as a global equities lose $8.3 trillion is late september. and resigned apple come up short. they are still growing but not as much. and it's the economy, or is it? strong growth expected, but will that be enough? welcome to bloomberg daybreak. i'm david westin right here with carol massar. and here we have the anchor of bloomberg businessweek. andoll: right to be here what another interesting day. david: another interesting day. carroll: let's get to the board because david mentioned we're seeing the impact already today in terms of the setup. yesterday, we had quite a rally with good tech news. saw the markets with a very different tone. terms of today's session. take look at the s&p 500 futures down about 1.2%.

to go look at some of the other market internals. moving a little bit higher. crude oil down 1.5% and the 10-year note will be the gdp report. you can see that taking a little bit -- taking a little bit lower. the first read on gdp growth in the u.s. in the third quarter. at 10:00 a.m., we get the sentiment numbers and looking ahead to sunday, resolve those for the next president in a runoff election between far right former army captain and leftist fernando had died it. and now the bloomberg takeaway. a bloomberg cross asset reporter. i will show that $8.3 trillion we have lost in slate september. number one, y, and number two, will it keep going? >> really bad.

this is from the global perspective and the same old thing. in europe, we're missing earnings. we do have the trade war and we do have the rest of the world not being able to accelerate growth and in the same way, the u.s. has one story and that is sitting u.s. cyclicals, the big multinational. the more concerning part of the story recently is the domestic u.s. technicals. home builders and regional banks along with highflying tech names that are now also coming down. defenses. hide except that is a lovely picture on the globe. >> the markets can bounce around a lot but if you take a look at compression, we have to look at the earnings numbers and what the companies are saying, whether or not that is being compressed and within days to the outlook. >> the earnings have been pretty good. >> most of the company said the analyst expectations.

to belly everything had perfect and then some because people are getting nervous. , itou look at the investors shows bearishness picking up and with of this has to do interest rate problems. people expect the federal reserve to raise rates and there is a concern about the unknown or the unknowable's in the data, trade tensions which are not showing up yet. this withiewing deposit fees going up as well as with the cost of inputs going up. once drivingot this. it's not like we are getting that in the numbers that much. >> we have been fretting this story for a while but it is amazing so far. be on the wrong side but it is still a story. at some of the tech number's today because we have amazon, intel, big tech names and a bit of a mixed

picture. google and amazon down 9% in the market. disappointment in their numbers. it was up a lot more in the after numbers last night. when we look at tech, it's a mixed picture. >> i will say that there was a research center study done that showed that after years of explosive growth and uses of your phone and for all things gadgets to get on the line, that growth is plateauing. saturationched point. and that is the fear. those growth drivers are no longer going to be that kind of growth driver because their services have reached saturation point. >> is that what we are right now, basically? >> i think lisa hit the nail on the head there.

this is a benign view that if they are not going to grow as quickly, why are we paying such a higher price? one thing that concerns me in terms of market internal is that the realized correlation under constituents is at the highest of the year. we last saw that heading into the q1 earnings season. it is supposed to be specific. marchinghey are still the same way. generally not higher. carol: investors are frustrated. what is interesting is that they are also spending on new technologies and new ideas. amazon is doing it and google is doing it. maybe some of that is going on in terms of disconnect from the market. >> they haven't been hugely profitable. what we didn't beat on is the

explosive growth and that seems to be what matters. >> who will march in and save us? this shows what they are projecting. the second, but still a pretty robust number. if we can keep producing them, does the market have to come around? prone first read, we were to be very surprised. gdp and there was an idea that q2 is as good as we're going to get. that we don't pay as much for earnings.

>> will that allow stocks to rally? , theyhat basically say are not going to raise rates as quickly which will give steam to the idea that there is no alternative. and they are paying attention to the gdp. >> we do come in kind of around expectations, and the biggest risk to markets, potentially, is that the fed is very data dependent when it comes to gdp growth and the unemployment rate. they are model dependent and sticking. we should keep hiking and that

raises the risk of over tightening. >> and we will see what he has to say about all that. david: thanks so much. can go to g tv under terminal and browse recent features all by running g tv . the economy is doing well but the market is suffering. we will talk about that with federated investors portfolio manager steve severed -- steve chevron. this is new york, and this is bloomberg. ♪

and: this is bloomberg daybreak. the regulations prevented the banks with any state as punishment for violating ban ki-moon. the planned expansion is thanks to the trump administration .rove back it he says pressure from the white house will not deter monetary policymakers from raising rates. getting close to a key they

stabilize settlement. >> stock markets are heading down this morning even as we wait for gdp growth. the economy continues to grow rather nicely. the next guest has an expiration for that and calls it the industrial revolution 3.0. the federated investors portfolio manager. notion,ines of your take us through it. technology replacing capital labor. >> maybe one day, blockchain will make companies more efficient. the marketmal idea

was not going to go anywhere and it was right until you got to the earnings growth because it was robust and they were doing 10% revenue growth. fast-forward to today and it is inconceivable that something is powerful and changing the relationship between revenues and earnings. andrew having an impact on the unemployment rate of inflation. the market is a little too jittery a little too early. what about stocks and inflation? >> we continue to think that we will have decent and solid economic growth. albeit the slower pace. and the inflation hawks are going to continue to be disappointed. it doesn't mean inflation is going to roll over or not move higher but it will grind higher at a slower pace.

you get replaced by a kiosk if you ask for our raise. amazon is sitting at the top of the hell with the gatling gun looking down at the valley and daring everyone to raise the price. >> this might be good for companies in terms of turning to more and more machines to do things. but not necessarily good for workers. with workers out of work, they are not buying things. >> historically what happens with these times, we've been to this before, but we have a transition time and we've been to that for 10 years. we haven't had real wage growth. it happens in small business. you have big beer companies dominate the market and sell 88 out of every 100 beers. you have seen the small business component that sells low-volume, high-volume craft. through, thatthat occurs in restaurants, wealth management, and economy wide.

