tv Whatd You Miss Bloomberg October 21, 2016 3:30pm-5:01pm EDT
you and neck in the traditionally red state of georgia. top official at the clinton foundation said he could "500 different examples of conflicts of interest involving some with former president bill clinton." that's according to e-mail hacks released by wikileaks. he wrote that he had been required to sign a conflict of interest statement as a board member, but that the former president did not have to sign one, despite receiving expensive gifts and payment from sponsors. militants attacked targets , taking hostages in and around cure cook.
-- islam asked a took credit for the result, likely used to distract from the battle -- islam it state took credit for the assault, likely used to distract from the battle mosul. the pulse nightclub has reopened after the worst mass shooting in united states history. global news 24 hours a day powered by more than 2600 overalists and analysts in 120 countries. i am mark crumpton. this is bloomberg. scarlet: we are 30 minutes from the close of trading.
live from bloomberg's world headquarters in new york, i am scarlet fu. oliver: and i am all of her run it rallied to its highest level since march. british american tobacco has offered $47 billion for reynolds american. that would give them a full hold on the company. plus, central banks have cautious messaging. we will show you where the pain could spread. jokes at atrump's new york dinner strike a sour town just 24 hours after engaging in the final debate. clinton and trump garnered s from the boo crowd. oliver: it's take a look at where markets are headed. a little bit better, the dow
down about five basis points. the s&p fluctuating around unchanged. the nasdaq doing well, up about .25%. we started off week and are doing better. let's get more from abigail doolittle. abigail: we do have the nasdaq trading slightly higher as it closes out the week. even better for the weekly .erformance, up .5% the strength this week is largely about technology in those mega-caps. up 25% on the week. this is a consumer discretionary stocks, not a technology stock, that it is on pace for its best week since 2015. they beat third-quarter estimates across the board. the is scribe or -- subscriber base was especially impressive. they beat estimates by 60%. this is an indication for this company. the stock until wednesday had
been down all year on those messy quarters. if you take a look inside the bloomberg, this is the fang trade on the year, the big internet trades on the air -- year. we see facebook remains the winner. netflix, it appeared could be decoupling from this trade, but now they are right .ack on track another big winner on the week is microsoft. shares that more than 4%, on sinceor the best week july of this year. they beat earnings and revenue estimates. behind the strength was the cloud business, with better than expected results. the company offered second-quarter sales guidance that was below street estimates new the stock hitting a
high today. investors seem to be looking beyond that. the sales could be important for this company beyond what's typical. it's go into the bloomberg and take another look at another chart. there is a pretty strong correlation, but we also see a diversions that started right around the beginning of this year. some of this reflects that microsoft revenue had been on a year-over-year basis. but investors are looking for 10% growth. the stock seems to be trading up ahead of that event. it would be very important for this stock to continue that great performance if the revenue growth does come through. great stuff from abigail doolittle at the nasdaq. british american tobacco announcing plans today to buy the stake in reynolds american it doesn't already own
for $47 billion. this is at a time when a number of players is shrinking. is the proposal attractive enough or will it go up in smoke? let's get some insight from the ceo of wintergreen advisors. david, this is a deal that has been talked about. it makes sense. it has been around. it is happening now. why now? david: first of all, a we have had the british pound come down. reynolds has moved sideways this year. it makes sense to move the family together. oliver: a lot of times we have .hese big deals synergy is a big buzzword that always pops up. they talked about cost-saving measures. users and other value proposition. what is it?
companyou put the together, and you have a stronger global presence. it is now a complete company that can operate almost anywhere in the world and grow these brands. it is really a story about becoming an even better company. bigger company becomes more powerful as well. does that mean it has more pricing power across the different markets in which it operates? what: pricing power is makes tobacco attractive. they can raise the price over time and customers will continue to pay. i think it's something that has to be gently used over time. scarlet: what about dividend power? david: batf and reynolds have not only grown asset value, they have grown dividends. you win both ways. oliver: tobacco companies are almost becoming -- in terms of
the number of them -- there are fewer and fewer. big, and the more deals there are, the bigger they but does thiset, force the hand of their competitors? david: once the dance started, people have more tendency to team up. there is always the possibility that other companies will get back together. think, one of, i our largest positions as well. ria, i think, is one of our largest positions as well. they have nice growth and a beer element. we think these are nice companies for shareholders. in terms of scale, that's what companies get by teaming up. british american and reynolds already share a lot. they work with each other in terms of technology.
