next selloff to buy the dip as 1% moves in equities and the vix over 25 becomes the new normal. a monster short squeeze. investors betting against treasuries 24 hours away from the latest read on u.s. inflation. is goldilocks dead? d.c. threatens to overheat the economy as good news could now be bad news. welcome to "bloomberg daybreak." i am alix steel in new york. david westin ditched me. he is in the today and we got a great lineup of guests. d.c.'s in the seat -- today. david: kenneth mccarthy, were going to talk about what all this appropriations they have been doing on capitol hill. i have been to shake shack, but we will talk to danny meyer about what it is to make a andness and lloyd blankfein

we will talk to him about why he is doing it and what it is come -- what has come from it. alix: i hope we can sneak something in there about their activity. are they seeing a pick up here? david: i have -- burned in my brain just for you. i will ask about it just for you. this is the morning brief. at 8:00, the cleveland fed president will beginning a talk on monetary policy and the economic outlook. at 11:30, the u.s. treasuries will be optioning $50 billion in bills and after the bell, metlife will be recording its earnings -- reporting its earnings. alix: two and a half hours until the cash open in the u.s. and it's a modest risk up kind of day. kind of moves become the new normal? the u.s. dollar pretty much on the back foot all day. and sell is buy bonds peripheral bonds.

yields moving lower by about three basis points in the u.s.. $60 aalso weaker, under barrel. my chart of the morning, i feel like everyone on the street is talking about it. dollar-yen breaking through key levels like 1.08 and now down 1% on the day. this is down the worst in the week, the lowest level since september and the question becomes, why? if we are not seeing panic in the market, why the stronger yen? david: great look into the markets and now we want to turn to our first take on the three top stories. marketsne as equity come back from their lows, is it time to buy the dip or should we be racing for another round? as we get ready for cpi numbers, huge bets being laced on treasuries. and number three, president trump said he would bring growth. is it possible to have too much of a good thing? joining me in d.c. is margaret talev. alix: and in york is luke.

earlier today, we spoke with -- of amt capital investors. here is what he had to say about the selloff. >> when you get parabolic moves like we have had and steep selloff, you do get some kind of , sellingecovery exhausts itself in many get recovery and usually get a second. as we go to the fed meeting march 9, there will be more potential weakness. buy a second leg down. luke: he is not alone in diptioning the buy the mentality. the bank of america survey is out and they's -- they showed cash management to equity went down. still too soon to buy the dip was their judgment and it does

point, your last guest's essentially, if you wanted to blame the fed for the selloff and if you look at december 2020 euro dollars, link those up with the s&p 500 active contract, you will get a great correlation and you can make that argument. perhaps that is the catalyst for taking more profits and risk off the table. is the conversation going to be about buying the dip or will it evolved into by selectively and look for rotation instead? luke: i think no fund manager will ever tell you they buy indiscriminately. seen the words, we are disciplined buyers, buyers of select names, more and more. by and large, this really is all about a final rotation into the value names come into a higher growth dynamic for the world and we are just kind of coping with

it with the rise in bond yields and then perhaps, you will see people banging the table a lot harder on value stocks. david: president has made no secret of the fact he likes a robust stock market. at the white house right now, are they concerned about this? do they think they have anything to do with what's going on in the markets? margaret: i think there is a sense of caution among some. not really from president trump, but you have heard it from steve mnuchin. you have seen him kind of maybe trying to slow things down a little bit and get hands on the levers without looking obviously like it -- he has done that. you will also hear sarah sanders, who is not an economist, talk about long-term fundamentals and that is -- has begun to replace the extreme enthusiasm over the numbers. you see recognition with what's happening with the tax cuts and the new spending numbers on the white house saying, let's see if we can take a breath and have everyone else take a breath.

