mueller probe for driving a wedge between the two countries as the news conference show capitol hill. falls, netflixth falling lower. -- and powe ll's political minefield. welcome to "bloomberg daybreak." i'm alix steel. the markets quiet, the headlines powerful. s&p futures off by just about three points, but nasdaq futures getting hit as netflix is factored in, down over 11% in the premarket. euro-dollar little stronger, up to 1.17. i wanted to point out the two-year, unchanged. it hit 2.6 yesterday, the first time we've seen that since 2008. crude up 1/10 of 1%.

goldman sees brent at a $70, $80 price. time for your morning brief. at 7:30 eastern, goldman sachs will report their earnings. at not exactly get production data for june, and that 10:00 a.m., all eyes on federal reserve chairman jerome powell delivering his report before the senate banking committee. we are joined by rachel evans, bloomberg etf reporter. the news yesterday and all today hadwhat mr. president trump to say about mueller on short-handed yesterday. rump: i think the probe is a disaster for our country. i think it's kept as a part. it's kept us separated. there was no collusion at all. i think we are doing really well with russia as of today. i thought we were doing horribly before today. horribly, dangerously. >> it was that dramatic today.

pres. trump: it was dramatic today, but i think it was really bad five hours ago. i really think we had a potential problem. alix: he doubled down when he talked to sean hannity of fox. when does something like this become a market event? >> i think it is going to take a lot to make it a market event. we are still wrapped up in the political side of it. this plays well to his base. if you are a supporter of trump, you see him being attacked by mueller. when he says this is a wedge between us and russia and a witchhunt, that displays to his constituents. i am sure there was applause from the people who support him. , this ise markets rhetoric at the moment. down thech a landmine road, perhaps come about the time it is just talk. -- perhaps, but at the time it

is just talk. alix: is that how investors are seeing this? >> completely. we knew look at the trump presidency and administration the far, it has been a sort of of events that seem to be moving the needle, but then we see it wind back. we've seen this reaction before were people are shocked and appalled by what president trump has done. alix: this is the last straw. >> exactly. then president trump terrifies his remarks and you start to see some of that rhetoric being wound back by republicans. republicans have to fight midterms in november and have a supreme court justice nominee they want to get confirmed. i think this will get talked about for a few days and then put on the back burner as people move on. alix: you can really see that on the dollar-yen. our second story is a spread that you know well, the 210 spread. 25 basis points.

you are jay powell and go to the senate. what you say about it? >> not caring. the economy is doing really well. he's probably going to hike two more times this year unless there's an issue with trade that impacts the data. right now we've got monetary policy and fiscal policy on a collision course. the five-year is trading 20 basis points below the two-year. it is not if we get an inverted yield curve, it is when. yesterday rotting numbers, good revisions. he has no reason to back off, and we shall see whether or not trade eventually seeps into the data. alix: the fed thought that lower inflation was transitory. will they think that higher inflation is transitory? that is the question in markets

that has to be answered. >> it will be interesting to see if that comes up in his congressional testimony. we could get questions about the yield curve inversion, asking whether he thinks rates should be where neutral is. that is surprising, by the way. me out and said that. that would be interesting. congressional testimony is always sort of the local point scoring. that is where i think the questions will be. alix: what is going on with dollar-yen? what is that reacting to? >> one of the things i think people need to see about dollar-yen as we look at it for a long time as a haven trade. it is no longer a haven trade when you are in a trade war. they are an export economy. the two biggest countries they export to our china and the united states.

there's a little hint of it, a little trepidation. you just can't nail it just yet. if the administration backs off, then that currency is going to strengthen. at the same time, you don't really want to own it is the trade war does escalate because it is going to hurt japan's economy just as much as anybody. alix: good point. that brings us to our third story of the morning. netflix, the quarter not good. net subscriber base missing expectations they set even a few weeks ago. up by 12%.ck -- down 12%. what is the effect? >> it was a pretty bad knock on effect. you saw all of the techs really get hit.

withn had its own problems prime day and its crashes there. the question is whether this is a sign that we have a tech bubble. what hundredeen percent increase in its share price this year, which is nuts. whether we see a pullback in netflix or more widely in tech, i think it is something people are waiting to see. talk a lote going to of netflix today on the show, but the christians today on --rage after today is 13 on the price change today average is 13. will we just sit in the dollar for a little bit? >> i think financials look really good. i think it is more the story of a jpmorgan. i think this transition to solomon will play well for goldman.

the market is liking this .ransition i don't think the yield curve impairs the financial stocks as much as people think. they still have a really good positive earnings . aix: i feel like there is joke coming that i just can't tell. you can find all the charts we used and more if you go to gtb onb go -- g tv your terminal. coming up, jay powell's upcoming testimony on capitol hill. td more with mark mccormack, securities' head of strategy. pres. trump: it is really a shame. we could do so much good come of

whether it is he military in a throughout the middle east, and at the syria. the safety of nuclear, which is ultimately -- there's nothing bigger, nothing more important. they drove a phony which, a phony witchhunt -- a phony wedge, a phony rigged witchhunt deal.

>> president trump is that with helsinki after a historic meeting with russian president vladimir putin. putinsided with president over alleged russian meddling in the 2016 u.s. election. trump: i think the mueller

pro is a disaster for our trump: i think the mueller pro is a disaster for our country. that has kept us separated, cap is a part -- kept us apart. there is no collusion. putin: i had to reiterate things i've said several times, including during our personal contact, that the russian state has never interfered and is not going to interfere into internal american affairs, including election process. pres. trump: all i can do is ask the question. dan coats came to me and others said they think it's russia. i have president putin, he just said it's not russia. i will say this, i don't see any i will say this, i don't see any reason why it would be. alix: joining me now is john mickelthwait, bloomberg's editor-in-chief. having spent much time in russia talking to mr. bruton, how big of a -- mr. putin, how big of a win is this for him? because his idea is

basically make russia great again. he has, in a sense, a u.s. president the basing himself in front of him. that, to some extent, means he's got where he wanted to go. that counts for a lot. alix: where does he go from here? what will the next on his agenda? >> i think there's some element whereby putin keeps on his new strategy with trump, to push a bit and see what happens. he gets quite a lot. he's probably stopped most of the active things he was doing before. i'm not sure he's trying to get himself as involved in american politics as he was. i think he reigned in as he faced sanctions, because he thought he was in danger of overdoing it. and then trump doesn't even attacked him about the things were it's fairly clear he has done stuff. alix: how can putin press the