when they get that scale, what kind of cost savings can we expect? david: there was a $400 million in the release. will bethey conservative with those numbers. smart people who, over time, have been usually shareholder oriented. i think there is a lot of money still to be made. look whaten you happened with shares today -- i don't want to read too much into it because it's just a day -- but british american tobacco is down about 3%. reynolds, on the other hand, surged. our markets misinterpreting this? or is this a natural blip that the acquisition side? david: i think it's a natural
blip. is an independent board that is very good. they are going to negotiate hard, we present. -- presume. we think ultimately this will be a win-win situation. long-term, we are very enthusiastic. scarlet: you mentioned one of the reasons this deal might be happening now is because the pound had fallen so much. but british american tobacco would be using the pound to buy reynolds, which is an american company. about have concerns parity. what would that do in terms of this deal?e for does this push them to move faster or is there a risk it could be dragged on for a while? david: i think this is going to logicaled in a large manner. with the dollar being a bigger component of bat, it will make
take advantage of permanency of capital, or relatively permanency of capital, and wait for the markets. we live in a world where markets have been so distorted that the value of strategic positioning is a lot less. if you are going to make money in public markets, you have to have a much more tactical point of view. have seen in january and february that markets can fall out of love with public equities really quickly if there is some bent to the existing paradox. asset classes in particular do you like? >> i like characteristics, whether it is companies or countries that have strong , business models .dapted to the reality today
those are the things in the public markets -- unfortunately, these attributes have been overvalued. it is a selective market right now. the right thing to do is to have more cash than normal. >> what would that be? i think 50% cash allocation. it gives you option now about strategic allocation and it allows you to step in when volatility steps up. oliver: joining us now for more on the dollar cash safety net is .isa i want to bring this chart up right away. it tells the story well, as pictures really do. amount of cash held
by investors around the world. this is incredible. what is the implication of this? on the earnings call earlier this week, he said there were $50 trillion or more of cash on the sidelines waiting to be deployed. this is money that could move quickly if there is a change in the macro economic circumstances, say a rate rise or some kind of disturbance. the question is, is this a safety net? my knee-jerk reaction is yes. you have people like mohammed all airy -- mohamed el-erian waiting for yields to rise. i got a lot of pushback though. scarlet: how can that be if there is all that money waiting on the sidelines? >> this goes back to my response which is, this will support lu
asians. you think it's a cliche of cash on the side -- support valuations. you think it's a cliche of cash on the sideline supporting valuations, but people are saying this cash could be tied to risk. this could be collateral or derivative trades. derivative trades have increased more than the cash on the sidelines. we have negative yields in germany. we have negative yields in japan. around the world, rates are so low. people are worried about their ability to generate any return, so cash might be the best option. frankly, it might remain the best option if we see a more material selloff spurred by specific corporate news or macroeconomic events.
>> to them, it signals that they would rather keep it there under the circumstance in which a great majority of us are not part of a collateral. let's say they are keeping it there because they are worried about putting it somewhere else. of -- is thatort a reasonable thing to do? is that going to pay off in some sense? lisa: if there is dislocation in the market, holding cash will pay off. then you are able to jump on an opportunity. private equity firms are holding more money in cash. are trying to wait for that opportunity. right now, look around, it's a desert. what more opportunity are you going to find? ishink going forward, there a question of -- if growth does not improve, you could see stay this lower lower,
and you could see material losses if people are not able to pay off their debt. or inflation suddenly picks up as well. it's pretty clear that no one sees inflation picking up any time soon. that's true. also, bonds would lose value as state instruments. people would be really badly hurt. people talkng more about equities as a possible surprise winner next year. tover: i was just going bring up equities. we talk about waiting for some sort of signed but this cash to work. there have -- signed to put this cash to work. there have been a lot of opportunities we have not seen in a long time, but bankamerica has their own reserve of cash and it keeps going up as well.