alix: the other part of the market we are seeing has to do with treasuries. you are going to be looking at 10 year and a noncommercial short contract, that white line and the 10 year yield is the blue line. we have seen a huge move into shorting the longer end of the curve and i question tomorrow with the cpi data. if we get a miss, what kind of rally we could see luke: -- could see? luke: potentially a big one. to be fair, the majority of the rise in yields this year and the 10 year has been driven by real yields rather than a pickup in inflation breakevens. for all the talk that maybe the better -- market has adjusted tip and inflation scare, it's not clear that was the case. perhaps that also limits the potential recovery and snapback rally we could get in the event of an inflation mix. alix: if you chart inflation

breakevens, they do not match up. that means potentially we are in a more supply demand issue for treasuries, one in which the fed has a little bit more control over rates versus this inflation expectation. things like supply-dimon dynamic and preferences of foreign volatile -- foreign buyers. i think all of those are perhaps more esoteric stories, but they are the ones you need to focus in on to get what's going on in the bond market. alix: i feel like what we would have been talking about two months ago is any rise of yields would be met with a lot of buying. why is that not the conversation today? luke: i don't know. i have no clue. 2.75 when i talk to people seems to be a good line in the sand. if the fed is telling you where they think the policy rate will be in the long-term, why should even the longest term yields get way out ahead of that? be aays thought 2.75 would

bit of a magnet and it doesn't seem like it is, necessarily. david: one of the questions that has been percolating is the extent to which the increasing federal budget deficit may be driving speculation in the bond market. i want to put up a chart that shows where projections are on u.s. deficit. last year they thought it would be $526 billion and now they are are984 billion and there pretty responsible economists that say it will be 1.2 trillion dollars. coming back to you, is there city --anywhere in the margaret: now this has been a political sort of transformation . a lot of people yesterday with the rollout of the budget plan saying, what happened to the republican party? everybody politically speaking has doubled down on the midterms and i think even if we say this budget is just a political

document or wish list, even if faces anfrastructure very steep curve and probably stalled, nonetheless, i think you see a shift. there is still absolutely that core of fiscal conservatives who say, what is going on here? this is a bad idea. many other republicans with the president now. david: what about people who really understand the markets? you have people like gary cohn and steve mnuchin who are not strangers to wall street. they must have some sense of if you increase the supply of treasuries, you can really have affect in the bond market. is there anybody concerned about this? margaret: they have also aligned themselves very closely with president trump and president trump and his political message has tied the rise of the stock market very much to a sign of success, even if it doesn't touch much average americans.

there's a bit of a messaging difficulty for him in all of this in that if the markets continue to be jumpy or go down, you need to find a way to explain that to regular people to the trump base in america. david: luke, back to you, and -- can i ask you a question? reacting tomarket the possibility of inflation or oversupply in the form of deficits? luke: i would say more the latter if anything. just a quick hit, the idea right now that only one party can successfully provide countercyclical fiscal policy is becoming a concern among some investors. -- basically says why would i pay a higher premium for u.s. equities if we have only seen to spendparty wants and they forced the other party cannot? that's something in the future i would thinking and be worrying about. alix: margaret talev and luke kawa --

we have breaking news for you and it concerns south africa. you are looking at the dollar rand. lower on the day, down .1 -- .2%. here's the news, -- is currently giving a news conference to reporters. he is the secretary-general of the south africa's anc party and he is telling reporters that he understands the nation's anxiety on the current president zuma issue and it concerns the anc party to compel mr. zuma to resign and he also said his them a wanted more time before -- zuma wanted more time before resigning. if you are in south africa, you a woeful to a nation in limbo -- you awoke to a nation in limbo. resignng party -- voluntarily.

there have been votes of no confidence that did not make it to the floor and the anc may have to order lawmakers to order a motion of no-confidence if the president doesn't resign voluntarily. david, getting rid of jacob zuma is why you are seeing the rand rally. it could be a good thing for a country that has been unable to grow. from yourarly reporting, he is very tenacious and does not want to go. the now leader of the anc went to his house and said, you have got to step down and it was speculating he might not. here's a fact i did not really ofus on, he had 783 counts fraud and corruption against him, criminal proceedings that he will have to answer to if he steps down, so he's got a powerful reason to hold on. alix: either way, there's nothing good about a country in limbo and we are continuing to learn the anc is giving zuma time and space to respond. zuma wants three to six months to stay in office and you can

see the rand off the highs of the session. we will keep an eye on this breaking news, particularly as it moves the markets. s&p futures currently pointing to a retreat after two days of dance. more on that, liz ann sonders -- with liz ann sonders. this is bloomberg. ♪