advantage by giving the u.s. something that may not be that material? reporter: there's nothing in politics were if your opponent is drowning, you let it continue. there is an element from putin's point of view to have america and chaos, one of the things he always likes, to nato in chaos, to effectively have trump saying here is the man i trust, here are these people that i'm not so sure about. two halve the hole nato's thing slightly in question, these are things which come on the whole, he doesn't need to do much to at the moment. alix: having spent time with world leaders and mr. putin, how does he organize something like this going into it? i read the president trump didn't want any prep. he didn't want any briefing. putin's essential

strength as a leader is his ability going back to his time as a kgb leader to go through strengths and weaknesses. certainly if you ask him, that is where he's particularly powerful. it is the way he plays. my guess is that with trump, he didn't do need to do it. you can find a moment where angela merkel tells him she didn't like dogs, and the next on the mat there was a huge dog there, and presumably she was not very happy about it. the difference with trump is just stands there and let's trump did a hole for himself. alix: john mickelthwait, really appreciate it. trump's defense of putin sparked immediate backlash from capitol hill. senator mccain calling it "the

most disgraceful performance by a president in living memory." what do you do if you want to guard against risk? apparently by dollar-yen. mccormick,is mark td securities' head of fx strategy. why is dollar-yen performing like this when there is so much uncertainty? onst: i think what is going here is in terms of geopolitics, the markets are giving the u.s. a past on the trade team. the u.s. is delivering fiscal stimulus right now. it is being implemented. it is coming through the data. at the same time, the global convergence rate has paused.

the rest of the world is cruising at a slower out dude in terms of slower growth. corporatekets, spreads, all of these factors are telling us that the u.s. is part of the geopolitical trade net right now that the u.s. seems to be doing ok. highlighted that the markets are complacent when it comes to trade issues. you can see it is really only the commodity market that seems to be pricing in any kind of volatility. the you feel at markets are complacent? guest: absolutely. that is one of our biggest takeaways. we run these indicators that try to run these as stress. i would argue behind the scenes

of geopolitics and trade negotiations that are going on, we are having quantitative tightening. central banks are gradually reducing their balance sheets. the point i would argue is that the markets are kind of miss reading the growth amex right now. medium term. the point i would argue is that when you look at the change in data expectations and revisions coming the market is very bullish right now. i would not make the case here this kind of divergence play is here to stay. alix: you're going to be sticking with us. coming up, johnson & johnson shares lower in premarket after reporting second-quarter earnings this morning. now they are up by about 7/10 of

1%. talk with ceo joseph wolk.

♪ is "bloomberg daybreak." united health's effort to diversify is paying off. , providingup 22% consulting, clinical, and drug services. amazon sales rose in the opening hours of its prime day sales event, despite technical glitches. shoppers spent 54% more in the first hours. amazon's 36 hour shop is expected to generate $34 billion in spending.

boeing keep racking up sales of the farnborough airshow outside london. an unidentified customer has signed a memo of understanding to buy 100 jets. no word on the value of the deal. earlier boeing announced a big cargo plane deal. that is your bloomberg business flash. j&j shares of after a second-quarter was pretty solid. the company gave full-year guidance below media analyst estimates. it had a tenuous forecast for drug sale revenue due to a stronger dollar. joining me from the company's headquarters in new jersey is joseph wolf. wolk.o see you -- joseph good to see you. a trade war effect, and have that affect other parts of your business going forward.

guest: pleasure to be here this morning. it is not really attributed to the trade war at all. just say it is the macro impact that we manage our business based on operational sales performance, as you've probably noticed. we took our performance up because of the strength we are seeing, not just in pharmaceuticals, but improvement in medical devices. our overall prospect for the business going forward are very strong and simply did macro effect of a stronger dollar. the reason why the dollar is stronger is in part because of trade issues between china, europe and the u.s. if we continue here, how does that and up affecting material demand. -- material demand? guest:if we continue here, how s nice thing about health care is no matter where you are in the world, citizens want strong solutions with respect to their health. if you look across our business, particularly in the second quarter, performance is very balanced matter what region you specifically looked at.

9%estically we grew about outside the u.s. -- 9% come outside the u.s. about 8% -- 9%, outside the u.s. about 8%. alix: we have a tie chart that shows where you get most of your revenue from. you're mostly u.s. centric, but you have exposure in europe as well. what is going to be the warning sign for you? what is the most vulnerable? guest: right now i would have to say you would probably look at consumer units to see if there are some tariffs placed on some of those products. when it gets back to medicine and medical procedures, those seem to be left out of the mix right now in a pretty significant way. we think that really drives to the nation centric notion that most countries have. alix: the other part i have not yet seen addressed in the

quarter is the verdict warning -- about $4.6 million from the powder that led to ovarian cancer. at what point would you ever settle? guest: the first thing i would say is that there's been many adverse decisions in this particular court against johnson & johnson, and everyone of them have been brought up on appeal has been overturned. we are about safety, and we've both our heritage and reputation not just on the baby products of baby powder, but all of our products. it is something we take very seriously, and we are a company based on science. when that science is strong, which it is here, we will determine whether it is meeting customer needs. right now the product meets customer needs. it is a question we continue to evaluate ourselves. alix: but you still have more cases in different areas until next april, plus you have this

almost $5 billion money hanging over your head. do you have to settle? at what point do you have to get out from under this? guest: right now, based on the science we have not just by internal executives, but by the fda, we believe the science is overwhelmingly on our side ramy: . we will defend -- our side. we will defend our rights in respect to that. caroline: --alix: thank you for that. coming up, goldman sachs will be watching trading and gross revenue. this is bloomberg. two, down and back up.

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plus get $150 when you bring in your own phone. its a new kind of network designed to save you money. click, call or visit a store today. retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. alix: this is bloomberg daybreak. a few minutes away from goldman sachs reporting earnings. nav that features off by eight points does not factor in the

13% decline we might see from netflix on the open. european stocks a little heavy. telecom the big losers of the day. it is a mixed dollar story except for dollar-yen, continuing to grind higher. to hedge against the safety trade, would you want to go into the dollar and leave the yen on its own? the 210 spread is 25 basis points flatter as a continues to grind lower. on the dayetty flat after that brutal selloff. goldman sachs says we're going to see more volatility. fed chair jamie powell appear before congress to deliver his policy report. investors are going to watch to see if he strikes a more hawkish tone. if you come inside the bloomberg, you can see the 210 spread is what we are all watching.