see as theything you biggest potential catalyst? lisa: we talked about interest rates in the backdrop there. when i talk to investment managers, they talk about europe, the italian referendum coming up. that could potentially's spurred questions about the european union. centralink it's the bankers and what they do on their journey of stimulus. they're incredibly slow, disruptive, but incredibly slow and exhausting journey. lisa is a columnist for gadfly. time now for the bloomberg business flash, a look at some of the biggest business stories in the news right now. massachusetts senator elizabeth warren has sent a letter to the overtment of justice
mylan's epipen rebates. she says they underpaid by $30 million. she says they paid $65 million less than they made by defrauding medicare and medicaid. shares of mcdonald's are up. it beat the consensus estimate. globally, store sales rose 3.5%. carol burnett is close to returning to television. the comedy legend has signed a be in a sitcomo executive produced by amy poehler. arnett has had a six decade run -- carol burnett has had a six decade run in entertainment. that is your business flash update. up next, companies are
oliver: buybacks in stocks. we are going to take a look at a couple of charts, figure out what is going on in shareholder friendly activity. of my favorite topics. we are going to start off by looking at one of the index is that tracks shareholder activity. trackingline is companies that spend the most on dividends. the final white line is the s&p 500 buyback index of companies repurchasing the most of their own shares. here's what happening. you have had a surge in buyback shareholder from a activity that's going to lead to a trillion dollars of executed buybacks this year.
but that is going to be difficult to keep up. i want to talk about what as performance. you can see the peak in the purple line around july. it has slowed down a little bit. investors are once again looking for companies and buying back shares. announcements for new plans fading a little bit. as the federal reserve gets ready to raise interest rates, money want be quite as cheap anymore. you might not be able to sell bonds to buy back shares. at bloomberg data read your story and was inspired by a, so he put up this chart to give us some context. his take away was that no matter how you slice and dice it, companies are not doing that well on the bottom line.
you can see that the peak was in 2014. let's go over here. this is the peak. ande then, it has come down held steady and has not gone anywhere for the last two years. margins have held up. when you look a year olds, the earnings yield is the free cash flow yield is the white line. as the s&p 500 has risen -- we don't have that will -- line, but you know what it looks like. ghana. earnings and cash flow haven't as the- risen as much s&p 500. if we need a reminder of what the s&p 500 looks like, it's the white line flipped the other way. you, oliver,k always ahead of everything. less than four minutes to go before the close.
from the closing bell. microsoft closing at a record high, offsetting losses. i am scarlet fu. oliver: i am oliver renick. viewers we welcome tuning in live on twitter. you can watch closing bell coverage live on twitter every day at 4:00 p.m. all of her would be watching it if he weren't on set with me. -- oliver would be watching if he weren't on set with me. oliver: and if twitter weren't down right now. scarlet: good point. then of 11 major groups in s&p 500 were down. telecom the biggest loser. that comes on the heels of some pretty big name deal speculation. oliver: when you look at the day, up-and-down, but there was some pretty good news out there.
a few big movers i want to jump into immediately. microsoft had a great day. new highs of about 4.3%. they are doing pretty well. is being welln received by investors. time warner also talking about potential deals with at&t. that, shares up about 8%. substantial move, about 3% loss for at&t. in the broader picture, looking -- rather, the intraday, health care is not doing very well. telecom got hit pretty well. verizon and at&t not doing well. care speculating about what a clinton win will mean. finally, looking at the vix,
this is pretty incredible. even though there are still some on the horizon, the vix keeps going lower. we still have the election, but options traders are not real worried about it. the bond market, we are seeing a flatter yield curve. you can see lower yields for the 30 year. the ecb signaled an abrupt ending to qe is unlikely. that was, by the way, the flatter yield curve idea is the theme around the world. japan and germany also flat as well. i wanted to highlight what's going on in europe. take a look at the 10 year. portugal was rated triple b, its lowest investment grade rating. that means portuguese sovereign
debt remains qualified for the bottom line program. the other three ratings programs long ago pushed it to junk, but it doesn't matter. as long as one has rated it investment grade, it is ok. looking at commodities, a pretty big move here as well today. going to be some warmer weather, unseasonably warm. im cool with that in new york. but if you are natural gas, not as much usage there. taking a look at what going on with oil as well, a little bit of fluctuation, but ultimately up on the day. opecve been talking about a lot. russia as well.
off the lows of the fall. a nice rally has helped. scarlet: in currencies, the theme has been and is dollars strength. we are looking at a third straight week lower for the euro. if you come inside the bloomberg, the euro is reaching an interesting level. this is the intraday trade. the euro weakened past the level of fell to after the brags it, june 24. brexit votee -- june 24. 63.ht now, the euro at 1.08 quick mention of the chinese yen, now at a six-year low versus the u.s. dollar.