♪ u.s. stocks were on the rebound after bouncing off technical support levels after a second day of gains. now futures are back on the back foot. it raises the issue of the future of the equity market. it does it belong to the bulls of the bears? >> this is no big deal and we should expect probably more of these short sharp pullbacks from time to time. >> fundamentals are still

supported. we think we have a big shift in the volatility regime change. we are just not seeing that from what we got. it's a buying opportunity in a situation where you are having a supply and demand dynamic, it's possible bond yields are going to go up, stocks are gone to go --n, and that the economy as going to go down, and that the economy as a whole is going to slow. >> i think it's a sign that the days of boom, boom equities are over and we've now got more risk in there. technical, not fundamental. the only way the equity market stops growing is if growth disappoints because this is where people are complacent. people are pushing growth and worried about bonds. >> we have had our correction. it now becomes a very ambiguous, what next -- whether this will turn into a bear market or stabilize and go up. alix: joining us now is liz ann

sonders. are you going to use the f word on me, fundamentals? >> well, yeah, but i will give you a but. fundamentals are strong, but there's a number of things that hit in plastic -- inflection points that investors need to be aware of. good in the are sense that they are supportive of equities. however, at some point you get to the data being so good it becomes inflationary and brings on tighter monetary policy and causes more volatility in the market. the lack of volatility was enough of a reason alone to give you an idea of more volatility this year. then you have that additional boost we have gotten to growth is a goodarnings that thing in the near term, but at some point, the market starts to look for the inflection point in the other direction. alix: what does that do to the equity market?

if you could argue passive etf investor was the world zero bound and no inflation and no volatility as we move into the other regime, what is that going to be? liz ann: i think the playing field has been leveled for active versus passive and it's not just some of the implosions we have seen in the world of also theehicles, but fact that barring the recent uptick backup, correlations literally crash. u.s.crash within the equity market and across asset classes globally. the environment that really supported passive overactive, that made even just basic conversations like diversification a difficult that to investors, i think sort of landscape has changed and i think that is to the benefit of active versus passive. not exclusively, but we have always felt that both can sort of live simultaneously within portfolios. it was just a harder sell

because of that correlation problem. alix: let's talk about valuations for where that floor is. come inside the bloomberg and you can look at the s&p top panel and the bottom is the price to earnings ratio and you can see how far it has dropped. however, where we hit bottom is still all the way down there so perhaps the s&p has more downside. what do you think? liz ann: the problem with valuation is it has virtually zero correlation with forward returns in a relatively short period of time. if you look at a forward or trailing pe and subsequent one-year returns, there is no correlation. longer-term returns are affected, but i'm not sure it's as simple as looking at a chart and saying as soon as we get to the bottom we get to the -- wouldn't markets be wonderful if they were that easy. the fact we have seen a retrenchment -- provides a little bit of valuation stability and may bring more of

the value oriented and buyers back into the market. alix: i am glad you brought up inflation earlier. we have cpi data out before and we are blaming a lot in the market on higher inflation. this is the 10 year breakeven versus the 10 year premium and the blue line is the 10 year rake even and it actually declined over the last few weeks and the premium went up. this that mean this is not all about inflation? liz ann: i think the fundamental driver -- alix: you didn't. liz ann: at the beginning of this corrective phase was specifically the spike in average hourly earnings in the week and a half ago friday jobs report. the fact that we had already started to see traction in inflation expectations and that was, i think, sort of the draw -- straw to some degree and then we morphed into a technical issue with the spike in the vix. this is a market where prices

are down because of the spike in volatility, which is normally the opposite way around. normally it is the retrenchment of the market that causes the spike in volatility. you are changing the calculus a bit by virtue of inflation having picked up. a little bit -- at least temporary, breakdown in what had been a positive correlation between bond yields and stock prices and that is typical coming out of a deflationary era. at some point, you hit a threshold where you revert back to that normal long-term relationship with higher bond yield coming along with higher stock prices. i am not sure we are -- where definitively we turned the page on what had been the positive correlation, but i think there have been a couple of important inflection points. alix: liz ann sonders and -- of charles schwab will stick with us. david: the grand budget plan brought peace to congress, but at what price? what price for those concerned with the deficit?

