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tv   Bloomberg Surveillance  Bloomberg  November 6, 2019 4:00am-7:00am EST

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francine: germany's finance minister a path towards a european banking union. softbank's bet on a silicon valley startup takes its toll as the group reports its first quarterly loss in 14 years. and trump loyalists say rudy giuliani's role between president trump and ukraine became insidious. the latest on the impeachment proceedings. ♪ welcome to "bloomberg surveillance." good afternoon or good evening.
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these are your markets. a bit of a move sideways for the europe stoxx 600. mix the data across the world and mixed corporate earnings. if you look at the banking sector, it is one of the biggest gainers. we have a german manufacturing orders and euro area services pmi for the month of october. better than expected. anything above 50 means expansion and we were expecting 51.8. so look out for any movement on euro-dollar and the u.s. 10 year yield. coming up, we speak to the president of south africa. come -- alk about s escom at a possible ratings downgrade. but first, let's get to bloomberg first word news. >> we begin with the impeachment inquiry for president trump.
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the actions of rudy giuliani deeply unsettled to ukraine, outlining a quid quo pro. this is in exchange for investigating joe biden's son. julienior ambassador said -- rudy giuliani's role started as perplexing but quote became more insidious. the world has gone mad with free money according to ray dalio. he decried the current policies, leading, he said, to rising gaps in wealth and opportunity. he said money is essentially free for those who have money and essentially unavailable to those who don't. walgreens is looking at a potential deal to take the company private. it could become the largest leveraged buyout deal in history. bloomberg has learned they recently held talks with private and equity firms. the drug company has a market value of around $55 billion.
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they declined to comment. its beads earnings estimates as sales pick up in the u.s. -- ad idas beats earnings estimates as sales pick up in the u.s.. sales returning to growth. we grew double-digit in the u.s. and online in china. the u.s. is indeed accelerating, indicative of the fact that the client issues are coming to an end. that is why we expect a substantial increase to growth in the fourth quarter. overall, we moved 2.5 times of the market rate in the u.s. and were happy with their performance. >> global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine? francine: thanks so much. generali sawciety blaming adverse
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market conditions in august and waning decline -- declines. the ecbeposit rates of will impact revenue next year slightly. it will be the same order of magnitude from this year. , we think wehat can adjust our status to manage the situation. francine: also this morning, europe is a step closer to a new banking union after germany's finance minister moved to break the impasse. times, in the financial he said germany is ready to consider some form of joint deposit insurance. he went on to say that the need to deepen a european banking union is undeniable. joining us for the hour is
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patrick armstrong, a chief investment officer at paris me -- at plurimi wealth. the german finance mr. is for this is a huge step. >> it might be a step towards the banking unions, it is much needed and will give confidence to banks which may lead to some much-needed consolidation. inefficientope are compared to their american counterparts in the banking union may address those things. francine: is that not what you read? for many years, we did not get any movement. patrick: i agree 100%. there is definitely movement. there is really no other
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alternative but a banking union to have a thriving euro zone. i think we get there. but i don't think we are there yet. unequivocally, doesn't mean that this will spur consolidation -- does this mean that this will spur consolidation? patrick: there are two things you need for consolidation. a banking union and there are still questions about that debt. -- bad debt. the banks don't trust each other. you get those resolved, there consolidation.e francine:francine: with a trust better if there were less negative rates? patrick: it's better. they perform better when the get -- when they get the prospect of getting out of negative rates. that was based on our view of the ecb, we thought october
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would be the first hike back in the early part of the year. we think the next move is a cut, more likely. so that is still headwinds for the banks. we own bnp. the last bank we have in europe. the banking debt is where we are more attracted to. a little higher yield. i think if you are buying banks, you are just attracted to the dividends. francine: what kind of banks? patrick: we don't own german banks. .loyd's is our biggest position there are still issues around brexit probably being overstated . francine: if we do see consolidation, who will buy who? patrick: good question. it will be a lot of mergers of equals, because that is how fragmented the industry is.