how flat do we get? >> this is pretty flat at this point. our expectation is that we will be at zero and the curve will be inverting. expect powellou to handle this when he gets questions to what the signals? -- it is going to be hard to answer because there are so many different ways to think about it. alix: i'm going to stop you right there because goldman sachs is reporting earnings. coming in a $5.98 a share. it looks like a really big beat from what the estimates were versus estimates of $4.64. we are watching for equity , investment banking trading, what is happening with -- stocks higher about 1%

in the premarket. will we get any plans from lloyd blankfein? that is what we have been waiting for, for the past 48 hours. we don't know if that is comparable to the estimate of $4.64 per share. the stock up by 1% premarket. ated the sales coming in $1.68 billion. that seems to be stronger than estimates. stronger earnings. stocks holding on to that 1% gain. we are starting to parse through. joining us now around the table, alison williams and bloomberg's erik schatzker. investment banking revenue coming in at just over $2

billion and equity trading coming in at $1.89 billion. that is the flip from what we saw earlier. now it feels like it is gaining ground. alison: i would call that in line when you think about these numbers and how tricky it is to forecast them. very strong numbers. the expectations coming into this quarter were that revenue --ld grow 40 percent to 45% 40% to 45%. a lot of that relates to a very cap -- a very tough quarter a year ago. we have had a look going over the past few days from other competitors. the bar may have been raised a little bit coming into the quarter given those strong results but coming in about in line. it.: alison is calm about

the earnings, $5.98 per share. ficc coming in at $1.68 billion. investment banking up by over $2 billion in the trading revenue coming in at $3.5 billion. , for the broad picture, what we might hear about succession, where is goldman? erik: we thought this press release that goldman just gave us might contain some hint as to win david solomon would succeed lloyd blankfein. there is a quote from somebody at the top of the page that says chairman andin, chief executive chairman and chief executive officer. for the time being, he is the ceo and head of the board but it is unclear when the timing is for succession at goldman sachs and that is clearly in the context of earnings because somebody needs to turn around

the fixed income commodities and currencies division. there have already been changes , in sales andhip trading in the wake of solomon's elevation to soul president -- to sole president. business remain smaller and goldman sachs. ficc was a multiple of the equities business once upon a time. it is overcapitalized. a lot needs to happen. david solomon is presumably the man who is going to change these things. if you look at the performance of the stock this year, relative to the other large american banks, it is the laggard. even though everyone knows david solomon is going to succeed lloyd blankfein unless something else happens that we don't anticipate, they have already

passed judgment on how quickly he can make change at goldman sachs. alix: what do you attribute the lagging succession plan to? why have they not come out officially? erik: the firm is more divided internally than most people may believe. for me, it is reminiscent of what happened at morgan stanley in 2005, when the warring factions at that firm waged their campaigns in the pages of the wall street journal. it was amazing at the time. phil ended up getting dumped, john came in. john lead the firm through the through the financial crisis and many people at morgan stanley remain happy that you was there to do that -- that he was there to do that. imagine what things might've been had philbin running the case. regardless, that was morgan stanley back then, this is goldman sachs today. wouldre fact that

blankfein would tweet on march 5, i feel like i've been listening to his own eulogy, that should tell you -- i feel nn listening to his own eulogy, that should tell you everything you need to know. we have this uncertainty. i hate to use the word but in this case, it is appropriate. a fair point, especially when you take a look at what is happening to the stock, down 5/10 of 1%. the equity miss was not a big deal. it, foran't really beat goldman, that is not good enough. alison: one of the key issues with goldman sachs, we talked about the stock ticky underperformance is the issue of capital return. we saw that in the most recent stress test.

if you look at what happened in the fourth quarter earnings, it was actually in january or , they put there by back on hold for a couple quarters and they lowered the expectations at that point. with the stress test, they and morgan stanley came in. i can't even say cutting it close, they fell below the minimum on a couple ratios. for goldman, it was in line with their expectations but it is not the big story you are getting. alix: joining us also is ken leon, cfra research head of equity strategy. numbers were very good and that strength in equity underwriting m&a as it relates to trading, their strategy which

is three years, $5 billion from growth includes fixed income and corporate treasury. that was up year-over-year, so i think when you look at the trading business, what they are trying to do is expend -- expand to more customers. the debate on management. we will hear what they have to say on the conference call. erik was saying the overall uncertainty has contributed to goldman's underperformance meaning you have to beat on earnings to get confidence back. what do you think about that overhang? the the fact that underperformance looks fine, the issue of succession, i don't think this is morgan stanley 2005. this is a transition were

goldman sachs realizes they are an agent and they have to deepen their client relationships and broaden them across the board. it may not be a repeat of morgan stanley in 2005, but clearly there are things going on in goldman sachs that suggest the firm is not united. -- get dumped after david solomon is elevated to sole president? these organization changes happen frequently on wall street. i think the strategic issue or debate is essentially where is goldman going in the future, and i don't think it is just the traditional look at investment bank or trading, but where can they grow as a firm and part of

that i think is cross pollinating and working together on both sides of the business. alix: definitely going to follow this conversation after this segment. ken leon, cfa director of equity research, erik schatzker and alison williams, thank you very much. here is the why. equity trading coming in a little lighter than estimated. ficc basically in line and total trading came in a bit light. investment banking up $2 billion. debt underwriting rising. the question of succession, that will be the question on the call and it was not addressed in that press release. coming up, tech troubles getting amazon on prime day. this is bloomberg. ♪

kaliey: this is bloomberg daybreak. coming up with the next hour, peter fisher, dartmouth college tuck school of business senior fellow. alix: we turn now to wall street beat. goldman sachs reporting in the future of the bank in question as lloyd blankfein has not mentioned succession in the press release. suffering a tech crash during its sale extravaganza and as the shopping resumes, bezos net worth is $150 billion.

musk returns to twitter and a faux emerges in china. joining me now is lisa abramowicz. the lack of mention of succession and how that deals with the underperformance we have seen over the past year. anyone take it. outent: they have laid it and it is almost like saying it is not quite any of your business right now. i don't think there is an animosity for people between solid me -- solomon and -- not an easy transition. lisa: it is surprising because they telegraphed it.