cory gardner is one of those who called for lower taxes to be matched by lower federal spending and we welcome him from capitol hill. good to have you with us. senator gardner: peggy for having me. david: i am going to put up a shows the projections for the federal deficit have gone up given the combination of tax cuts in the budget plan. how concerned are people like you and your colleagues on capitol hill about what is going on with the deficit and increased borrowing that will come with it liz ann: -- come with it? liz ann: we know that as debt --sen. gardner: we look at the debt gdp ratio in a decade or so that reaches 300 some percent and that is sort of an economic crisis collapse as the government tries to find the money it needs to finance its debt and ever increasing interest rates and competes with the private sector for scarce resources and creates situations

for monetary policy in degrees we probably haven't seen yet. i think it's a very big concern we have to get our hands around and if we don't, that will be one of the biggest short falling this congress or any congress has had for future generations. david: who is going to lead us in that process? we had the president come out with a budget plan that calls for i believe 2% reduction in nondiscretionary after this coming year. no one seems to believe that is going to happen. is congress going to be able to make those kind of cuts liz an?: liz ann: i believe this is -- sen. gardner: i believe this is exactly why democrats and republicans will have to do this together. it's one of the most critical things we could do and couple that with economic growth policies that would grow the economy. we are not going to cut our way alone out of this challenge we have. it's taking our foot off the throat of american economy through reductions and making sure congress has guard rails when it comes to spending and

that is a balanced budget amendment. david: when we had this problem in the past, there were creatures called bond vigilantes that came up in the bond market said we are not quite a put up with this anymore and there were some severe and ugly consequences. do you think it's possible for leadership in all of us to take steps now that avoid that sort of cliff? sen. gardner: we have to and i think that is what is important about the state conversations about passing a balanced budget amendment at the state level and trying to force it on the federal government. you have that movement that's beginning. you have the regular notices from the rating agencies talking about their concern over our national debt and what it could mean. what it could mean to interest rates and future borrowing. the president's budget focuses on this two penny plan, but also talks about by 2030-something we will start to see the debt held by the public decreasing by a percentage of gdp, but that the

decade plus from now and we have to do better than that and i think the smart spending reductions, duplications and government can be eliminated. there's billions and billions of dollars where one agency of government is copying another agency. how can we eliminate those billions plus dollars and how do we pass a balanced budget amendment? those are all part of the solution we have to address. it's not clear to a lot of us that we are done yet. we still have the infrastructure plan that came out yesterday as well. i am going to quote from the president. "our him for structure plan has been put forward and received great reviews from everyone except the democrats. after many years we have taken care of our military and now we have the fix our roads, bridges, tunnels, airports, and more bipartisan make a deal with the democrats." that is going to be even more money. is there money really to spend on infrastructure at this point? sen. gardner: i think infrastructure is one of the important things we can.

a lot of it is funded by user fees. i believe the president's plan sets aside, at least in the budget he released a couple days ago, about $200 billion in infrastructure spending that ruralinclude money for infrastructure and private activity bonds and partnerships. that's the biggest challenge and i said that on the state of the union when he talks about the $1.5 trillion -- this will be the biggest sort of challenge, the devil in the details moment when it comes to infrastructure how we will pay for it. david: you mentioned user fees. isn't one simple fix simply to increase the gas tax? it hasn't been increased in 25 years. doesn't it make sense to increase the gas tax to help build roads and bridges? sen. gardner: some people may be supportive of that. i do not support that at this point. one of my concerns is how we are moving away from a gas-based economy. look at a number of vehicles entering the system that are electric-based and they do not

pay a gas tax. as more and more people by electric vehicles, they will be gas tax.re -- less we need to find more creative ways to fund the infrastructure and get away from a gas tax because it is a declining source of revenue. that's exactly the way people want it to be as they look for more fuel-efficient vehicles and alternatives to the fossil fuel transportation. david: briefly at the end. let me ask you to put a different hat on, the hat that says i want to keep the republican majority in the senate. is there any proof that people corker -- to sway bob to run again? sen. gardner: you would have to ask bob corker that. against the tax cut bill will have to explain to the american people why they increases, higher wages, bonuses, investment in new capital dollars coming into the country. this is one of the things i