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banks are focusing on the wealth management side of things. you have a number of week cousins in europe who may just want to merge and build some scale. i think it will be a lot of branded mergers of equals. francine: week cousins in spain? patrick: probably keeping a domestic focus. italian banks will wants to merge with italian banks. spanish banks, even with a union , i think there are just cultural differences. where is a german bank won't trust an italian bank the same way. they will get there but it's hard to say what happens. will say theyo want to consolidate. does europe have to compete with the u.s. in financial stocks? patrick: it does, and that might be where some consolidation happens.
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any acquisition a u.s. bank does in europe, if it can cut jobs, is part of the deal. i forgot your question, actually. francine: the question is, what would need to happen for you to have to get back into these financial stocks? patrick: i would want to get back towards negative interest rates or at least the prospect of that happening. francine: patrick from plurimi wealth stays with us for the hour. up next, we speak to the president of south africa. don't miss that conversation. we will focus on a lot of the mining stocks in south africa. this is bloomberg. ♪
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francine: economics, finance,
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politics, this is "bloomberg surveillance." finallyi son is disclosing the damage from wework. spec -- bet on they have reported the first quarterly loss in 14 years. taipei is arom bloomberg opinion tech columnist. he has been following the story closely. how much of a surprise was this? >> we knew there were going to be losses, substantial. .ut i knew there would be a loss on the publicly traded scares but i did not know they would write severely.k that it is well above my expectations and most were probably taken a
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surprise -- by surprise. francine: you had a column saying muscle he or she desk -- masayoshi death really needs that billion dollars. that desperately needs billion dollars. >> the average investor cannot get access to the vision fund, but they can buy shares in softbank. so that is a really important relationship. is that most of the earnings of the vision fund are not actually in investments they have sold off and gotten cashback for. purely on quarterly evaluations of the portfolio they have. 70-80% of the portfolio is private market companies. a lot of them are in asia, but also the u.s.. they are basically vc companies.
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only 20-30% are public companies like uber and slask. lack. is -- s so it is difficult to know what they are worth. paper profitshese that are pushed up quarter by quarter by companies like softbank pushing up evaluations. francine: as they say, they are still expecting some vision ipo's by 2021. how difficult will that be? and we know how masayoshi son took this loss? >> [laughter] in terms of taking a loss, he was defiant. he basically said, hey, we got wework at a discount. his attitude was amazing. in terms of going forward, they need ipo's.
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they have to get back about $3 billion a year to investors in the vision fund. they have preferred shares paying a 7% coupon. no matter what happens, they have to find the cash and give that back. market is not strong, do you go ahead anyway? or do you hope things turn around? the macroeconomic environment does not lend itself to an improving situation for ipo's, especially tech unicorn ipo's. so this is a problem they will face over the next few years. francine: the million-dollar question. thank you so much. we will have plenty more from tim throughout the day. and i suggest everyone subscribes to his columns on the website or the terminal. let's get back to patrick armstrong from plurimi wealth. you have a short on softbank. patrick: softbank, being synonymous with the unicorns,
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and that may be a misnomer because there are 400 in the world right now. we think the path of companies is about gearing up for an ipo, not a profitable business. you have seen with uber and wework, the market is not just going to throw money after companies that don't have a clear plan to profitability. a lot of investments have been made addressing them up and i think that window is starting to close. francine: wework seems different. patrick: they are the most extreme of everything. they have a lot of issues. they are the most extreme, but uber has no path to profitability. they are in a competitive market despite being an oligopoly. anything they create will
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attract new entrants and there is no barrier to entry. all of these companies could never have gone public in the past, and in the future, may not be able to. francine: it has a direct impact on unicorns around the world or in asia? patrick: i think around the world. for the last five years, small companies were just, this is how we are going to be worth billions. management was not focus on earnings because the market did not reward earnings, it reported revenue growth and the prospect for growth. and without a real plan to , i think thats window is closing and softbank is going to be a victim of that. they have got billions of investments in these companies. i don't think that is going to be a good business. francine: i do want to show you a great chart that hilary clark did. it looks at shares for uber,