david: if your theory is right, we should see real productivity growth. at the moment, it seems to be an uptick. years last 10 years to 20 , it is not that great. >> is consistent with other times like this. it has been at the lowest level since world war ii. there is a lag on this. it takes a cycle. we think and lead to stronger productivity growth. >> and in the cycle, you can

have these times of softness. we are concerned about the removal of monetary and fiscal stimulus and what are not that means we're in for an interim peak. next year is going to be more like to rate hikes. >> some fiscal policy, those concern ahead of the midterms. >> the so much missing on revenue, but the guidance, they do not see into 2019 right now. and overall, with the earnings, what is the admission? >> a couple of things going on. there is a 26% road in q3 so far. they are growing robustly

but the market is saying no thank you he can forward guidance? wrecks we are concerned that fiscal and monetary stimulus are going away. we have been throughout this bull market run. for the long-term investor, we haven't picked up in productivity. you can add to long-term position of equities. it is hard not to like a lot. you can at this number of different ways. i think the dividend part of the market, they are pricing in rate hikes between now and the end of days. if that doesn't occur, you should get some relief. and finally some small caps. and the industrial revolution. the u.s. is on sale and we added

to equities. absolutely. carol: buy on the debt. -- on the dip. coming up next, washers of amazon and off the better falling in the premarket. .heck out the trade down it down about 5.5%. this is bloomberg. ♪

carol: so one of our main themes on this friday has to do with tech earnings again. this is the market rate around the world. that about 5.5%. on the flipside, intel has been watching this chip sector very

closely. performances and intel was an upbeat report after the close and what was interesting, it was higher in the after-hours. now we have seen the tone change little bit this morning. about .25%. joining us to talk about all of this is alex webb, bloomberg opinion columnist coming to us from london. off fort me kick it you. where should we start? amazon, a disappointment? alex: very much so. they missed on revenue in the second consecutive quarter but it was able to turn this they get and really build on the net profit line. that really beats expectations. slightly changing investment story. my current evidence, it's not just a growth stock anymore. even what was happening with

yields and the interest rates, it may be that people are moving away and that is why we are getting out of this. we're increasing, as is google. and we see that boost at intel. andet's turn to our for bed the discipline. >> in some ways, it's very similar. not substantial. they missed estimates by about $100 million and in the context of $27 billion of revenue, it's a lot. usednk investors got very to of a bet, amazon, and others beating quite substantially on the numbers. and this wasn't the case. with high spending, it is on content and it is on the development of pixel smartphones. and that is an investment which isn't yet really making returns.

is still very early for those hardware. >> you have been buying the dips and i am assuming or wondering, google is down, alphabet is down , are these opportunities for investors? >> we're not going to specific stocks. we did via large-cap growth a couple weeks ago. we talk about this being the end of growth and these companies have revenues that grew 20% to 30%. softer than expectations and i think what you are seeing right now is the results are price reaction, more symptom of what is going on rather than a cause. it is troublesome because a lot of investors were hoping amazon and google were going to come to the rescue and reinforce a rally from yesterday and that will be the end of this and it is not now because i think there's enough concern on the top line

that it feeds the fears of those that think the exit peaked. >> is there a potential dilution of a different sort? companies have had a wonderful market and their core business? and they will get those kind of markets. i think those kind of markets will be building actual physical stores. alex: the fact is, even though they are spending a bit more money, the margins will beat expectations and bringing out the net levels. it is clearly those investments. and we do expect that payoff. it is a different sort of approach. they're not just marketplaces connecting and advertisers to users and an amazon case, sellers and purchases. there is a bit intensity and building that relationship and keeping them within their platforms. what about what amazon

said about the holiday season? it also said potentially something about consumers? alex: it wasn't as upbeat as expected, but you make the point very justifiably. just not aswth, much growth as what was expected. does that have to say about consumer economy -- confidence, i'd can't say. ,> when you hear from amazon this is not what you want to hear from companies. want to say that we are on track and we expected it to be a good holiday season. >> we had one of the strongest in ato-school seasons least five years, maybe seven. incomes are rising and i don't believe there's any reason to believe a consumer is not going to show up during the holiday season. >> textile has a premium.

will that continue with leadership? alex: i don't know if he'll continue with leadership at this will depend on a risk on-risk off appetite. environment and if growth resumes, we have a friendly election outcome, it can take right back up. steve will be staying with us. three world trade center is going into the loan business. a new venture with the company ceo. live from new york, this is bloomberg. ♪

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"activecore, how's my network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. carol: we are about two hours away from the opening bell. i'm carol massar he in with david westin for alix steel gusoff today.

the s&p 500 futures, we had a rally yesterday with a different tone. down about futures 1%, nasdaq futures really taking out the biggest hit there down about 2%. europe also lower on disappointment of the tech numbers. see them down about 1%, let's take a look at the dollar. ,e have seen the dollar gaining more continuing and also as the risk trade is off and we have investors moving in to the u.s. dollar. it is under a lot of pressure and take a look at the 10 year yield. on that welose watch et the gdp report at 8:30 p.m. david: and emma chandra is here with first word news. emma: all 10 of the similar looking packages had return addresses from democratic

representative debbie wasserman schultz whose district is in southern florida. the return address included missed spelling -- misspellings of street names and the state of florida. theresa may's cabinet unable to advance talks with brussels. the top independent research institute says equity in the european union without a deal would crush british gdp and rising .3% next year down from the nearly 2% that will be expected. >> the turkish president wants saudi arabia to hand over banks it into fight in the murder of journalist. goodwill byw keeping people involved in the killing which took place in istanbul. he also announced a prosecutor that visited turkey over the weekend. news 24 hours a day on

air and at tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. the battered homebuilders might see relief after a bullish call on wall street. stephen can has upgraded the group. winter rallyectors which begins in october or november as an impressive track record of performance. so you know about this winter rally and i did not know about it. historically, you buy homebuilders on halloween and l on verbal sunday. it is usually a strong time of year for stocks. bowld sell on super sunday. it is usually a strong time of year for stocks. is weird for the fed not reacting to the equity market. it was such a focus 10 years ago when it was melting down and you wonder.