as you know, the people's bank of china had allowed it depreciation. there was a line in the sand. clearly not. oliver: a lot of people are concerned about the red. there are not a folks talking about it like there were there n the sand. clearly not. oliver: in a show earlier in 2016. -- as there were earlier in 2016. i am looking at currency volatility. it has been moving down. a little more depreciation. i have a basket of currencies in my bloomberg terminal right now. white line on top is about seven currency pairs versus the u.s. dollar, euro, yen, you uan. by the way, this is about a three month spread at the
bottom. here's the take away. has come down from the volatility surrounding , but it is still elevated. the vix is pretty low. the spread is very wide. this doesn't happen too much. withally, investors think market volatility, something has to give. a look at am taking global yields, and the idea that something has to give is there as well. thanks to dan curtis for putting this together. writes foro bloomberg wrote in his daily note -- watch theu want to 200 day moving average, the long-term trendline. as you can see, they are all pretty much right around those levels.
zoom in and you can see in some cases the 10 year went above. the guilt is very close. the jgb as near as well. is striving global yields higher? that's the big question. bank a change in central policy? let's discuss. we have a global bond yields story, where they are basically moving higher. what do you attribute it to? >> it's becoming clear is that u.s. continues to insist that the federal is going to hike rates. slowly trying to understand this challenge of our rates actually going to go up? liquidity is holding rates down, but fundamentals in the u.s., inflation in the labor points to more upward
pressure and the fed hiking rates. it sounds like you think investors are underpricing the risk of higher then expected inflation. is that a fair assessment? >> absolutely. my job is to advise clients which risks are not priced in at the moment. no matter where you look, nobody believes we are going to see inflation. but the data points otherwise. >> the chart -- the yellow bar the first nine months of 2015. oranges 2016. you can see, across all measures, there is a trend, and upward movement. i think that is why global -- what global bond markets are starting to realize.
, totarget for inflation quote the ecb, is 1.7. longer?e wait a little we should wait until we get close to the target. his one point seven close enough? the fed said the number would be 1.8. scarlet: they need to take a look at your chart. how much coordinated investing is there right now between the world's major policy makers? >> i think that's an important question. it's very puzzling with the ecb is doing at the moment. will not endd they purchases suddenly, but is that a cryptic way of saying they are going to taper? or is it obvious they will continue with their ways? the fact that they are tiptoeing around the issue makes you a
little worried that maybe they have some reasons for being cautious. the discussion could be well, they could just wait for a decision until december, but as we all know, markets don't like uncertainty. when they do start to taper -- the biggest fear i year in meetings wherever i go is if we will get another taper tantrum. nothing else happened. and now draghi a sort of talking and you are wondering if he is trying to say that may be we will be tapering in europe. theer: when you talk about potential for a taper tantrum, clearly, we have very low yields right now. just look at 10 year treasuries in the u.s. relative to where they were. we talk about the idea that the floor for yields has moved quite a bit further than a lot of
people expected. what did that tantrum look like at this level? we know that the last time they hiked, they went quite a bit further. -- do you knew her around maneuver around this potential catalyst? >> this was an important question for many years. the narrative was we just need to clean up the housing market and we will be fined. we just need to clean up the banking sector and we will be fine. we just need to clean up the balance sheets. rates will go up. now, i think it is a huge frustration for the central banks and the market that we have been waiting for such a long time. now, they have changed the narrative completely. and now people are saying they will never hike. rates are going to be low. dots, they are way above where market pricing is.