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slack, garden health falling in november -- september. is there anything in the tech space that does not warrant it? patrick: we own alibaba, we on facebook. -- own facebook. they generate earnings and have a dominant market positions. but we prefer companies that are generating profits with cash flow. francine: isn't facebook risky? patrick: definitely. a risk, but you are getting real earnings. it is probably going to have to build in costs and regulatory costs at a much higher rate going forward, but it is still attractive. armstrong fromck plurimi wealth juckes stays with
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us -- plurimi wealth stays with us. don't miss our interview later today. number -- this is bloomberg. ♪
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francine: this is "bloomberg surveillance." the world has gone mad with free money. that is from ray dalio, not mincing his words. he said that at the same time that money is essentially free
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for those who have money, it is essentially unavailable for those who don't. that contributes to the rising wealth, opportunity, and political gaps. let's get back to patrick armstrong from plurimi wealth. i have a great chart looking at u.s. stocks compared to the rest of the world. the top position is being tested. this goes back to monetary policy and the limits of it. how much do stocks grow from here? patrick: u.s. stocks will be driven by earnings growth. there is no scope for multiple expansion. the s&p 500 is at 13.5 times. the only time it was higher was september of last year and in the spring of 2000 before the tech bubble collapses -- collapsed. not complete the unprecedented,
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but the president where we were did not lead to good things -- precedent where we were did not lead to good things. stocks, overall, are too expensive in the united states. francine: are we going to get a correction? patrick: i think we are due for a correction. everyone is hanging their hat that we got this phase one deal. i don't think there is going to be much in it. the substance has almost been pre-announced and i don't think it is meaningful. it might put a floor under markets, but not drive them higher. issues about the biggest economies, transfer of technology, those kind of things are unresolvable. we might get a slight pullback in tariffs, but i don't think it will be much. francine: so we lived with the status quo for the next 10 years? patrick: i think there will be different political regimes in
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the united states. china will be very stable. -- when you are trading at peak multiples, you get a greater expansion they and the current multiples. francine: what does it mean for the chinese economy? patrick: it will slow and continue to grow. 6% is looking hard to achieve. over the next 10 years, china will grow at 4% per annum, which is still healthily outpacing the rest of the developed world. but 6% is an unachievable rate in the long-term. we don't expect a real hardline, but a gradual slowdown towards 4%. francine: is a renminbi a litmus test for what happens? patrick: that will be a thing in phase one where they say they
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will stop any appreciation of the renminbi versus the dollar. is encouraging but if the trade deal falls apart, you will probably see a weakening. francine: patrick thanks so much. coming up, we speak to the president of south africa and ask him about eskom and the south african rand. don't miss that conversation a little bit later on. this is bloomberg. ♪
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. . francine: economics, finance, this is bloomberg surveillance. i'm francine lacqua. you're watching "bloomberg surveillance." a lot of the focus is on
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politics. here with the main stock herders. >> we have a host of earnings and we're about halfway through. i want to start with the biggest gainerses,, up more than 3.5%. the story is the food business is outshining the clothing business which has been a drag on the food sales. print and stock gen up more than 3.5%. you might think how is this happening? they didn't beat estimates but going into this report there were concerns that have to raise capital but the key capital ratio beats cet-1 is pushing up the shares and i.s.s. is plunging. this is a danish cleaning company and issued their second profit warning since august for what the c.e.o. called
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ambitious goals. francine: now to bloomberg. here's viviana. viviana: offering a pass to the full banking union. in the editorial and financial times, olaf dropping the position for the plan. he says the need to complete the european banking union is, quote, undeniable. he's also imposing a mechanism to shield depositers when banks collapse. phillip hammond is quitting parliament, the expulsion from the conservative party for voting against prime minister's boris johnson's brexit strategy and will stand down at the election september 12. ham mond criticized johnson for not allowing a wide range of views. moody cutting lebanon's credit rating one notch further into junk. the downgrades reflecting to increased likelihood of a default and how protests continued to royal the nations and the demonstrators have been