there are reasons to think of the things are going on. you have labor shortages and the hurricanes. but we also have a generation of buyers that of never seen a 5% 30 year mortgage rate. it is a little bit of sticker shock potentially. is there enough in housing that once the fed to be a bit more patient next year. >> a chart compares the s&p at the white line to the top of the chart. and with financials being the purple. this shows how bad it has been. is it really because of mortgage rates? >> when you look back at the beginning of the year, there is a shortage of available labor. costs have risen in terms of lumber. is generally inconsistent to have rising wages and strong labor markets with weak housing but that is what we are in right now. it is certainly a factor.

do you have a job? do you feel comfortable about it? >> and also via monthly payment. you via house and a home for a lot of middle-class buyers and you buy a monthly payment. the difference between that monthly payment when you have 3.5 percent mortgage rate with 5.25%, it can be significant. carroll: have you been buying the homebuilders? >> our buying has more broad market. we haven't targeted these names specifically. and our fund doesn't really go that level of specificity. i think these illustrated potentially and although we are theup for a world, we see fed is less aggressive next year and you can get some support there. david: let's go back to the gdp number. can you see continued robust growth without the homebuilders coming back? has sensitive is the economy

overall to the housing market? >> when you have weakness across the board, a concern we have an impact and what we have seen home prices continue to move up and that is the key ingredient. the willingness to invest in your home and your wealth is tied to the price. activity slows deep enough long enough, that will impact pricing and that has not happened. that get intosee that prime season in the spring and something we're watching closely. we want to talk to the silverstein properties because they have launched a real estate lending venture. fromall about profiting what it sees as a financing gap led by banks. joining us is silverstein properties ceo. so good to have you here. us about what you guys are doing. we see a gap in kind of the lending arena.

>> this firm and the tough form seems to be a natural extension of what we're doing. we're borrowing very large loans. time thatice over there are fewer and fewer bank secondhand of the type of projects we need. so we are approached by capital partners in the market and we decided to launch this business a couple years ago. david: why should you be lending if the banks aren't? >> we have a lot of in-house expertise. we do this up every day. we have a whole office of people that can do construction, i can premier a loan request. so when a borrower is looking to get the money from us, we underwrite that really well. we have experts going and sitting, a relief to the borrower to have someone that knows what they are doing. some of that can sit with them and rationalize it. >> what kind of projects are you looking to do?

have you closed the deal yet? have a pipeline of about $5 million, mostly of new york metro area projects. in some land acquisitions. we have not close a deal yet. >> the timing is just loan documents. i think first quarter of next year, will have a couple. >> to what extent is the very existence point to reflect the cycle in real estate? does it indicate we are getting a little frothy? >> if we had been in this business two years ago, we would've closed many loans by now. they're always be developer projects. you have to be the right ones to get them. >> what you think of the cycle? where are we? another going to be extra innings? >> new york city fits the dynamic market. and this depends on where you

are in the market. large residential condos, you will sit with them for a while. it is hard to say where you are unless you specify the products are talking about. >> what about in terms of size and the types of project? residential, commercial. >> ideally, we can do all. to $1 million, we can put out a lot of money. they are generally construction projects and in the hundreds of dollars. and residential mixed-use, we're looking at it all. david: is the fed helping your new business? you are going to far in your leverage. into risky loans. it does that vacate the area? >> part of that gap was treated by the regulations that has put

on the banks. whether it is lending reserves or how they underwrite, it has helped create this gap in the market. >> is it just a case of money, financial? >> we will underwrite it and we will make the loan. collect theaway and interest even though we monitor it very closely. generally, they don't want our help. >> are they going to take the money back? and we have companies going in and deal to pay leases. how sensitive are you to where we are in the business climate overall and if companies are on the upswing and able to take real estate and pay for it. >> i worry about paying back the bank and if i get my money back plus the return for me and my investors. i get my money back on the loans of it is a very different underwriting. take this risk as an equity investor.

>> is at the creditworthiness of the person borrowing the money? >> we don't want to go after the developer, we want the project to be successful. we think it will be successful. >> the value that project itself depends on the ability to get the rent, for example. they are renting office space or apartments, we have to make sure that underwriting comes through. that his brand-new business, stay with bloomberg daybreak. have more on the economy with robert kaplan. that is in the next hour. after helping his friend take the white house, tom waits for his windfall. discussing the state of colony capital next. this is bloomberg. >> first word brought to you by a theme. it is time to break free from conventional thinking.

we are a theme and we are driven to do more. >> we think it is time for the financial world to stop acting the same way. the same way. ♪

emma: the shrieking reserve,xchange reserves tumbled by $32 billion in april. the $20 billion erosion would get a month of short-term debt. david? david: we are going to turn to bloomberg businessweek where we covered three must-read stories from this week's issue of bloomberg businessweek. first up, waiting for a trump windfall after his friend take the white house. he is still waiting for his reward. and alibaba's bargaining chip, taking matters into its own hand. market, thehe

vintage timepieces the newest emerging market to watch. here i am, surrounded by businessweek people. >> we got you. let's talk about tom barrick. this is a guy that was supporting then candidate donald trump. he really came into the spotlight literally and figuratively stocking the stage of the republican national convention, introducing you ivanka trump that ultimately introduced her father. intimate, by all accounts, to the president. they bonded over personal issues. chairman of the inauguration committee, and here we are. business isn't great. and maybe more pointedly, some of the relationships -- >> the middle east, saudi arabia, the gulf states, places like that.