the new york times had an article saying they were going to announce it. everyone said ok, announce it. why didn't they? did lloyd blankfein say he is not ready to leave yet? does he not want to let go yet when things are going well? alix: what is interesting is the different areas. in equities, that was pretty light versus their peers. goldman sachs has traditionally been good with trading. they have been the strongest and biggest trading powerhouse traditionally. that was any time of profit trading. they continue to do so selectively but they did not outperform as much as people were expecting and even though regulations are getting rolled back, will they be able to rely on this model? they rely on bond trading. it still has not paid off in a

way that they would've hoped. they have to lean more and on that -- they have to lean more on investment banking where jpmorgan has an upper hand. how are they going to compete in a new area where they cannot rely on the same bond trading revenues that they relied on in the past? alix: our next-door he has to go with amazon prime. sale, ay, everything on huge day for amazon and the website has a glitch. vince: you are not going to throw them under the bus for a days glitch. alix: actually. lisa: throw them under the bus is a little strong. sales were still up 50% year-over-year. this is a huge test of amazon's capacity, of their ability to prepare for the volume that they are inevitably going to get from a logistic standpoint, delivery

as well as handling web traffic. vince: know what is going to -- no onen tomorrow is going to drop amazon tomorrow. in of it -- internet sales 2018. lisa: it raises questions about their ability to plan out the logistics required for not just the web traffic but also deliveries. how they're going to coordinate. night and theyom forgot something. they are paring with people if you want to start your own shipping business, we will give you a loan to help you with that. 's net way, jeff bezos worth is $150 billion. the last story want to focus on is the headlines coming out of

tesla. one critic turns positive. he said a lot of crow is being eaten around here. a possible 30% profit margin. and you have a company in china who ever -- never actually made a car and beats tesla. calling somebody everybody considers a hero at a pedophile because he was insulted by him. honestly, there is a larger , can elon musk deliver? can he build a factory in china when he is late to the game, with one million competitors who are raising plenty of money from chinese tech behemoths? can he go and compete given the fact that he is already tapped out, about to run out of crash -- run out of cash and meanwhile, he can't even control himself on twitter. this is a problem. vince: you can say he has a 30%

profit margin on a car, but can he build the car? you have to create the cash flow necessary to expand in the united states and china. so far, he has under delivered. people have been willing so far to lend him money but at some point, the rubber meets the road so to speak. when does he sleep? lisa: maybe that is why we are getting erratic tweets. alix: need some sleep therapy. vince cignarella and they said abramowitz, thank you very much -- and lisa abramowicz, thank you very much. coming up, the netflix summer. disappointing second-quarter results wiping out $20 billion of the company's market value. this is bloomberg.

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alix: netflix shares in a nosedive after disappointing second-quarter. that therething is are cracks in the believe system and the whole religion is tested. this is what happened the netflix on monday when it reported adding 675,000 new u.s. subscribers in the second quarter, about half as many as the company forecasted. joining me now is brooke sutherland. is this a religion that you have a lack of faith in or was this just really bad guidance?

brooke: netflix has had this happened in the past. 2016, they miss their estimates and did not give a great explanation for why. the015, they blamed introduction of chip credit cards which everyone thought was bogus. it may be that netflix is just a lumpy business and you have sort of swings. the problem is netflix is not priced like a lumpy business. it is priced like you were going to see considered -- continually escalating subscriber growth. david wells tried to -- the cfo try to diffuse the situation on the phone yesterday. >> people are adopting netflix around the world, increasing new or markets as well. we are still on track for a strong growth year this year and maybe it is going to come in differently than what we expected. miss, it ismes we no big deal.

a next that was not formation, which was really a head scratcher. if you look at the first quarter when netflix gave its guidance for the second quarter, they called for the 6.2 billion new subscribers. analysts were expecting a guidance of 5.2 4 million which ended up being what netflix delivered in the second quarter which gives me pod's. if analysts are better at forecasting what netflix is going to do than the company itself, that is a red flag. alix: that is a great point, especially when looking at a company valued at 167 times its earnings for the past year. breaking news for you. the new york times is reporting that david solomon will become goldman's ceo october 1. goldman sachs stock down by about 1%. david solomon is the ceo -- is

the coo and will become the ceo october 1. there were some questions as to what happened during the quarter. the newer times reporting that david solomon will take the helm as ceo on october 1. much more after the break, especially after earnings off by about 1%. coming up, we are going to be toaking through the quarter recap those numbers. the revenue coming in for total trading is light. equities little bit light. ficc in line with estimates. investment banking coming in at $2 billion. the question has been when are they going to end up announcing successor plans? it was not in the press release, leading to some uncertainty, but now it appears david solomon will become ceo of goldman sachs on october 1. that's not continuing to hold on

to those lows, down by about 1%. goldman has not confirmed this, however. this just comes from the new york times. there have been so many questions about the succession and when it would be announced and what it would mean for the business going forward. it is a relationship business, especially when it comes to goldman sachs. at the end of the day, it is still about client relationships, investment banking and ficc. erik schatzker joining me now. you called it when the press release came out, you said there was nothing here about succession and now new york times reporting david solomon is going to be the new ceo. erik: that was almost a certainty. october 1 is a lot sooner than a lot of people expected. we heard lloyd blankfein might remain chairman of the board until the end of this year.

why was that important? it gave him a little more -- a more graceful exit, let's say. october 1 will be here before we know it. to hand thed lloyd baton to his successor on or around that ceremonial moment when goldman celebrates its 150th anniversary. according to the report we have will not a running the firm when goldman celebrates its 150th anniversary. it may not -- it may not like -- it may not seem like a big deal, but in a ceremonial sense, it is. alix: we thought there was going to be some kind of transition period anyway. i just wonder what happened. and knowt we know,

might be an exaggeration, but we can surmise is there is a disagreement about this in the board room. why would this be playing out publicly in the pages of a or in the printed matter of bloomberg news if boardwas unanimity on the as to win blankfein to retire? what we can safely assume is that now that this plan has been put in place, there will be unanimity. alix: thank you so much. goldman sachs will name david solomon as the new ceo october 1. blankfein does not appear to have a place at the bank.

alix: goldman sachs' new ceo. new york times reporting david solomon will become the new ceo and chairman. doubling down on russia. president trump blames the mueller probe for driving a wedge between the countries even after the news conference that shook capitol hill. fed chairman powell facing the senate. happy tuesday everyone. welcome to bloomberg daybreak. i am alix steel. david westin is off today. the stocks you want to watch today, goldman and netflix. netflix still getting hammered. goldman sachs adjusting on a mixed earnings report and a new succession plan that says david sullivan will become the new ceo on october 1.

crude trying to recover from yesterday's brutal selloff. time for your morning brief. industrial production for june and minutes and :00, jay powell delivering his semiannual report to congress. at 2:00, president trump meeting with lawmakers at the white house just one day after that meeting with russian president vladimir putin in helsinki. goldman sachs posting better-than-expected earnings but shares are slipping. the question has been succession. david solomon becoming goldman sachs ceo on october 1 according to a report from the new york times. outman sachs coming officially saying that lloyd blankfein will retire as chairman and ceo. erik schatzker is here with me. this is the official report from goldman sachs. erik: we have more information. lloyd blankfein will remain the chairman of the board until the end of the year and subsequent to his retirement, he will

become the senior chairman of goldman sachs. we don't know what that means because goldman has not had a senior chairman. the role lloyd blankfein will assume in the board is unclear. it is noteworthy that it appears he will remain involved in the shadowd something of a over david solomon as he begins on october 1 subsequent to lloyd stepping down. alix: becoming senior chairman. what does that shadow look like? how do you have clear succession? erik: we know it is not 6'5". alix: i also want to get in ken leon, cfra head of equity research. we just had this debate half an hour ago when the earnings came out. what do you make of the announcement? ken: to the comment of senior

chairman, it is not executive chairman. a senior chairman is not meredith -- meritive. i would be surprised if this is something that is a long-term position. i would be more concerned if lloyd blankfein accepted the title of executive chairman which is one where you have tight control of the new ceo and the company. i don't think that is the case. alix: we also have in a statement, mr. blankfein has said, i want to express my deep business leaders around the world and i thank them for allowing me to help support their goals and priorities and he talks about the firm's strength. ken, earlier you were saying you did not feel like the succession was overhanging goldman sachs.

