breakthrough. highs,ces at three-year saudi arabia and russia signal an alliance, and the euro bank failed its first buyback in a decade. there is some historic numbers as we count you don't to trading this week, 30 minutes away from the opening bell. futures after a 3rd street -- third straight week of gains. treasuries do stabilize postelection high, 365. we are down a basis point and the dollar is weak against everything g10 the whole morning. we are up a quarter of 1% on the euro. and we have some breaking news from the international monetary