>> and especially with the qatari that have been some of their biggest backers and really found themselves squeezed by this president. >> the president has aligned himself with saudi arabia and's. he is a very savvy businessman. what you see is not necessarily what you get. did we forget to introduce jason kelly? he doesn't need an introduction. barrick is a survivor. this is a guy that cut his teeth in the middle east before anyone was there. dass.ked for bob >> he turned them down. president trump try to get him to take more than one senior position and he said i think i'm

better on the outside. savvy het shows how is. i would say. >> will see where this goes. not speak to us for this story. it is a lot of opportunity and distress. alibaba is going to the semi business. they are a pretty big company. this could be a big change. >> terrell and i on the radio show were going through the tech earnings. it is all the talk and all the numbers candidly. itse companies are taking into their own hands. and it's fascinating that

they want artificial intelligence and they needed the chips to support it. intel and nvidia really dominate that market and you wonder if it will change, ultimately. a business not just story but a geopolitical story. they really going into tech in a big way. you can imagine president trump would find this nervous making. >> the trade tariffs have really impacted china's access to the global supply chain and they don't want to be in that position anymore. >> you see china start to move in the u.s. start to move production and development to other places. this is important because of the high-end nature. it is not just manufacturing. it is really the design. carol: what is in your hand? david: i love the story because of the photos. this is fascinating. david: i know. carol: you have this tech thing.

david: this is an old zenith watch, but it would be like one word on the dial makes a difference. tens of thousands of dollars for what it is worth. i don't have it. >> not the magic word. it is a combination of all sorts of things that make for value. so you know this from your car collecting as well, that one thing here or there, a word as you say or the way that the watch was treated, sometimes collectors are more interested because it is a little worn. we just show the back of the paul newman watch which was a great story. $17 million it went at auction. >> because it was literally the paul newman watch. david: thank you so much.

this is jason kelly. it jason kelly. carol: i'm so sorry. i'm going to get so much flak. david: you spend three hours a day together. you can tune in on business week on bloomberg radio everyday day from 2 p.m. to 5 p.m. eastern time. the rich get richer. to a newghs, according report. we will tell you who is leading the way. and if you have a bloomberg terminal, check out tv . watch us online and go to tv on your terminal. this is bloomberg. ♪

david: every year, a billionaire's report is issued. billionaires around the world get a sense of what they are doing with their money. this report is hot off the presses. with us is head of ultra high net worth.

it's good to have you back, john. take us through this. we put up a chart showing there is pretty substantial growth in the total value of billionaires. john: you said the rich are getting richer and faster. that is the reality. we had unprecedented growth this year in billionaire wealth, up 19%. absolute percentage terms, it is the largest growth we have seen and all driven by innovation. we had a really cool chart. and we took it from you. the yellow part shows the asia-pacific region. john: if you think about china, there are 16 billionaires in 2006 at 373 billionaires today. it is amazing growth. it to new you -- there are two new billionaires created in

china a week and three new millionaires a week. what does this mean for the world financial order? john: you can see it start to shift. the u.s. is the land of innovation, but the asian part of the world, particularly china, has started to challenge that. and that may be a good thing. competition is not bad, but we're starting to see that shift in the demographic trends are not going to slow it down. you can't deny that number of people. 770 million people on the internet. just in china alone. the marketss and are going to go up and down and we have volatility. we just don't see the change. in asia, you see young people. populationllionaires

handing over from generation to generation. there is a massive wealth transfer about to happen. our calculations are $3.5 trillion that will change hands and in billionaires hands alone. excuse me, 40% of the wealth is over 70 years old. so we will see this massive wealth transfer that creates a lot of opportunity and a lot of good discussions with families. carol: i'm curious. folks see a lot of the ultra high net worth individuals pe, moving into alternative investments. what are they doing with the money? >> in the u.s., philanthropy is really big. you are getting into generation two and three and it is very important. these are all self-made first-generation billionaires. over the next decade, what you

see will be dramatic in terms of philanthropy. in terms of investments, absolutely. many use ubs because we are a global bank and we have a network of other clients like them all over the world and they want the opportunity to invest typesy-side and do direct of investments with the global capabilities that they don't have in the country they live in. we it is a network and what will see is a massive wealth transfer and the legacy planning super important going on. david: john matthews, thank you for being with us today, john. coming up, an exclusive interview with robert kaplan, dallas fed president. coming up right here. this is bloomberg. ♪

website continues,

u.s. futures are off as global equities lose $8.3 trillion. tech does not come to the rescue, amazon and apple come up short, they do not make as much interest anymore. is the economy stupid? or is it? u.s. gdp numbers come out with strong growth expected, but will it be enough? welcome to bloomberg daybreak. i am david westin along with carol massar. here, it's great to be i'm thinking about whether this will shift the focus for investors, especially with tech reports being so disappointing. david: the economy is doing well but investors are not buying it at the moment. carol: we will find out an half an hour. let's take a look at the markets, as we can see, take a look at the s&p 500 futures, this is what we have seen throughout the morning. down 1.2%, a risk of trade again

threat the global markets, you can see investors moving into one 1203. crude oil is down, and take a look at the 10 year yield, we will be watching the whole treasury yield curve closely after the gdp report to seize moved those numbers around. david: and what better than to talk with someone from the fed? we will start this hour with robert kaplan. he is speaking with mike, we go to him now. we would like to welcome robert kaplan, he is joining us from mexico city this morning. tightly integrated with mexico, but i have to start with the markets. last in heard over the

minutes where we are today, back down again. many are saying this is the fed's fault, what are you making of what's going on in markets? i will avoid commenting too changes --kets market changes, other than to say some volatility in the markets is typical. the one thing i would comment on is that i watch earnings report and i talked about 30 ceos -- i talk to about 30 ceos a month, the story is consistent. input costs are higher, labor, materials, steel, aluminum, i think countries are struggling as to whether they could pass those increases on in part -- in price increases or if they are facing margin erosion. i see consistent story from what i'm hearing from companies. >> is there a level change or percent move that would cause you to believe the fed should slow down? what i'm looking for is what

impact and what this all indicates about the strength of the underlying economy, and the impact on financial conditions. it's not a market move up or down, per se. it's still what is my outlook for the economy and assessment of financial conditions in the economy that might impact future growth prospects. , and not thet you fed, some say it is a weaker outlook for growth, particularly , but the earnings vice-chairman seems to disagree with it. have you changed your forecast in any way going into 2019? know from my previous conversations, all year i have been saying 2018 is going to be a strong year. we have a substantial amount of fiscal stimulus, not just a tax agreement but also the budget

bill which increased government spending. we have been forecasting that 2019 growth would be weaker than 2018 and 2020 would be a little weaker still as fiscal stimulus wears off and we still have this headwind of an aging population that is slowing workforce growth. but ilook is consistent, have been expecting some moderation of growth, because i believe the fiscal stimulus will wane as we head into this year and next. people have been talking about president trump's criticism of jay powell and the was veryt yellen strong in saying that trump has the potential to undermine the fed. how much should we worry? >> i think people outside the commentld feel free to on this. i think in my position i will