think voters will make a decision on in 2018 and that the reason they will vote for a new republican majority and i think it will speak well for our opportunities for american growth. ford: thank you so much your time, that is republican senator cory gardner of colorado. alix: still with us is liz ann sonders, charles schwab chief investment strategist. were talkingthey about, this chart. we have been here before, currently around 3%. how does the market need to think about this? liz ann: for whatever reason, the market doesn't seem to be terribly troubled unless you view this to be one of the causes of what is unfolded in the last week or so and maybe that is part and parcel of what we are dealing with now. part of the reason -- to some degree both parties -- the bigger surprises the republican party, turning a blind eye to this at this point is that most surveys show their constituents, the public, it's just not high on their radar screen.

if you don't put something high on constituents' radar screen, it doesn't make it high to politicians' radar screen. the longer-term debt is a nowlem and the fact that we have increased deficits by virtue of the tax reform plan changes the supply-demand balance as it relates to treasuries. at the same time, you have the fed pulling back the balance sheet and you now have access supply coming by virtue of what the -- less demand by virtue of the fed . i think that's part of the reason you have seen the uptick in long-term treasuries. alix: nevertheless, under 3%, does that really accurately a -- reflect what we could be in for? liz ann: it does not and that is to your point about it's a wide range of estimates that we see right now for the deficit. i have seen as high as 5.5% to 6% and the implications for debt

, it's also a function of whether or not we ultimately subset these tax cuts because instead of one truly -- $1.5 trillion, if you don't allow -- don't do sub setting, icing numbers as high as $4 trillion. for whatever reason, other than the impact directly it has had on the market through longer-term interest rates, it is not an investor radar. i do not get questions on this at all, anymore. kailey: all right -- and: all right, let's reset see what is happening in the markets. you are looking at dow jones futures, up by 128 points, s&p futures off by 11. received a 400 point move in the dow, and we are down again and by triple digit string is that the normal traders have to adjust to? the ftse actually gaining. stronger inflation in the u.k., domesticcular,

oblations are picking up. in other asset classes, the one i am watching his dollar yen, down 1%, the lowest level since last september. the question i do not know the answer to is why? it is a risk off feel in the bond markets, buy bonds, sell peripheries in europe. the vix is over 25 and crude hit even though the market is seen as mostly balanced. the other thing to watch is what is happening with the rand. you see the dollar moving slightly higher, and the rand now lower on the news that south africa's ruling party is going to give zuma some time and space, so that president jacob --a, his party is stalling calling for him to resign and now they are giving him time, not necessarily what the markets want to see. david: exactly. it is something he insisted on

and they said they would not give him the extra time. the last time this happened, mr. situation, the same saying they had to step down and that is how he came to office. this time, he is holding on. alix: what kind of regime kelly get that has no corruption -- can get that has no corruption i can help south africa's economy? i do not know we had the answer yet, whether jacob zuma is in the presidency or not. david: it looks like the markets will not know for a while. i think the markets thought this would get resolved in the next 24 hours and it doesn't look like it will happen. alix: that is why we see the rand move lower on that news. david: we want to get some headlines outside the business world with kerley lines. -- kailey leinz. kailey: it may have been the deadliest fight between citizens of the u.s. and russia since the cold war. u.s. forces in syria killed between 100 and more than 200 mercenaries, a mostly russians, fighting on the half of

syrian's leader. the senate has begun a debate over immigration with a two sides far. senate majority leader mitch mcconnell is backing a bill that tracks president trump's framework, providing a path of citizenship for millions of undocumented immigrants, including a measure for a border wall and democrats have rejected the plan. london city airport says it is business as usual after an unexploded world war ii bomb found was removed. it was discovered near the airport in the river thames. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am kailey leinz. this is bloomberg. last two weeks, the s&p saw its largest momentum swing in history. look at the move to start. the rsi but the s&p over 14 days. we saw a 57 point swing.