have we gone from way too optimistic to pessimistic? theoesn't take much in environment of positive news or inflation for the markets to say they are even going to taper at some point. oliver: maybe if everybody picked up on this syntax, we would be a little more worried about it. scarlet: we will be right back with much more. this is bloomberg. ♪
citing people familiar with the matter. ceo mark zuckerberg reported that it would be inappropriate to center -- sensor trump. quityees threatened to over the issue. jobless numbers were unchanged in florida, iowa, and pennsylvania. the figures reflect broader trends evident in the latest jobs report. u.s. coast guard officials say they will examine lighting on jetty whereach or jose fernandez and two other men were killed in a boat crash. guard will perform new analysis of a jetty that runs from the channel to miami beach. forces have raised a flag over a church in most all. militants had spray-painted
graffiti on the walls and the floors were littered with garbage. christians had been forced to pay at to islam or special tax. i'm mark crumpton. this is bloomberg. with thee are back chief international economist at deutsche bank to talk about the fed, inflation, and the wolf that's coming. ofst, a look at the language how the fed is gearing up for this potential move. you can see this chart. we associatems with hikes are getting more and more. is it discouraging? >> it shows very well what they are trying to achieve. we counted the number of times gradual, how word
used the wordy cautious. as you can see, used the word cautious. as you can see, we have had a clear trend up to the hike. they were becoming more and more cautious, and then they fell off a little bit. we are probably going to hike in december. after that, it will be very gradual. in other words, basically telegraphing to the market that what you had was correct and what we had was wrong. >> there are many good reasons to because this and many good reasons to be gradual. but i think the last thing the fed once to do at this point is the yieldskets and we have seen globally. therefore, by saying very clearly, don't worry, rates are not going to go up. we will be slowly moving things higher, it will only be gradual, we do not see the significant
selloff in assets that we all fear. oliver: looking right now at roughly a market percentage of about 70% of a rate hike. that's the highest in almost a year. the risk factor here if we don't go, and was sort of events could happen between now and ?hen it seems like the market is pretty convinced it is going to happen. close to full employment. we are seeing inflation slowly move toward the target. this is indeed a very important precondition for the fed hike. last meeting, this was well below 50. this is indeed a very important
input in the discussion. we talk about how there is a dual mandate for the federal reserve as opposed to the ecb. which weighs more now? has there been a shift? >> the traditional economics textbook would tell you to look at the taylor rule and unemployment. for the last six or seven years, many people in the financial market have been on the hunt. if they do hike, are we going to see a lot of people say hey, why buy investment grade high yields if i can be in lower, risk free treasuries. be coming back to risk-free rates? andissue around stability financial instability becomes very important. other than full employment and
inflation at 2%, the issue is communication. how can they communicate, don't go sell off the markets, don't go for wide spreads, because we will only do this cautiously. scarlet: prevent another tantrum. about howwant to talk this could potential he also affect the corporate landscape as well. -- potentially also affect the corporate landscape as well. we want to see wage inflation, but margins are getting smaller and companies have already cut wherever they can to get margins where they are. what happens when that number keeps going higher? >> the first point, of course, is that the fed is worried about inflation. they should worry about wage inflation because it's now at 2006 levels. but higher wage growth means
higher income growth, and for companies, it should mean higher topline growth. in some sense, this is what we have and waiting for for a long time. oliver: is there a level at which it has an adverse affect on the corporate landscape? >> absolutely. and we have been hearing about wages. do companies act as if they want to protect their profit margins? it doesn't seem to be the case normally. normally, companies are eager to invent new products, see what it's in the pipeline, have new innovation. all of those things are more important than protecting margins. the long-run prospects of that are not very good. i think it's not only about margins. it's about the general business environment and what are the prospects in terms of inventing new things and doing things well. someet: i need to bring in
headlines from john williams in the fed. he said he was ready to go with a rate increase. he also said it was essential the fed shows it can hit 2% inflation, but he's not losing sleep if the fed shifts 2%. what does that mean? signaled that they are willing to run the economy hot. they may be rolling back their thumbs zen saying ok, let's write -- let's let it run hot a little longer. will we have 2, 5, 10 year rates wake up and say hey, maybe there is a risk that will erode the value of my portfolio? behind thee fed is curve, maybe it's not sleepless maybe heing 2%, and
can allow himself that luxury, but the key of uncertainty is will markets suddenly say gee, it looks like we are behind the curve. and the risk is the yield curve could move up. it sounds like you and john williams could be somewhat in the same camp. thanks so much for coming in. scarlet: coming up, could european banks rally 50% in two years? one strategist has identified an interesting pattern. we will show you where he sees the upside. this is bloomberg. ♪
favorite charts on the bloomberg. this comes from larry of mishler financial. he is looking at something he thinks has generally been the big mover for the stock market this week, and i happen to agree. this is intraday for the past five days. markets did pare back their losses and do a little bit better on the day. we basically woke up and saw a market where it seemed like there were some jitters around the idea of higher rates. the dollar had a pretty solid move here. obviously a rate hike would exacerbate that move higher. have a question about some international companies and their earnings. higher dollar is not going to be good there. it's not great for multinational stocks. we haven't really heard any commentary from ceos on this, have we? oliver: it has been mentioned by