not, other than to say my job is economic analysis and make judgments on monetary policy without regard to political considerations or influence. i think criticism comes with the territory, so i think our mission at the fed is the same. >> are you being set up to be the fall guy for any kind of economic shortfall? >> i think it's important that i not worry about that. i think we are in a challenging situation, that we have talked about before. we have healthy growth in the united states, that fiscal stimulus is part of that growth. inwill wane in the 19 -- 2019 and 2020. the trick is how to get the judgment and balance right between moving towards a neutral stance, but avoiding the in what thed --

destination ultimately is and the pace of it. challenge, andhe it's complicated enough without me worrying about other extraneous factors. talk about the beige book, there's a lot of concern about tariffs. what impacts are you seeing? or forecasting? >> it's unusual for me to talk to a ceo that is not seeing cost increases across the board. it's cost, materials, typical. the only question ceos have is can they pass those increases on in terms of prices? in some industries they are doing that and in others, given the dynamics they can't. i think the beige book is very consistent. that's why for tariff situation intensifies, my guess is that input cost pressures will intensify also.

it is not having a big effect on headline gdp growth, but it is having a big effect on companies and industries and their ability to manage cost. >> can someone in your district raise prices? >> it depends on the industry. in certain industries they can, in particular if it's a consumer facing industry. .hey may not have pricing power they may suffer margin erosion. there is a whole range of consumer facing industries, including homebuilders, who are not able to effectively pass on cost increases and they will either see volume to climb because of sticker shock on the part of the consumer. or they will have to find a way to come on a rate their cost because they don't have -- come -- moderate their cost because they don't have pricing power. >> how close are you to possibly making a policy mistake?

i have said that the estimate of the neutral rate is a concept, it's imprecise and uncertain. as part of the mosaic i look at. -- it is part of the mosaic i look at. it could be two and three we will havehree, to make that judgment as the economy unfolds. i'm sensitive to not being rigid, or predetermined about the pace at which we get there. and the reason is that i expect gdp growth to be strong, but i expected to moderate as the fiscal stimulus starts to wane in the 19 -- in 2019 and 2020. we still have to deal with the headwind of slowing workforce growth due to aging and sluggish productivity. i think getting the balance right is going to require me to keep an open mind, not be too

.redetermined or prejudge i think that's the challenge of this. we will have to make these judgments as we had along this pass -- path. >> fed funds are trading at the top of their range, right as they were in june. how much of a problem is that? do you anticipate in november or december an adjustment to the i oer -- ioer rate? >> it's always possible we will have to make more technical adjustments. part of what we are judging is what is the demand for reserves in the banking system and the economy? i think we will have be open-minded to learning this. there is no textbook on how you ,ormalize interest rate policy so i think it's critical to be

open to learning, and i think we are doing that. it is possible we will have to make more technical adjustments in the months ahead. >> could that be done in november? we don't expect any kind of reboot, would you feel free to adjustment?oer >> i don't want to prejudge what we will do, but i think it's important to keep an open mind in each meeting about addressing this if it needs to be addressed. your district is more closely tied to mexico. can you give us a feel for what you think of the incoming mexican administration? with theyou expecting economic relationship between the two countries? , i think positive side it is important for the united states and both countries to move toward getting the trade

updated and resolves. i think it removes an enormous uncertainty. and it also improves u.s. competitiveness, and allows us to add u.s. jobs. we are glad that is getting done. it's good for both countries. is a lot of uncertainty about the privatization and modernization of this country and a lot of the reforms that have been done over the past five years. i think the jury is still out as to whether the reforms will continue or be put on hold, or slow down. that's the part we don't know. >> nafta 2.0, going to change anything? >> it will create some changes, the most important thing about the north american trade agreement is that it is going to get resolved. aboutk you can quibble certain provisions, whether it will improve u.s. competitiveness and our global

competitiveness, but the most important headline is that we -- isving the uncertainty that removing the uncertainty is good for the united states and mexico. we talked about input costs and global competitiveness, getting the agreement done is important to the united states because 70% of the imports from mexico are intermediate goods, part of integrated supply chains and logistic arrangements that make the u.s. more competitive. that is the critical part. >> back to rates for a moment, we have a viewer question. askingt strong enough in about a potential positive, when you look at the interest-rate sectors of the economy, autos and housing, the impacts of the higher rates and even the lack of tax reductions in high tax states, does that lead you to think you have gone too far? or you are getting close? i watch housing carefully,

and i talked to homebuilders. a lot of homebuilders do business in texas because it's growing so fast. we have been watching this closely at the dallas fed. andhome sales in dallas houston, two of the fastest growing cities in the united states, have been sluggish and week -- weak. we've been doing a lot of work trying to understand how that slowing fits in with overall economic growth. one of the conclusions i would draw is the input cost, labor shortages, higher input costs, and higher mortgage rates are .art of this story we are watching this carefully. it has been week for the last for thenths -- weak last three months. i would not satan indicator but we are watching it carefully. not say it i would

is an indicator, but we are watching it carefully. i am watching what this tells trend anything, about the in gdp. will be another fed's subcommittee on communication, what is wrong with the way you communicate now and how would you fix it? >> i'm on the subcommittee with the vice chair. i would not put it that there is something wrong, i think a good organization is constantly re-reviewing its communications, its frameworks, the way it operates. i think that's healthy. i think the fed is moving towards doing that, i would hope doing it on a regular basis. why, as ant's institution where it's critical we keep our independence, i think part of that is earning it

youevisiting the way conduct yourself, including communication and your frameworks. i think doing that is a good thing. >> speaking of communication, janet yellen talked about how there was internal dissent in the open market committee, calling itself the three amigos, which included jay powell, worried it would trigger financial instability. how united is the committee now that chairman powell has set? >> there is debate around the committee and i hope there will be debate. i think debate and disagreement is one of the things i have been very impressed by. i don't think you want a situation where we all agree completely. i was picked for myself, we have a number that believe we should be gradually and patiently moving towards a more neutral stance. that we don't need to have our foot on the accelerator. not everyone agrees with that