what do you think now? do you still feel confused about a succession plan? less concerned about the succession or the cultural goldman sachs. the two big issues are growth in the future and return of capital with no buyback in the first quarter. capital plan from the federal reserve provided a conditional approval. i think those of the issues for goldman sachs. the business had a strong second quarter, the second half looks fantastic with a very strong pipeline. is an enhanced buying opportunity and we have a buy on goldman sachs. served fromdnecks the press release which has been vetted by the pr department. alix: or written by somebody else. erik: i want to read a quote

from an interview that lloyd blankfein gave to the new york times. when things are going badly, you can't leave. when things are going well, you don't want to leave. if you are going to go out on your own steam, you are going to leave when you don't want to. that tells you a lot about the circumstances under which lloyd is leaving the firm. it raises some questions about what is going to follow. thatpeat, it is important david solomon from this point forward find a way to unite goldman sachs behind his leadership. in the effort to do so, who is going to end up being sacrificed? voluntarily or involuntarily. some people may choose to leave the firm because david solomon is 56 years old and it is safe to say that unless he screws up, he has a nine-year run in the ceo see. anyone -- in the ceo seat.

anyone under 45 is not going to have a shot -- over 45 does not have a shot at being ceo. those people are going to ask themselves do i have a reason to stay? think about gary cohn always wanted to be ceo and when it became clear he was not going to was not going to get a shot, he joined the trump he was notion -- going to get a shot, he joined the trump administration. it is safe to say the people who lead the investment banking division are safe because david solomon put them there. everyone else is an open question. we don't know if there are more changes to come in ficc for example, a business that on a relative basis is still struggling. we don't know what is going to happen in investment management or special situations. we don't know what is going to happen in equities, consumer and commercial backing.

these are all run by people who lloyd positioned. who does david solomon want running those jobs? alix: alison williams of bloomberg television also joining us. alison: it is good to get rid of the uncertainty. stocks don't like uncertainty, employees don't like uncertainty. once goldman had basically named solomon as the heir apparent, the clock was ticking and now we have our answer. alix: ken, you were saying goldman sachs was a buy on the dip. erikn was pointing out and was pointing out that there is more uncertainty. what do you want to see them prioritize or change? ken: everything is about results and outlooks for growth. i would say that in terms of rightg, they may have the

size to fix the income side but we will have to see how they do with trying to gain market share from corporate treasury. the investment bank is fine. some of the areas that were disappointing were recurring businesses like security services. alix: all around the table, thank you very much. andleon, erik schatzker, alison williams. we will keep following that story. senior chairman, what does that mean? in less than two hours, jay powell will appear before congress. joining me now from capitol hill is michael mckee. white -- walk me through what we are expecting. michael: the global traders are going to have to take a break to see what jay powell has to say. he has made a point to coming --

made a point of coming to capitol hill quite often. there might not be any surprises from embers of congress. the issues are whether there are any surprises for the markets. they want to know what the fed is going to do about taxes and trade. is there any effect on the economy from those in the strait of them it initiatives and will the fed have to react by raising or lowering interest rates? isaking of, the big question where does the fed from here regarding the yield curve -- where does the fed go from here regarding the yield curve? a technical's, demand from overseas or fed policy that is flattening the yield curve? technicals, demand from overseas or fed policy that is flattening the yield curve? how long do we stay at 26 basis

points? that may depend on what jay powell says. alix: now at 24 basis points. thanks so much michael mckee. the other big news is goldman sachs. earnings come out but it is all about the succession. lloyd blankfein stepping down as ceo on september 30 and will become senior chairman. david solomon will become ceo on october 1. what it means for the individual businesses and talent in the company going forward. we will discuss that. coming up, more on mr. powell's terrace -- testimony. we will discuss with peter university'stmouth tuck school of business. this is bloomberg. ♪

powell's testimony coming to a time when investors are paying attention to the yield curve as indicators previously indicated economic recession. the ceos weighing in on that decision. >> reversing the balance sheet i think is very easy that rates could go up in a healthy environment. in history, we have had rates going up or you have a healthy environment. >> there is a flattening of the yield curve. that somewhat reflects peoples future view of rates and where rates will be. i don't think that has indicated any way of recessionary concern. >> i think we will see a recession of the yield curve sometime this year. i don't believe it means we're going into a recession. >> it may not be a normal time in terms of the yield curve seeing a leading indicator but i do think it warrants careful

attention. it does not show a lot of confidence in the long-term when you don't see long-term rates starting to creep up when short-term rates are being forced up by changes in monetary policy. alix: joining me now is a man who also might have an answer, peter fisher, dartmouth college tuck school of business senior fellow. pleasure. peter: nice to be here. alix: what do you think that means? peter: i think it is important to recognize the curve, i don't think it is a predictor of a recession. i think it causes recessions by squeezing the marginal lender. we know monetary policy works with a long and variable lag. what happens is when the yield curve gets flat, the incentive to lend decreases and people want to stop lending and that slowly dries up the source of -- for the economy and it is hard

to predict when that happens. what is more difficult this time is the fed is doing something to both ends of the yield curve. their gentle telegraphed is nott-rate increases having much impact on the long end. the traders all take comfort. it is tapering its balance sheet by running things off of the short end which puts pressure in the treasury market but the treasury refinances that. the fed is squeezing the yield curve itself, partially and without thinking about it very carefully. alix: the question is, is this time different and a lot of people say a lot of -- a lot of people say yes it is. you come inside the bloomberg, the 2/10 spread is those white bars. the yellow bars is the real fed funds rate which is still negative versus the other time we have seen an inversion where it was positive. does that make a difference? peter: we are not inverted yet

and it may take another year or two. eventually, it is going to choke off the supply of credit. i remember larry summers assuring everyone to pay no attention to the flat yield curve. we had a recession within a year. eventually it catches up with us. how do you make of the fact that the backend is dominated more structurally in terms of treasury needs to borrow more or fund a fiscal deficit? peter: the front end is where the treasury has to refinance. the big refinancing needs coming from the fed shrinking its balance sheet and by the trump tax cuts. the treasury has to refinance that on the short end. that is where they have all the options. the problem which jay powell is working on, he is trying to pull back from forward guidance. the statement is much fewer words. he talks about a balanced outlook.