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on the streets. they've left the country on the verge of bankruptcy. and over to yemen. the swatly recognized government striking a peace deal with southern separatists. the agreement in saudi arabia formally understand a rift and threatens efforts to battle iran's backed rebels. the separatists are expected to get a role in a new government. global news 24 hours a day airing on tic-tock on twitter powered by more than 2,700 journalists and analysts in more than 120 countries. francine: new evidence of the trump impeachment inquiry proves two envoys were unsettled by actions of his lawyer. transcripts show gordon sondland, the ambassador to the e.u. and kurt volcker described his role as per flexing and kept getting more insidious. for more of bloomberg's government reporter kathleen
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and patrick are here also scombroins us. patrick, thanks for sticking around. how damaging are these revelations to trump. >> we're seeing a turn of the screw or brick in the wall, whatever analogy you want to use in terms of analysts building their case and what we saw with the public release it was significant. we know two things now, one is gordon sondland is saying he does explicitly recall giving a quid pro quo to the top ukrainian official and added an addendum to his previous testimony and we know sondland and volcker had concerns about rudy giuliani's role that seemed pretty significant. i think given the closeness giuliani has for the president there will be a question that might be more central going forward. francine: what does it mean about the impact republicans demand more of proceedings be made public. kathleen: that's been the chief criticism, the inquiry behind
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closed doors and know we move closer to the public bay with the vote in the house last week. the events that transpired with the release of the transcripts showed the risk to the republican strategy because they keep demanding more and more happen in the public view but when this kind of damaging information comes out and in the public that creates then a problem for republicans. i think in some ways this argument more and more should be made public is both backfiring and becoming a less valid argument as more things come out behind closed doors. francine: we're 364 days away from the 2020 election, how does it impact the polls? kathleen: so far we've seen trump's republican support be resilient. there's been some movement overall in favor of impeachment and removing trump from office in various polls and i think he'll be 50/50 and as it gets more in the public consciousness to see where the polls go because if we see particularly republican movement it will be problematic
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but there was a poll from the "new york times" the number of battleground states showing trump competitive against top democrats and these will be the states in the election and looks like trump is doing well there still. francine: i don't know how markets view impeachment and i know they take interest but you don't know how to trade it or what the outcome is. it's unclear if it backfires against the democrats. patrick: there's a lot of uncertainty and always is going into an election year and don't have a particular change of view based on the possibility of impeachment but what is unequivocally done is any bipartisanship deal you may have hoped for on infrastructure between republicans and democrats is dead in the water and that's one potential stimulus that could have been there and won't be there now. francine: what do you need to start modeling? we don't know the dick candidate. patrick: so many questions how things will go, the vote on the impeachment and then to the election who will be running for the democrats and what the polls say when you get there and can you trust the polls?
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all the question marks, it's dangerous to say this is my view and how we'll play it because with all the uncertainties you get to a 50/50. francine: what are we waiting for the next couple weeks? is there a couple dates where befind out where the impeachment process goes next? kathleen: we know the next couple weeks there are public hearings that will be nice to see and what to look for from the key players is john bolton, national security advisor and has been asked to appear as soon as this week and the indications from his attorneys is he won't appear voluntarily and he was someone very close and in position to know about what was going on at the time in question as the national security advisor and someone who we think was at least by other people's accounts sharing in the skepticism about trump's conduct and could be damaging if the panels hear from him. francine: thank you very much. kathleen hunter, the bloomberg reporter. keeping a close eye on twists and turns in congress and with the impeachment process.