and there's a lot of disagreement as to the pace and where natural is. i think disagreement is healthy, when i go to a meeting i state and my arguments, but i, listen carefully to the others around the table. i'm open to being persuaded and i think that's a good dynamic. i hope it continues. robert kaplan, coming to us from our mexico city bureau. thank you for joining us. we are going to send it back to you. you mike.nk equity markets have been taking a beating, we are going to talk about it, leaving investors to wonder what is going on and will it stop? >> sentiment has been very bullish, and we are in a period of time where we get seasonal weakness. >> the primary increasing to be the interest rates, what's notable about this correction is it is really tech that has

led us on the way down. 2018 has been more volatile because investors are adjusting to the environment of higher interest rates. what that impact will have on the economy, earnings, and asset valuation. that's why you are seeing some valid -- volatility. the selloff was concerns about china and the fed, when you get into concerns about the fed the epicenter was two places, small caps which are in correction territory, and financials, because they are a proxy for global growth. >> there's a lot of vulnerability in the world, but i don't think for now i would say this is a global economy killer. we welcome such a devferent human -- satya pradhuman. i have a chart for how much has

been lost in equity markets. what is causing this? >> it does come major events, the reality that investors need are -- in the u.s. repositioning for a peak in the profit cycle. , think it's starting in asia for the last 18 months we have seen topline growth in japan slow. we have seen asian-pacific start to slow, and the question is whether or not china has peaked. those elements are coming back to the states. coupled with the fact that forecast earnings became aggressive, thanks to the package of last year. if you combine those we are now struggling with whether or not leadership is about to change. david: do we move in a high-octane growth -- >> do we move towards a high-octane growth market or more towards a visible backdrop?

with the models we run, they trigger negative. the idea that the hottest stocks had hit a multiple that was too aggressive. i would argue that some of this change will happen in the winter. carol: so valuation in the market looks more normal? >> they are adjusting downward, it's not the whole market but those narrow bands of leadership. extreme andcks are are going through adjustment right now. additionally, the forecast with those estimates got out of whack. -- out of we are starting to see them come down. and the fact is we are three years into her recovery, the hurdle rate just got tougher. carol: when you look around the globe what do you see? i feel with thought. a year ago we talked about synchronized global growth -- i ed.l with sod -- whip saw

a year ago we were talking about thinking is global growth, but now... >> if you look at emerging market credit spreads, those of spreads have been winding for five or six months. one of our cautionary note is that as much as the emerging markets have sold off, don't get too cute with being a contrarian. if the credit markets are cautious the valuations could be suspect. if you look to europe, we also see credit market spreads off, why their? we could claim its italy but broadly the spreads have right -- widened. the u.s. is the island in the stream. what's rattling investors is how long will this hold. criticale we seeing conditions tightening? we have seen them tighten. >> the u.s. has been remarkably

the question is are the changes we see in asia and europe, are they hitting the bond markets here? that is where the jury is out. david: so are we looking at a global slowdown on the rate of growth? >> i think it's in a healthy fashion, the rate of change is slowing. we went from overheating to recession. as an equity investor that could be violent if you are changing from high-octane growth to visible safe earnings. that's a different movement. carol: it feels like we are in a different market environment. thank you so much, you will be staying with us. david: we have some news right convertingroyce is and having fewer engine deliveries. you can see the stock is down 3.5%, 3.3%.

they are going to specifically about what they're doing but they will deliver fewer engines. carol: that will be obviously problematic. possibly airlines will just be buying fewer airplanes, worried more about pricing and capacity. there are three other companies that we are watching this morning, first, snap, which is not a pretty story. their shares are trading at 50% of their ipo value. they are seeing continued slow average users,ly and they said they are not done yet. it will continue to slow down. users, and all about growing your user base long-term. david: and dramatic growth, whether it's also bet -- alphabet, or amazon, it has to be dramatic growth. and there's so much

competition in the social media space. check out the fast casual space in terms of dining. chipotle reported after the they areell, increasingly moving towards technology and investors liked what they got on the earnings call. the stocks are up 2.6%. it's about embracing more technology, ordering online, through your app, and picking it up. that has investors excited. david: at starbucks i have to wait a long time even when i order on my app. carol: i buy my solid and i just pick it up. story,and a happier intel had a good announcement. reported better-than-expected results, it raised its guns for the year, it's attributed to better-than-expected pc demand of all things. keep going.

>> i think intel thought they were dying, so i think they are surprises everyone else's, but it's tied into what we are hearing from other companies that on that -- on the back of this, companies are taking the opportunity to invest in i.t. infrastructures. this is a tangent of the boom that we have been waiting to say. -- to see. out, --e had amg come amd come out, a much smaller player, and they got clobbered in the trading session. what's going on in the stocks index for the chip sector overall? it's about expectations, intel has been pretty beaten down over the past year leading into this. david: they were highflying in the beginning. >> it's interesting you bring up amd, they are going after intel's a share of server processor units.

that was a business that was growing but you have to wonder if we play that forward, do they end up using market share -- losing market share? does this tell us about what is coming down the food chain? we are seeing this with value over and france, they are saying we're not getting as many orders . is there an indication that was coming down the line? >> intel paused on the numbers, but we got to the ceo was asked about trade and it took a dive down. i think this place to those concerns. semiconductor companies are in the center of this, being primarily u.s. based companies with china as their biggest market. of the trade war on demand is going to be interesting. intel is not seeing the same slow down that texas interest -- instruments was saying earlier, but with a company that big, warning about a slowdown, you have to think about how that

will filter down and if this is a structural change. carol: we were talking to jason -- alibaba,ba apple apple, and others are getting into the chip market, i wonder what this means for intel? >> they are expensive things to make and there is more competition. you have to make them for new technology cycles and it's not a great margin dynamic. if you put tariffs on top of that it's complicated. david: brooks, always great to have you. we are just minutes away from economicest read on growth. simona mocuta will be joining us next. this is bloomberg. ♪ ♪

this is bloomberg daybreak, alix steel is also day. let's get a check on the markets, it's red across the board.