schiller, ah robert professor of economics, about the future of retail and what happens when investors see the swings. robert: i have been doing surveys of retail investors and institutional investors since 1989. the general thrust is that people's expectations for stock price increases have held up. the big change has been that people think it is overpriced. that is almost a definition of a bubble. if you think the market is overpriced but still has time to go, and you are waiting for that, that is a bubble. alix: still with us, ms. anne saunders. what are investors thinking now? liz: i think it depends. we have a good snapshot of the retail investor for those who are more short-term trading oriented, and i would say to

generalize, are investors that have a discipline, strategic asset allocation approach to how their money is managed, so they originally set a goal, they thought a structure that is diversified and driven by their own risk tolerance, they have been quite calm through this. some of the more short-term trading oriented folks, particularly those who were skeptics until a few months ago, and anecdotally, i noticed a significant shift in the attitudes of investors a few months ago, last fall, really a switch was flipped from an era of the efforts of this bull where everyestions variety of what is the next crisis? what is the next black swan? isn't this a bubble? to much more optimistic questions.

what i have been saying is we went from what might have been a environmentsing not in december and january. now what i think we want to know lastid we have a component in, first out, where we washed out some of that new money that sort of on most panicked in on the upside and panic is not the right thing to do. either one structure going down her up. alix: i like the use of that confidence. the bloomberg illustrates what you were talking about, consumer confidence as stock increases. this is before the selloff. it is around record high. if i am a retail investor, and i am on a longer-term horizon, sector do you need to say, this is how you reallocate? liz: it should never start with that, here is the sector you should buy. too often, i think people answer questions like that. whether it is what exposure are

you telling investors to have, or are you telling them to get in or out, or what to buy or sell? i could have a high conviction view of what i think the market will do, what my sector biases are, but what i would tell a 22-year-old investor, who inherited $10 million, and does it, versusome on what i would tell a 75-year-old investor, who needs every dime they earned, so i had a singular view on any of those. what i would tell investor a and investor b are different things. alix: what are they? liz: you cannot be cookie-cutter. with correlations having come down and volatility picking up, there is importance and the decker's location, -- in deyverson vacation, and rebound -- diversification and rebalancing. if you have a strategic portfolio, rebalancing forces you to do what we know we are supposed to, buy, sell high.

about not have to worry whether i have the right call on bloomberg television, or your own personal bias. your portfolio tells you, this has moved up, maybe it is time to trim that. if anything, what time horizons particularly by high frequency traders, i think -- individual investors are liking time horizons. back to fundamentals, fundamentals and pricing are connected. in the long-term. in the short term, there may be a disconnect. we are trying to reinforce those try and true disciplines that are not headline grabbing. dix: today, i'm like, ah, versification. ms. anne saunders is sticking -- nders is sticking

with us. the boys are partying in d.c., and i am here. david: the women have the important part in new york, how it should be. we will cover three things wall street is talking about. first, a new vet. we knew -- a new bet. trade and then returned to the trader, the spike in volatility, the wall street trader is back and number three, the old bet pays off. active funds show they are worth in the downturn. we are joined in washington by jason kelly, our new york euro chief -- bureau chief, and still with us is liz anne soner -- liz ann sonders. it started with italian financials, and now we are talking places like unilever and pieces like that. voices,ou look for big especially in times of volatility like this, and ray dolly l is looking to be that --

io is looking to be that big voice. he talked about hitting the gas. there is a whole lot of hitting the gas into capacity constraints that will lead to nominal rates driven by the markets. we are in the part of the cycle where monetary policy is difficult. we are sitting in washington and monetary policy is being talked about a lot on wall street now. chairman has a big task ahead, and a lot of big voices, like ray dolly oh. -- ray dalio. david: and a president to is not shy of expressing his views on officials. alix: what is interesting about unilever is the sector, so that is getting a lot of activist inflows, what do you make of that. why is that sector so highlighted? : bradley, you had this

retail carnage, the amazon effect changing the landscape, and if you are a traditional retailer, i think you are going to be at the mercy of simplistically selling or activists want to come in to the extent they see an opportunity to be a savior. there is a tremendous amount of dislocation. we are way over stored in this country, relative to the rest of the world. i think there are restructuring opportunities. alix: taking a look at where you take advantage of the opportunity, let's talk investment banking. this is why i want you to talk about bank safety. if we don't get strong signal numbers from the first quarter, i do not know what will save investment banking. david: you are pretty consistent. i have a message on what you want me to ask lloyd. i feel like i'm at home, actually. alix: [laughter] are you watching this question mark david: sherry is -- are you watching this, sherry?