eventually they have to stop telling us what the next two rate moves are going to be because you can't preannounce it is our last tightening move. you can't announce we are about to ease. if you did that, you just eased. , is he going to foreshadow that? i would look for how many times he uses the word uncertain. alix: are they going to use strong economy word or -- strong economy more or uncertainty? peter: is going to use both. he is going to start telegraphing uncertainty. imagine them publishing there. plot -- publishing their dot p lot. what is the market going to make of that? alix: i have no idea. question of the long-term, what the neutral rate is going to be.

is the neutral rate going to be able to rise or not and that is less data dependent and more forward-looking. how do you handle that? peter: they have to stop this forward guidance. they would be much better off getting a parallel shift in the yield curve. then the incentive to lend is still there while they are gradually drawing the stimulus from the economy. flatten the yield curve to quickly, you start taking credit out. alix: is the yield curve only dangerous if there is a pass-through to the deposit rate? if the deposit rate is not a through-line, does it matter as much? peter: it is about the incentive to lend. bankers and lenders make money on the spread. we let them drop that. it is about the slope of the curve and the incentive to lend. other things go on, too. the were other reasons

economy was rolling along. eventually, we got a recession. we wantedother thing to talk about was the euro-dollar future contract with a december 2019 versus december 2020. what do you think of that? peter: this is the market trying to unravel the fact that the fed's forward guidance is incomplete. it is not good enough. there is a lot of uncertainty. i would have expected to see vol tick up and the term premium go up as a de facto risk premium but it is not happening. the other markets are ahead of the fed and thinking about when does this shift back and that is going to complicate the fed dickey task even more. alix: say you were a senator in the senate banking committee, what would be your question to

jay powell? peter: tell me about the fed ticky mandate. jay powell has been very interesting and careful in pointing out that his version of the mandate is maximum employment in a context of price stability and financial stability. that is very different than what bernanke and yellen said and what the committee has been saying. i think powell is on to something. it is much more than the phillips curve. bernanke and yellen made that up. the dual mandate is phony. i have been saying that since before the 2016 election. the fed statute is much more complicated. i think powell is trying to lean into that and explain that. i would want to zero in on that. powell just gave this speech a few weeks ago in portugal talking about maximum employment in the context of price stability and financial stability. very different from the past. alix: i would give you $20 if

somebody actually asked that. peter: i am not expecting it. alix: peter fisher, dartmouth college tuck school of business senior fellow. big news of the day comes from goldman sachs, the stock down by 3/10 of 1%. david solomon will take the reins of the company as ceo on october 1 as lloyd blankfein becomes senior chairman in that transition. erik schatzker joins me. what did you learn over the last 20 minutes? erik: not a lot that we did not know already because this was telegraphed. the big question was the timing. how long would it take for david solomon to be put into that job? lloyd blankfein becomes senior chairman and what does senior chairman mean? what kind of role is lloyd been a habit the firm going forward? if you are david solomon, it is a problem. he is going to have to get busy reshaping the firm but to have

somebody looking in the wings who previously ran the firm means he is still there talking to the board members who are more closely allied with him than they might be with david solomon. we know that is an issue because of the way this succession played out so inelegantly. there are a few other questions that need to be answered. what does it mean for goldman sachs to be run by a banker again? david solomon is an investment banker like hank paulson, lloyd j case predecessor -- lloyd's predecessor. david solomon came from bear stearns in 1999. david solomon is not goldman dna. you have to believe he has absorbed a lot of the culture. that is a question. what does it mean to have d in toy who is not dye

the goldman sachs running the firm. what happens to people in non-revenue-generating positions like the cfo? like the general counsel? like sarah smith, who runs compliance? many of those people tend to survive transitions of power. lasted from hank paulson through lloyd blankfein 2013id not retire until and then subsequently joined the board. what is going to happen to those people? does david solomon want different people running those jobs or does it make more sense to have continuity in those positions because they are not about revenue, they are about stabilizing the ship. many of those people belong to the so-called federation. it is responsible for the support services. i don't have answers to those questions but those of the things that david solomon is going to have to decide and

think hard about between now and october 1 and start implement in those changes. probably safe to say we will start to see some of them. alix: very important as we talk about uncertainty. out, you have to read between the lines to get that uncertainty. i want to point out in the new york times article that came out , this is lloyd blankfein saying when things go badly, you can't leave and when things go well, you don't want to leave. if you are going out on your own steam, it is going to be a moment you don't want to leave and that is why some people stay . this sounds like somebody who does not want to go. erik: i cannot agree with you more. we are reading between the lines. since we are not talking to lloyd, we can't decide for ourselves how he really feels. who wants to leave as ceo of goldman sachs when things are

going relatively well? they were going badly at one point. alix: last year was not so great. erik: he would like to leave on the highest note possible. goldman sachs stock is down 9% on the year, trailing the other large investment and commercial banks. that is not a high note. we will see how things look on october 1 when he officially and december ceo 31 as he steps down -- when he steps down as chairman. you raise questions as to what is going to have to be fixed. last year was a tough year and they made changes but no fix. erik: that's right. it remains overcapitalized. they need to do the kinds of things that morgan stanley did. it took them years to do, but

they de-risked the business. they far -- they made it far more capital light and all of a sudden, almost magically, morgan stanley was once again that can with goldman after being so weak that people questioned the viability of the franchise. david has to undertake some serious work. erik schatzker, thank you so much for walking us through that. going up, netflix also plunging in premarket after reporting second-quarter earnings. we will discuss the impact on tech. this is bloomberg. ♪

♪ alix: this is bloomberg daybreak. i am alix steel. it has been a wild hour. goldman sachs reporting earnings that were meh, but the big news announcing david solomon well

become this will become ceo in 2019. in 2019.ecome ceo netflix is down double digits in the premarket. s&p futures off by three. the telecom index the worst performer in index, off by 2/10 of 1%. looking at the different -- thes of the dollars dollar, the yen is grinding its way higher, up 3/10 of 1%. the trade issues seem to make the dollar the safe haven currency of choice. the 2-10 spread well played jay powell -- will played jay powell -- plague jay powell. kailey leinz is here with first word news.