there is disappointment over google, our so that amazon, bringing down the s&p 500. let's slip on over, we are seeing strengthen the u.s. dollar, and there is risk trade-off with investors moving into the japanese yen. david: and we have the gdp numbers out, 3.5, 3.3 with the estimate. last quarter was 4.2. the survey was at 3.3, and this gdpa surprise to the number. we see s&p futures coming off the lows. carol: and i'm seeing slight reaction in terms of the bond market, the 10 year yield is at at 281. the two-year is we are seeing an uptick but barely. david: this is good news for the administration.

mick mulvaney will be on later on and they have been saying that tax cuts would lead to growth. you think about the midterm elections in being out there on the campaign trail, do people have a job? do they feel confident? and do it care about the shareholders are the consumer? let's ask. , andsatya dev pradhuman is still with us. isnd satya dev pradhuman still with us. >> credit spreads are still healthy and the basic format for these numbers is fairly consistent. the reality is, and to tie this back to the market, what is causing the market angst? to some degree it's the expectation of slowing. we are seeing various reports that some of these estimates are coming down.

carol: 4% for personal consumption is much higher. the naked -- is much higher than the estimate, how do you read this on the gdp print? this was a pleasant surprise. and these numbers remind me of what we talked about last time i was on your program, this is the significant upward divisions to the saving rate, when we have the benchmark revision, sometimes with the savings rate it looks much stronger. what that told us was that there was a cushion on the consumer side for modest increases in price. clearly the consumer is still resilient. interesting from what we heard about mr. cat -- from mr. kaplan is that companies are feeling cost pressures and they are still trying to figure out if they can pass those costs on to

consumers. david: -- >> i think to some degree labor input costs are the struggles, but the rate of change on revenue is very offsetting. seeingso for what we are , and this is a generalization, but there's more pressure on margins, so they are not being squeezed so much on the top line, you may have to pay more for things like wages and input costs. is that overall a good story? i think it depends on how companies respond. if you increase or improve your production process to sustain those margins in the face of higher input costs and productivity, that could be a story that continues to be positive for some time. i don't necessarily think the short-term tells you how things play out in the long-term. inflation, weout

did get a read on core pc, 1.6% versus the 1.8% estimate. where do you see inflation? do we need to be concerned that the fed is not keeping up? >> not at all. in fact i'm starting to be more concerned that perhaps the fed may be a little too aggressive. i don't want to overstate that agree with thei medicine of gradual tightening and removal of accommodations is the right one. but i'm starting to worry as to if these are a little too strong . over the summer, even though the economy was doing so great, we would see organization measures pulling back a little bit. inflation expectations are well anchored, last month there was a survey on the long-term expectations and they went back down to a two-year low. so these numbers are actually

certainly there for a surprise. it does suggest we should pause and assess to what extent inflation is about to upset everything. it doesn't look like biological. david: to agree that the fed should be taking inflation into account? >> i think the mission is to get back to neutral. i think the markets will struggle with this because there is some noise in the results combined with the trajectory of the fed. david: what is neutral? and can we know it? chairman powell said that we are not sure about this mythical r-star. >> i think the market may need to be adjusted one or two more times. david: total? >> yes. carol: i'm curious as to what you both had to say about visibility, we've had conversations about people saying maybe we see a downturn

in a couple of years -- i don't know if you can see. do you see a michael -- a cycle market downturn in the next two years? >> we talking at the macro picture correct? i just want to clarify. there is every reason to anticipate that growth will moderate from a robust level that we are seeing now. but we don't see this moderation is very dramatic. and we remain well above potential growth in 2019. 2020 probably further deceleration. the question is how big of a deceleration and does it have to be a recession? , is what weave to say at this point. so slow deceleration may not be the best story. david: go ahead. agree, the question is are we going to fast into a recession? i think the reality is that

there is a steady and slowing process. the challenge is really how the equity markets go to adjust in terms of what was working to what should be working. there could be more volatility in equities, even of the global growth picture is potentially slowing. it's more of an amplified in fact you get to valuations. beid: to what point has united states and helps by one for $5 trillion in financial stimulus and what happens when it dissipates? -- $1.5 trillion in financial stimulus and what happens when it dissipates? >> --. carol: we have more upcoming, and i'm curious as to what you are focusing on? looking at everything, one area that has become worrisome is housing.

this was mentioned in one of your earlier segments, we got a lot of those indicators this week, retail sales we are watching carefully. fore have been signals deceleration in the third quarter, we want to see how things progress. , the general story remains one of a robust economy. david: so come back to the markets for a moment because they have been all over the place. where is there mispricing right now? >> i think to some degree, when you look at some of the faang stocks, and hypergrowth companies, there has been a buildup set of expectations on them. is fly in the ointment probably that it's hard to accept that they are cyclical. if you are getting a slight

slowing overseas, and that's coming to the states, these firms that are priced for perfection are starting to adjust. these are not bearish signals but it is the stuff of volatility and something we have not seen in a while. is up 52% thison year so we need to have some perspective. thank you very much, simona thank you.atya, let's get an update on what's making headlines outside of the business world. >> the trump administration is considering an order to stop migrants using the same authority as earlier travel ban is thousands of central americans make their way towards the u.s.. this would be to bar asylum-seekers from entering the company -- the country. the white house is weighing a range of options but no final decision has been made. government has told state owned companies to stop buying oil from iran.

this comes as the u.s. prepares to impose sanctions that month. -- this they depend on the outcome of negotiations with washington. japan and south korea have iran butying oil from china is their biggest customer. been prevented from opening new branches as punishment for violating banking rules. jpmorgan has racked up more than $30 billion in penalties, legal costs, and obligations since the 2008 financial crisis. global news, 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists in more than 120 countries. i'm emma chandra. this is bloomberg. david: this is quite a story. story it's our most read

in the past hour, it's interesting to see what was going on behind the scenes and showing that it was tougher on some of these financial institutions. david: with wells fargo we knew that there are certain limitations on how big they could grow. but we didn't know about this. regulation but regulators just telling them that without disclosing it. i find that interesting. carol: especially in an era where we like transparency and closure. david: and what else do we not now? carol: i think main street is saying way to matt, they have paid billions of dollars in penalties, there were a lot -- wait a minute, they pay billions in penalties and there were a lot of things that went wrong. david: it's puzzling. coming up, brazil has to the polls again for their presidential election. ,e will talk with tony volpon he was the former central brazilian bank deputy governor.