david: she is, i hope. jason: this is a fun story that we set our bloomberg reporters loose to call all sources on the desk, and they came back with i am a little too busy to talk now. as a a few weeks, they were talking, what is up? they are actually busy, talking to clients and loving it. this is the moment where banks make their money, but as alex has said, and i'm sure you will ask lloyd later, will this play through to investment bank earnings because it was just a place where goldman really disappointed, so we will see whether all this excitement into actuallates trading revenue. the other elements that brings up the talent on wall street talked about all the time, is does this change the nature of who is getting hired, where banks are poking up, or where

they are shanking as the year goes on? alix: goldman has been so firm that the commodities issue for them has been cyclical, not structural. they had spent riot, we staffed, and the commodity is profit from natural gas trading after they got slammed with that in the third quarter. so you have potentially a better shot. are we going to see vix numbers turnaround with this? liz: i cannot comment on goldman sachs and the equity trading. alix: no, in general? if we see a consistent period of volatility pickup, what does that do to the overall environment of banks? liz: if it is just about volatility, trading revenues will pick up. most of the story behind financials is in the interest margins story. that is a function of not only were yields go but yield spreads. i think that had been the more important driver of the improvements to the financial .ector

now for some of those institutions, and increase in volatility in the boost to trading volumes is obvious. alix: also, to the active trader. this is the other great story, talking about the profit for active investors. we talked about that a little while ago, the path to etf world is making more room for the active manager as they wind up to be more inflationary. jason: we can never go through a wall street eat without talking -- beat without talking private equity and hedge funds. the guys to get huge paychecks to be active managers, obviously, it turns into -- it turns far from private equity and hedge funds, but we have been hearing this a lot, that activators say the market will come back, do not worry. they seem to be right for the moment. david: maybe it is, maybe they will get their fees if that happens.

their fees oh go up. jason: absolutely, and there is always the journalistic point to be sure, this is an iced home interactive, but we will see how long it lasts. david: many thanks to jason kelly and liz ann sonders of charles schwab. coming up, the federal budget, immigration, in the social, and the gas tax. we will cover it all with marc short, next. as you commute today, you can tune into our colleagues, tom keene and jonathan ferro, from 7:00 to 9:00, and pimm fox joins from 9:00 to 10:00. the can be heard across united states on sirius xm radio. live from washington and new york, this is bloomberg. ♪

♪ kailey: i am kailey leinz in the qubit packard enterprise -- in the hewlett-packard greenroom. coming up, chris coons of delaware. david: marc short disappointment for the white house when it comes to legislation and he has busy months its remit tax cut and budget deal.he may not be done yet . he has infrastructure and immigration to come. we welcome a busy white house director, t y for spending time with us. marc: thanks for having me. understand you will correct me if i am wrong, you were not done on the budget because you have the overall number but there are appropriations to be done. we are not sure how this money will get spent and where. how much influence of the white house have over that, and where

are you trying to directed? happens in the process is the white house usually submits a budget in february that guides appropriators who will hopefully to the end of the fiscal year. because there is a budget cap in place, it makes this year's budget probably less influential but it gives a guide -- this is where the white house administration wants to go, so this should be influencing the spending bill next month to find the rest of 2018, as well as provide a guide for the 2019 process. david: when donald trump campaign for president and after he became president, he said, we need more growth. you have helped him in that program. is there a point where people are worried there is too much growth in the sense you can overheat the economy and get inflation and the fed to react with interest rates? is there concern about that and is there anything you can do? sure.