kailey: even some diehard trump supporters are unhappy with the president's performance at the helsinki summit. newt gingrich call it the most serious mistake of his presidency and said it must be corrected. president trump's suggests he believes vladimir putin's denial that his government meddled in the election. a u.s.a u.s. official says as ms 55 remains will be repatriated from north korea, the first time in 13 years they have directly turnover remains of u.s. soldiers. theresa may's brexit strategy is in turmoil. she has infuriated pro-european members of her conservative party by bowing to pressure from europe and agreeing to rewrite her plan. her majority in parliament has been cut to three votes. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more

than 120 countries. i'm kailey leinz. this is bloomberg. alix: thank you so much. netflix nosedive, shares plunged in premarket after second quarter subscriber growth missed the forecasts by almost half. joining me on the phone is david miller. rating onoutperform netflix and a price target of $503. the most bullish on the street. are you still this flesh after the quarter? david: no question about it. ofsaw this in the q1 print 2017 and the second quarter print of 2016. each time the stock was marked down the between 12% and 14%. all the bulls look wrong for a day or day in half, and it turns out it is just an outstanding buying opportunity. alix: the distinction this year

is for the first quarter, analysts were expecting subscriber growth of 5.2 million for the second quarter but then netflix excelled, upgraded the estimate. that is the difference in this quarter. david: keep in mind that they are releasing very early in the quarter, in any one reporting cycle. we are only 16 days into a new quarter, so there are times the company will end up over forecasting or under forecasting. second quarter was clearly an over forecast quarter. knowing this management team as i do, and knowing the stock was likely to be marked down on subscriber miss, my guess is that the cfo also under forecasted q3, hence the q3 subscriber forecasts following short. alix: there are worries they did not have the kind of pricing power we saw, it is getting to gain competitive.

which of those arguments might have the most validity going forward? david: i respectfully do not agree with the premise of the question. there was a substantial price raised in october last year that went through beautifully, with very little churn. they were able to realize substantially higher average selling price in the december quarter, and it translated to a record asp in the quarter. to suggest they do not have pricing power, that is not true. there was a substantial increased nine months ago. alix: bloomberg opinion wrote an article saying, the only way isflix can justify investing by showing them it can continue to grow fast. can it continue to grow fast as the market expects it? david: forget about subscriber growth for a second, just look at the income statement.

if we are right on our numbers this year -- and we were pretty close for the second quarter -- we have this company growing operating income over 130% this year. growth,rating income name a company in the s&p doing anything close to that, much less in the media and entertainment sector. i think the company is undervalued. earnings times its over the past year, that is how it is undervalued? david: it is not a pe play. you have to look at multiples and look at the capital pricing model. --count future free placing using the discount rate around 9% or 10%. evenng at pe multiples or don multiples just does not apply to a growth story like multiples justa

is not apply to a growth story like this. as we just saw with your last interview, the same stocks have been the principal drivers of the technology stocks. when you hit a stumble, you will hit an air pocket. you are seeing netflix off 12% to 15% in the premarket, so that so that sort of situation is very much at risk if these companies are going to disappoint even for an interim period. alix: the story has been, when will you see the rotation out of tech into financials and energy? do you expect that? phil: we do. we moved technology to neutral from overweight in march, and elevated energy, financial services, and industrials to underweight. the financial services have not done well over the past month, but the federal reserve is

tightening. we think financial stocks should be rallying, not selling off. we maintain an aggressive position on financials. alix: i am seeing increasing calls from different analysts on being more cautious. barclays turning cautious on small caps. more money is going into cash. to become moreed defensive on the sidelines? phil: that has been our big call. we make this call about a month ago, so second-quarter earnings will be up about 20% year-over-year. we think that is conservative. earnings will probably be around 23% to 24%, but earnings are not the story. we think guidance for the story. fed,tainty surrounding the trade tariffs, 75% increase in energy prices, so we took 3% out

of equities about a month ago. the s&p 500 has continued to bump into overhead resistance at about the 2800 level, but we think there could be a 5% to eight percent correction this summer because of concern investors are demonstrating. alix: where do you put it? phil: in cash. cash is liquid and safe, and we have the ability to redeploy it if we hit this air pocket. we think fundamentals are very strong. second quarter gdp, we are at 3.5%. our macro committee is meeting tomorrow and i think we will move that up to and four handle. consumer spending is very strong and i think gdp numbers will probably work higher. alix: what happens after this summer? well midterms change this around? -- will midterms change this around?

phil: there is concern among some investors of the massive blue wave, and that the democrats will regain control of the congress and fiscal policy will change. our best guess is the republicans widen their lead in the senate. the house is at risk, and that is legitimate based upon the polling data. we think worst case scenario is we are looking at split government, which means we will not be rolling back the positive fiscal policy initiatives that frankly the economy has enjoyed over the last 18 months. alix: appreciate your patience. the big banks wrapping up second-quarter earnings, only morgan stanley is left and it shines a light on lending. private equity firms are buying up companies in multiples and the market is seeing a new lending hand. you can see the global surge in lending climbing to almost $15 billion in the first quarter of 2017.

joining us now is patch or marshall. -- patrick marshall. great to get your perspective. as regulation -- has regulation -- as regulation prevented some banks from being able to lend, -- -- at a time when the european market was some 30 years behind the u.s. market. it happened in the u.s. in the 1980's. european banks have suffered in the crisis of 2007, the size of the loans they have been able to provide to their clients has been diminished and direct lenders have been able to come in, take some market share, and provide loans to customers who weren't able, especially in the sme market, who were not able to

access the capital market. alix: where will you see the biggest growth going forward as regulation gets rolled back in the u.s. and banks to take on more risk? where's the opportunity said regionally and in terms of company days? patrick: from our standpoint, we are favoring a european strategy , focused on northern europe because they have nice credits and friendly jurisdictions. in europe and arguably in the world, you will see average recoveries on senior secured loans in northern europe in excess of 80%. that puts our perspective in the u.s. at about 75%, and southern europe anything from 60%. in northern europe, we think it remains a very strong growth market. europe is the new front desk indirect lending. in terms of size of companies, i

think you have got to keep looking at the companies who cannot access their capital market. euro ebita companies to 5 million. that is where we feel you have the best reward parameters to large-capu lend companies, you are competing with capital markets. prevalence of -- and so forth. if you lend to smaller companies, you get very strong protection from the lender and you are able to critical eyes the liquidity premium. alix: patrick marshall, thank you very much. coming up, we will speak to senator mark warner, democrat from virginia and member of the

senate banking committee, ahead of jay powell's testimony at 10:00 this morning. this is bloomberg. ♪