that's coming up next. this is bloomberg. ♪ this is bloomberg. ♪

daybreak, bloomberg i'm here in the green room, coming up, an exclusive interview with ron johnson, the former jp j -- jcpenney ceo. now to your bloomberg business it hasgoogle announced fired 38 employees for sexual harassment in the past is co-years and sent them away without severance packages. the revelations came in any mail to employees from the ceo. this followed a new york times report that the company has detected some main -- executives facing sexual harassment allegations.

hasroyal bank of scotland set aside money in response to stuttering brexit negotiations. this is the first british bank to make such a move. the chairman saying big companies are pausing investments as the talks lag. the decision overshadows a positive surge, which showed capital strength at operating profits. the south african president wants to set aside a hundred billion dollars in new investment in his country. in an exclusive interview he said his administration had placed growth and job creation of the top of its agenda. track, weahead of the are way ahead and i am overwhelmed by the interest that continues to be in the african economy. >> the new south african leader also said his country suffered huge damage under predecessors,

and his administration is rolling back the bad decisions of the past. that's your business flash. david: brazilians are heading to the polls again on sunday for the second and final vote on the country's next president. the expected winner is the controversial conservative candidate. ,oining us now is tony volpon the chief brazil economist and former central-bank of brazil deputy governor. we also have julia leddy -- leite. it is expected that mr. paulson it >> is expected the conservative candidate will win. >> we have seen the margin narrow, but he is 12 points ahead, and markets are priced in for him to win. carol: is there any chance of an upset? because the markets are expecting this win as well. >> it's always possible, we had

it'sentful election cycle, very hard to overcome such a big margin. carol: let's bring in tony volpon, how you see this impacting brazil in the long-term, assuming he wins this election? a lot of it will depend on what their economic implementation of the proposals will be. one would expect for them to have a honeymoon. period. look forhe market will movement on pension reform, this is an issue that has been heavily debated in brazil for the last is co-years and everyone understands -- for the last two years, and everyone understands that the country's current interest is unsustainable and needs reform. and if brazil is to stabilize its fiscal situation, this has

to be job one for the new administration. carol: the together the economic reforms, there's a fragmented congress. will he have the support? >> that's a great question. his party was very small, they had eight lawmakers. this election they elected 52. so it's a large base. what we need to know is that he said he will not do this or that . he will not do traditional brazil politics, giving our government growth. that is how it has always worked. we need to see how he actually uses this space to improve things. dependyou said it will critically on what the economic proposals are, do we know what the economic proposals are? >> they have not won the yet, so they --

have not the most details but there has been discussions by the presumptive minister of gather, from what we can , they are actively working on a pension reform proposal, looking at different ideas, looking at whether they do a big bank reform right away, or if they will sequence the reform in a variety of small pieces of legislation. we are not quite sure what the strategy is in terms of the execution of the reform and of limitations or congress. they have to sit down and get a position with the people from the political side and figure out what is liable. -- viable. most say austerity measures are necessary and you have to get the debt down. it's more than twice of the other emerging markets that are

out there. can they do it? the growth debt is close to 80% of gdp, which is the measure the market usually looks at. fragile fromcally many perspectives, especially from the size of its debt and current deficit. so reform is a necessary component of stabilizing the picture, but other things have to be done too. there's an ambitious economic agenda that needs to be implemented at the beginning of this administration. markets have been doing lately, there is a police that it can be pulled off. david: we have not had him in a position like this close in the past -- even close in the past. is he ready to move in quickly with a team and a plan yet come -- plan? >> he is announced a few

anisters, but he has been politician for 30 years in congress and he has never held a post like this. we do not know how much he will be able to articulate. he does not seem to be that interested in economic matters. he is assigning it, but the question is the person he assigns it to could be fired. david: he does care about law and order. >> that he does. there butbelieve that we will be watching over the weekend, thank you so much. , whyg up, tech wreck shares of amazon and also that are falling, more on what we are watching coming up next. this is bloomberg. ♪

>> it should been interesting friday, here's a look at what i am watching, tech is setting the tone, amazon is off its lows, we saw down as much as 9% this morning. alphabet shares are also down for no have percent, disappointments over earning make it three across the board. snape is down almost 13% again. david: they have led us up and they are leading us down. carol: let's get some thoughts from alex webb, he's joining us from london. is there a broad takeaway? every company has their own story, but is there broad takeaway for investors? >> there's a fear that this is

not going to be the same that we have seen in the past. can see the growth on the top line, and google is too early to start a trend yet, but there are things we see in common. and we are seeing on an operating level and net level they are beating expectations, a lot of that has to do with cloud growth. but is also providing a lot of spending. david: how much competition is coming to him -- amazon's way in terms of online traffic? well. google as there's a fear from a lot of the advertising players that amazon is getting into the advertising space. and on facebook your issue might be that you are pushing a never ties went on someone who is already purchased that product. change, wea value

are seeing aggressive steps from facebook and google into that area. amazon is growing at a real pace, there are a lot of other legs of growth to lean on, india for example. as the internet rolls out they are pushing hard to ensure there is growth as well. carol: i feel like we have these conversations all the time, doing well, not doing well. thank you. open, gdping up, the is on the upside and jonathan ferro will be talking with mick mulvaney. life of from new york. this is bloomberg. -- live at from new york, this is bloomberg. ♪

from new york city, i'm jonathan ferro and the countdown down to the open starts now.

♪ jonathan: coming up tech numbers are disappointing. officials are indicating the pain inflicted by the market will not be enough to derail a optimism coming in at a better than expected to three point 5%. the market is 30 minutes away from the opening bell, we are coming in soft, just off session lows. optimism coming in at a better than expectedther strength with the u.s. dollar. treasuries have the smallest of two basisng by points, and 310 on the three-year. >> we always knew october was going to be a difficult month for u.s. high yields pealed -- yields. down modestly in valuation.