i think that is a common tension. you do not want to put too much fiscal stimulus to overheat and create too much inflation. at the same time, what have suffered the last 10 years is wage stagnation that has been dominant. people have not seen an increase in wages. the one point 8% gdp growth of the average eight years of the obama administration was abysmal. there's no way we can have our national debt if we grow at that level. we have to have more growth. i think some tension you have seen in the markets is a reflection of the expectations of higher inflation. that is not all bad. if we see wage growth again, if the economy heats up, that isn't bad. you need to temper that. david: as you say, expectation of inflation may be hopeful, but they may heat up still. there is concern about the amount of supply of debt because

the government will borrow so much because of deficit spending. in the budget you brought out yesterday, there was a 2% a year cut after this year, in discretionary, is that realistic? will congress give you those cuts ? -- will congress give you those cuts? marc: i hope so. a lot of people condemned the size of the deficits but they threw our budget in the trashcan and said the cuts were too steep and harsh. budget, wer's propose $3 trillion in cuts over a 10 year window to get it to $3 trillion less than the baseline. we hope congress will take those cuts sincerely and we cannot continue to spend the way we have. they are realistic cuts we can make and we hope congress will partner with david: us. how conscious are you at the white house of the bond market? this before, your member that quote from the 1990's, if somebody wants to die, they want to come back as a bond market because they are so powerful. are you aware of the bond

market, that they will say it is too much, and rates will go way up? marc: are we concerned? of course, the treasury department watches that as a factor in formulating policy. right now, we feel the economy, president's the promise on the campaign trail, we have to get this economy growing. 3% gdpencouraged of growth. we are encouraged at 4.2 million americans have received a wage increase or bonus in the last six weeks since we passed the tax cut plans. we are encouraged that in january, there is a 5% increase in federal revenues. we are encouraged by the growth in the economy. david: you are still on your agenda of immigration, and infrastructure, a plan you came out with yesterday. on infrastructure, what are all do these taxes have? with the president's support and

increasing the gas tax, it has not increased in 25 years now. marc: we are not advocating tax increases. what the president is doing with the $200 billion included in the budget is that we believe by partnering with local governments, we can spur additional investments. between one point actually and dollars and one point $7 trillion. you provide seed money, and partnership comes in to match that and puts additional dollars. it is not a mandate and the project we expect. we are offering investments that it local municipalities want to partner with us, hopefully, more projects will be funded. works,let's assume it one thing i would love to know, is the $200 billion new money? how does it fit with budget caps and what has been approved? how much is savings, which would come out of infrastructure spending? billion fits0

within budget cap's approved by congress, and within our budget. dollars that has never been appropriated for, but also, you have to include a ceiling, so it isn't going above what has been passed by congress. david: immigration will be a hot topic discussion. mitch mcconnell started the discussion yesterday in the senate. he is going to try to get 60 votes with something. if you get through the senate and to the house, and it doesn't include what the president has called chain migration, or the lottery, will he sign it? if it is specifically on dreamers and the wall? marc: our concern is that if you end up doing a piece of this and kick the can down the road, we will be back here in a few years. if you say we are going to legalize this class of people, and provide a pathway to citizenship, but not to anything to fix the flow coming in from the southern border, we will be

back here in a couplef of years. we need allou pillars from border securityr to the protection of nuclear family, reunification, and the lottery program, all important to complement the legalization of thedaca population and person will step further and say, we will expand that population the on what we started with and provide a pathway to citizenship. we think our proposal is generous and the way to make sure we are not back here in a couple of years with the same problem. david: t y. it looks -- thank you. it looks cold out there. that is marc short, director of legislative affairs. alix: in this conversation, i wonder how much that could percolate throughout discussions and d.c.? david: it will. i think the theme is the deficit. just as it is to some extent with the bond market in new york. people are stroking in at how much money they will borrow and where will it come from? sayingasically, liz ann

the markets are not paying attention. it is interesting to watch that play out. here is where the markets stock gaseous stack up. dow jones futures off by 100 points. that doesn't feel like a big deal after the last weeks. ftse up by .2. stronger-than-expected inflation. in other asset classes, i'm watching the dollar-yen. a modestly weaker dollar, but the dollar grinds lower. level in the highest five months. it is a risk off field in the bond market, buy bonds, so peripheral bonds. physics is stable over 25. coming up, a global strategist will join us on the global market. this is bloomberg. ♪