♪ kailey: this is bloomberg daybreak. i am kailey leinz. coming up, former senator sam nunn. alix: president trump says the mueller probe is driving a wedge between the u.s. and russia. >> president to said -- putin said it is really a shame, because we could do so much good for humanitarian aid throughout the middle east, so many

different things, the safety of nuclear, which is ultimately, there is nothing bigger or more important, and they drove a phony wedge, this is a phony witchhunt. alix: that was president trump doubling down after the press conference that shook capitol hill. joining us is democratic senator mark warner of virginia, on the senate intelligence committee and member of the senate inking committee. i hear that -- banking committee. i hear there will be a vote to support what the intelligence agencies found. would you sign it? sen. warner: absolutely. the president's comments were nuts. russia intervened in our election. they hacked into the democratic party, released information to help trump and hurt clinton, and used social media to manipulate

and try to break apart americans. that was the conclusion of the intelligence committee, the conclusion of the actual sodium meeting -- social media companies. it was the conclusion of other nations. we had that yesterday with european nations that have been attacked by russia. the president in this very week performance, kowtow's to put in an excess -- putin and accepts his explanation sends a horrible message to our allies. someone needs to step up and say that is not the american decision. alix: it is a nonbinding resolution, and it does not actually do anything to curb anything president trump is doing. what are some concrete actions the senate and congress can take to restrain this going forward? sen. warner: i would like to do much more, but we have got to do it in a bipartisan way. i think the senate is waking up. 98 senators before this

president went to europe went on a resolution reaffirming our support for nato. trump walked away from that and tried to throw hand grenades into nato, and frankly kowtowed to gluten. -- putin. i think those in the community need to understand what went wrong commo understand what went wrong and that private meeting. if trump was this week in throwing american intelligence under the bus and the public setting, lord knows what he set -- said in private. i hope my republican colleagues will join us in other ways that we can constrain this president and show our allies that we stand for rule of law. alix: that makes the point of constraining the president. you have the power of the purse, so what can you do on that end? maybe you can do regular hearings.

knowing what went on in the room is one thing, but having checks and balances and not playing catch-up is something else. sen. warner: i think the intelligence committee and our committee, which has been bipartisan already and put out reports reaffirming the assessment was accurate and russia hacked to help trump and hurt clinic -- clinton, that is on record. we can pursue actions when the president uses security to 32 authority on tariffs --we can p2 authority on tariffs. i think congress can hold him in check and demonstrate that we need to work with the rest of the world in terms of a real , theenge on world trade real place where theft of intellectual property is happening at extraordinary rates. that was trying to rally the world against china.

unfortunately, because the president has taken on canada, mexico, in europe, the ability to rally is diminished. to --would you be willing disaffected republicans? sen. warner: many of them yesterday put very strong statements out. this was an embarrassment to the whole country. maybe there is one senator who defended the president, but everyone else has spoken out and said this was throwing the american intelligence community under the bus. no american president has ever done that, and i think it is right to say to my republican colleagues it is great if you put out a statement, but we need to vote to rain this president this president in. alix: what is the probability you would run for president? sen. warner: my job is to deal right here in the senate and try

to keep the bipartisan investigation going in terms of the russian intervention, and realize there needs to be a voice in the senate that realizes both clinical parties are stuck in the 20th century, and we need to recognize a world where people will network 35 years for a single job, we need a forward leaning economic theory that has portable benefits and new investment in capital. trying to build bipartisan support is something i can do. alix: it seems like not yet, but you will also be running at 10:00 a.m. to the senate banking committee were jay powell will testify. sen. warner: my number one question is, with the president's starting of these trade wars, what will that do to economic growth? oft are the probabilities interest rate increases as we look at a country that is 20 plus trillion dollars in debt, and what will those interest rate increases due for us to

manage our existing federal budget? increase aspoint $150 billion a year in debt. that is a ticking time bomb. alix: senator mark warner of virginia, thank you very much for your time today. in the markets, the big mover we are watching his goldman tax, up -- goldman sachs, up 2/10 of 1%. they announced lloyd blankfein will step down as ceo and become senior chairman. a sector perform rating on goldman, a $265 price target. 2019.solomon ceo what is your take? >> this is no surprise. this was identified as a

management progression that was to be expected later this year, and the announcement comes out today for later this year. the other interesting part of it is lord blankfein came from the trading side of the house. when you think of the legendary ceos at goldman tax, now we have an investment -- at goldman sachs, now we have an investment banker that will be a ceo and the business is evolving as we have less human contract desk contact in trading. -- contact in trading. alix: we also have different sectors that you want to look at. what does this wind up needing generatingnrevenue positions, employees who are over 45 who have no hope of advancing into the ceo role? how does that affect their overall business composition going forward? gerard: i would say their business composition was steady as we go.

i do not expect any dramatic changes under the new ceo solomon. as we go forward into 2019. as we evolve over the next three to five years, you can see investment banking growing in importance. they are growing out consumer lending as well. it will be interesting to see whether they go into other lending areas, more of the approach jpmorgan currently employs. right now, the company is doing well, the results were good, and we expected to continue over the near term of the next three to six months. alix: david solomon was talking to me about how important markets are indirect lending, so let's talk about the quarter afterword. it appears mixedf. estimates.par with you want to go out with a high note according to lloyd blankfein, and this did not feel like a high note. gerard: the numbers on a

year-over-year basis were good across the board. the only expectation that came in lighter was equity trading. investment banking was better than expectations. what is interesting is the investment banking transaction backlog in the second quarter is very much higher than the first quarter. the first quarter advisory business -- i am sorry, the second quarter advisory business was strong. when you look at it compared to a year ago, the numbers were good. expectations, they were slightly better except for equity trading. alix: you have the call at 9:30. what will be your main question? , ared: we want to find out they digging in and getting more share of wallet from their investment services clients? theyis one of their planks came out with last fall, they are going to grow the business.

they want to take a greater wallet share from their customers, and we would like to hear more about that success of they are having any. alix: thank you so much for that instant insight. coming up, more on goldman sachs' news and insight from jeff hart. it has been a wild morning. in the markets, still feels pretty calm. watch out for tech as netflix continues to roll over in premarket. telecom is off almost 2%. the question jay powell will have to face, a smaller dollar and a yield curve of 20 basis points. this is bloomberg. ♪

♪ jonathan: from new york city, i am jonathan ferro. this is the countdown to the open.

coming up, the u.s. economy looking solid and an optimistic chair powell getting ready to deliver his testimony. confirminghs blankfein is stepping down, solomon taking over. plunging, subscriber growth misses by a mile. the market opens in 30 minutes. futures negative 5%. yields, in a single basis point at 285 -- 2.85 on a u.s. 10 year as we continue to count down to jay powell's semiannual testimony to congress. analysts weigh in on a flattened yield curve. >> i think we will see an inversion this year,