several different companies. i amet: for my deep dive, taking a look at european banks. we talk about how they went above the 200 day moving average. here is another technical indicator in support of the sector. this is a double bottom, in the part lance of technical analysts. that is when something falls to then rallies and from there. this is a bullish trend. he believes european banks could if the0% by mid-2018 issues with german and italian banks are resolved. that's a huge if. the interesting thing is, he is not the only one who sees value in european banks. bankamerica merrill lynch upgraded to the sect were -- upgraded to overweight the sector as well. definitely, european banks are getting some love. willg up next,
mark: i am mark crumpton. let's get the first word news. donald trump has taken a swipe at first lady michelle obama. during a rally north carolina today, he said all she wants to do is campaign. attackingcused her of hillary clinton during the 2008 primaries. he was referring to mrs. obama's quote that you cannot run your own house, you cannot run the white house, which trump said was aimed at the clintons. the obamas have denied that. hillary clinton has a new ad featuring the father of the u.s. army captain killed in iraq. he was repeatedly criticized by donald trump after he spoke at the democratic national convention about his son and trump's proposal to bar muslims
from entering the u.s. ad,sks at the end of the mr. trump, with my son have a place in your america? the divisions between u.k. and the rest of the european union have begun to take shape with germany warning britain faces a difficult path. theresa may said to reporters today at the conclusion of her first e.u. summit said she assumed power. >> we want to trade freely in goods and services with europe. and the u.k. will continue to face similar challenges. to our european neighbors. we will continue to share the same values. i want a mature, cooperative relationship with our european partners. mark: the prime minister also said while the u.k. is not leaving the e.u. -- it is leaving the e.u., it is not leaving europe. the defense department says a u.s. naval warship has conducted a freedom of navigation
operation in the south china sea. that is where china and five other countries have competing territorial claims. a spokesman says the transit operation was near the islands which are occupied by china. news 24 hours a day, powered by more than 2600 journalists and analysts in over 120 countries. i am mark crumpton. this is bloomberg. oliver: let's get a recap of today's market action. stocks did not really go anywhere. the dow jones ended up down about nine basis points. .he s&p completely flat a little bit of positive. nasdaq of about 30 basis points. yields came down on the 10-year down about 120 basis points. broke the news that john williams from the san francisco fed talking about how he is
comfortable with inflation, comfortable with the economy running a little hot. and ultimately he was ready to go in september. a lot of interesting stuff. i will headed over to you, scarlet. scarlet: microsoft stock ended the day at a record high after quarterly sales and earnings topped analyst estimates river by growing demand for cloud-based software and services. let's begin to microsoft. microsoft has been growing its intelligent cloud segment. sales rose more than 8% in the first quarter beating the average estimate. revenue more than doubled. the cloud is helping microsoft outperform even as demand for personal computers remain in the doldrums. you can see commercial p.c. related audit growth, which is the orange bars. in yellowrowth basically flat in the fiscal fourth quarter. microsoft has made a return to
revenue growth which may be an early sign the transition to more cloud services is starting to pay off. let's not forget microsoft this year made its largest deal ever when it announced the $26 billion acquisition of linkedin. it is an expensive purchase and sets a high bar for microsoft to prove linkedin is worth it. it has the highest earnings multiple of any takeover valued at least 500 -- likely dollars this year. -- $5 billion this year. clearly bigger than anything we have seen over the last. year. . despite opposition from others in the industry, microsoft expects to close the acquisition this year. oliver: thank you. "what'd you miss?" it looks like portugal would get to keep its investment-grade rating entering qe eligibility in europe. the rating agency kept it at triple b low after mario
draghi said portugal's debt would not be eligible for purchase if the company could not keep that rating by at least one major ratings company. joining us from london is eric lonergan. this is interesting because it feels the e.c.b. wants to have as much --as many eligible bonds as possible. what does that tell you when they are willing to reach to a country that only has one rating that met the requirements? isi think what it reflects how successful mario draghi has been at achieving the near impossible, which is, how does the central bank provide a backstop to sovereign credit risk at the same time as avoiding moral hazard? he seems to have been able to do that. you have the system now in europe with conditional qe. as long as you meet fiscal
requirements and have investment-grade status, you are effectively a risk-free asset because you are backed by the european central bank under the qe program. is still an incentive structure which means you have to get your house in order. portugal is straddling that bridge. it is very clear now mario draghi's qe is kind of mission accomplished at this point because there has been no sovereign contagion from greece a year ago or brexit. the firewall around the sovereign system in the eurozone appears to be working. scarlet: i like how you put that, conditional qe. whose conditions and will those conditions change? what might cause them to change? >> this is it. it is up to member states. in the portuguese case, portugal -- portuguese bonds behave like credit risks. most of the other major sovereign bonds in eurozone behave like treasuries.
are still atnds the crossroads where it is very much dependent on the path portugal takes. if portugal wants to create a collapse in the cost of borrowing and bring spreads down, it has to impress -- improve its credit rating and physical condition. i think it is important not to underestimate what mario draghi has achieved, which is the system does seem to address concerns northern europe has had about qe creating the wrong incentive structures, while at the same time ensuring the financial system is robust in the face of shocks. i think draghi has succeeded in that. the big question from here is that financial stability has obtained -- been obtained qe but it needs to provide additional stimulus to the economy. it is not clear whether qe can achieve that this point.
oliver: i completely get what you are saying. in terms of being able to find bonds eligible for this program and still setting up this -- avoiding the moral hazard by having standards, but then you have a country like portugal where you have a handful of rating agencies saying they do not meet the standards. then you have one that says they do. you are a fund manager. three say this is not a buy, and one said to buy, would you not be taking on more risk than you want? >> that is a good question. at the same time, there are political realities. the e.c.b. has a very careful balancing act. it has to be the judgment of the e.c.b.. .t is not even a done deal the e.c.b. has its own flexibility. it could decide to overrule that.
at the same time, they want to be seen to have some kind of external verification. your point is absolutely correct. portugal is not in the clear. portugal has to try and maintain its rating and it has to stick to the fiscal rules set by the european commission. scarlet: portugal is not in the clear. the yield curve is a lot steeper than germany or italy. you can see how far above -- faraway portugal is from everyone else. portugal in green. the german bond yield curve in blue. the white horizontal line is zero. anything below the red line is what mario draghi and the e.c.b. cannot buy in their qe program. draghi want to keep portugal at investment-grade in order to make sure there was no shortage of bonds the e.c.b. could buy? that has been another big concern. >> i don't think that is his
primary motivation. i think is reasonably pleased with the way things are going at the moment because there are signs of life if you look at italian industrial reduction. economy the european that have been depressed are starting to show signs of recovery. broader indicators are starting to improve. i think they do not want to upset that state of affairs. i think they are keen that there is no additional shocks and for portugal to stay on plan is precisely what mario draghi would want. i think there was one very interesting comment he made in response to a question about the tapering rumors. he made it absolutely clear monetary policy is not driven by the profitability of the e.c.b. i think that is very interesting because that shows this current rule they have whereby they
cannot buy bonds that are yielding less than the deposit rate is really arbitrary. that was a suggestion to me, reading between the lines, that they may be willing to show some flexibility. that would significantly increase the scope for bond purchases as well. oliver: last question as we shift gears a bit. let's talk about the bank of japan. what do you think we have in store in the short term from the central bank of japan? >> i think japan is the one to watch because if you look at global monetary policy, it is clear what the fed is trying to achieve currently. it is clear what the e.c.b. is doing. uroda tends to come out with a new, radical policy every three to six months. i think what he did at the last meeting was extremely significant. by targeting the 10-year yield, that is effectively a blank
check to the japanese government which opens up huge scope of fiscal stimulus. by doubling up on his inflation target, that suggests he is going to have to do more because at the moment, if you look at core inflation excluding taxes, it is down year-to-date in japan. his degree of conviction and activism suggests people are very vulnerable to another surprise. i am certainly thinking in terms of positioning myself from further moves from the bank of japan. oliver: great stuff. thank you for joining us on this friday. that is eric lonergan. scarlet: coming up, hillary clinton and donald trump took a break from a harsh election season to engage in lighthearted jokes last night. some did not go over so well. donald trump: michelle obama gives a speech and everyone loves it. my wife gives the exact same speech --
oliver: "what'd you miss?" donald trump and hillary clinton came together again to tell jokes. the occasion was the al smith dinner, a charity event famous for its roasts. both took shots at each other but also their own campaigns. hillary clinton: donald, after listening to your speech, i will also enjoy listening to mike pence deny you ever gave it. [laughter] now is toining us louse from washington.
it is a fun event. what happened last night? >> this is a lighthearted opportunity for the two of them to have been involved in a harsh and biting campaign to take a more lighthearted approach to their political differences. we saw donald trump make a few jokes and hillary clinton do the same. it started off very lighthearted. as the night wore on and the jokes were on, they became more harsh. we saw donald trump get booed for some of his jokes calling hillary clinton corrupt and saying she hates catholics. that did not go over well with the crowd. hillary clinton was received more favorably by the crowd. her jokes were mostly seen as funny. she took some harsh attack that donald trump as well. but for the most part, she was able to get through it without any boos. oliver: who was that crowd exactly? smith dinner, al an annual event in new york that
raises money for catholic charities. it was a charity event. it is usually in good humor. people spend a good amount of money. this is the new york elite crowd spending as much as $3000 for a seat raising money for catholic charities. it is a crowd very well known to donald trump and hillary clinton who are part of the new york elite society. they both live in new york and both have a lot of good friends who were at the dinner. people who are part of media, business, and the philanthropic community in new york. scarlet: a familiar crowd for both of them, so probably not a lot of undecided voters listening to the roast. was this the final occasion in which donald trump and heller clinton would be together in a room? there are no more debates. now they go their separate ways and continue campaigning? >> most likely, this will be the only time between now and november 8 we will see the two of them together in any form.
we saw at the most recent debates they did not even shake hands. last night, they did shake hands and spend time chatting with one another. it seemed like a more cordial event. as soon as that was over, they got back on the campaign trail and were going at it again. crowd trump hearing the say lock her up again. between now and election day, all clubs are off and we will continue to see the harsh campaign we have seen the last few months. scarlet: the gloves were off a long time ago. oliver: they do have a few more weeks until the election. i saw some headlines about donald trump addressing the issue of whether or not he's going to accept the outcome of the election. what is the latest on his take on the? >> has continued to double down on the line of their being voter fraud in effect hillary clinton they try to break the election and democrats may try to steal the election.
today we saw him say something we have not heard him say which is easily to keep on campaigning win, lose, or draw. he floated the idea he may lose the election which is what we are seeing in the polls. it may look like donald trump is starting to come to the realization that in two weeks, he may not be the victor in this race. is seems to be something he's rationalizing. that is something we have not heard from him in the past. so far, it looks like something he's going to be doing as he gets closer to november 8. oliver: i thought the same thing. the first time we have heard him sound a little defeated. thanks so much for joining us. he rates hisng up, performance in navigating the troubled waters for european banks. this is bloomberg.
scarlet: i am scarlet fu. "what'd you miss?" they are pared all of their losses since they were sued. avide serra says he expects $5 billion to $6 billion settlement. he feels sure john cryan is the right one to navigate them through the situation. >> i have known john many years. i worked with him the first year my career. i owe him a lot. i am doing financials thanks to john. i think he is the best man for the job the customer to bank has been led by those with napoleonic conditions. they wanted to say europe needed a goldman sachs to justify themselves just as -- goldman sachs paychecks with dismal performance. john is the opposite. he will look after the interests
of the bank long-term. deutsche bank is needed for german corporations to do business internationally. it is not needed by u.s. corporations. i think it will further shrink the balance sheets of the investment bank. >> this is really important. we are going to rip up the script. i would suggest the signal distinction of john cryan and give a major shout out to james gorman of morgan stanley. guys whereare mass they see within the framework of their institution the dynamics and need for change to make those dynamics work. within the messiness of john cryan, how does he get others who are not like him to make those structural changes? all fornk first of
deutsche bank, they do have capital businesses which are very profitable. they have a good german operation, good asset management. they do have some pillars. the investment banking has been oversized. go on ayou have to morgan stanley type of diet. you cut costs. it is doable. >> not to interrupt, but i think this is really important. how does john cryan given entrenched deutsche bank management the courage to make those decisions? >> i don't think they have any choice. deutsche bank cannot be in that business long-term. they are finding to which a bank -- deutsche bank
abused and it is gone. >> how does he retain talent? if he starts losing talent, he is in trouble. >> this is an industry that has too many people. when i hear that you are losing talent, i think that is not the case. in europe, everybody will have to shrink operations and finance. lots of businesses from london will go back to new york. if you work in deutsche bank, you're happy to keep your job. these are overpaid people. the last thing they will be worried about is compensation and talent. that is very unique. i hear from deutsche bank morale is very high among senior management. they have a sense of purpose. a.c.a. c.e.o. that flies not in private jets -- they see a c.e.o. that flies not in private jets and is serious about aligning interests. everybody is on board to save the ship.
i think deutsche bank will come out stronger. the last 20 years of deutsche bank being the goldman sachs of europe finally coming to an end. scarlet: that was davide serra. just to clarify, it was deutsche bank shares recovering since the demand of $14 billion. oliver: coming up, what you need to know to gear up for next week. this is bloomberg. ♪
donny: on donny deutsch. john: and i'm john heilemann. with "with all due respect," i think we found our winter. -- our winner. >> i feel very confident clean kershaw is a great pitcher. too many sticks. john: have too many sticks all right. donny: we have a couple of big sticks including donny deutsch of new york city. only two fridays left before the finale of the pres