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now let's get on to corporate news because this could be the largest leverage buyout in history. bloomberg has learned walgreen's boost is setting up a potential deal to keep the company private. patrick, this is not the first company that private is best. what does that mean for an investor. is it a good thing or bad thing? they're shifting almost like fendi. patrick: it's a function of the 0%, that companies take things private and get rid of quarterly reporting. it's a very difficult environment competing with amazon and taking something private and basically focusing on the long term and getting away from the myopic focus of competing quarterly and a benefit for the company and if you can bow it next to nothing probably makes sense and the market is rewarding high growth companies and some of the old-fashioned retailers are trading at reasonable multiples
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and if you can pick them up with cheap financing probably makes sense. francine: can you do a lot better if you're private? patrick: i don't know if you can but can cut out the fat more easily and it is significant you can focus on the long term. when you're private you can say you look at the horizon and where you've got to go back public again and getting rid of that quarterly reporting when you're competing against amazon is probably a big burden ton get rid of. francine: patrick armstrong stays with us. coming up, our earnings beat for how adidas's stock is trading. the chief analyst is next. this is bloomberg. ♪
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francine: this is bloomberg surveillance. i'm francine lacqua in london. now let's get to new york city. viviana? viviana: softbank is following a charge of 4ds.5 billion for we works and is disclosing the damage on uber leading to the first quarterly loss in 14 years. the loss is coming as softbank is trying to raise a successor to the mega vision funds. astroseneca teaming up with one of china's largest banks on a biotech fund because the u.k. drugmaker works to build a presence in the fast growing market is working with china international capital and targeting support for drug and zige no, siric developers. >> the resources, we suddenly have to invest more in china and should look at the momentum
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we've experienced in the last few quarters. we have to continue shooting in china. the need is enormous. viviana: considering a stock offer for pc giant h.p. it reports the deal could be worth as much as $27 billion by "the wall street journal" and would combine two of america's biggest names in office hardware. the paper reporting the deal could result in $2 billion in annual cost savings. that's the bloomberg business flash. francine? francine: thank you so much viviana. adidas beat earnings estimates as sales picked up in the u.s. after months of supply chain issues and reached 6 billion euros and there is a expected increase in growth in the fourth quarter. >> we grow double digits in u.s. and china and u.s. is accelerating and indicative of the fact that the split issues
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are coming to an end and we expect a substantial increase in our growth in the fourth quarter and overall we grew 2 1/2 times the market rate in the u.s. and were very happy with the performance, not only the u.s. in the third quarter but overall. >> are you still having to fly from asia to north america and what impact can we see from the supply chain issues in this set f numbers? kasper: you can see a slight impact and very little impact in the growth rate and the fourth quarter because you will not see any impact on the growth rate. on the contrary what you'll start seeing in the fourth quarter is the first indications of the euro 2020, the european championship in football that of course we look very much forward to and hope one of our teams will win. >> let me look at another topic around tariffs. you said in the past in august the threat of u.s. threat on tariffs isn't a big problem for adidas but you still have that view but can you update us on
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any pain, the paris narrative and story and what it is ausing for adidas? kasper: 23% in china and 95% of manufacturing capacity in china. from an import standpoint we see very little impact in the overall numbers and the level we don't mention in the quarterly report because we don't see it. what we're much more concerned about and i also stated following our second quarter result is the volatility, the potential that could come into the currencies for the sizable chinese business but from an overall standpoint we don't see an impact at this stage. the concern is in the u.s. if less month is spent they'll spend less money on our product and reportedly don't see an impact worth mentioning in our numbers. >> so in terms of what you see in the u.s. can seem a lot of people are looking at contraction and manufacturing and the paris impacts and seeing how long can the u.s.
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remaino bust. from what you see is the u.s. consumer in good form? kasper: you know, the third quarter was the best quarter for us this year in the u.s. with double gidgity growth and leading us to a record year this year and we confirmed the outlook for the year so right now we're not seeing a substantial contraction in the consumer market and will continue to expect above market growth for the fourth quarter and going into 2020 so we still remain bullish on the u.s. market though you might see a slight contraction but don't see that asen inhibitor in the u.s. or globally at this stage. >> that was adidas kasper speaking to bloomberg after the company posted third quarter results and back with patrick armstrong. if you have this big company that i guess have to deal with for an exchange they have to deal with trade suppliers, trade issues and yet they're so brand recognizable. are they a good buy?
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patrick: adidas is growing 10% in america and is a good number, 11% in china and in europe we turn to 3% this quarter. it's a company growing faster than the economy and a company that isn't politically sensitive and tariffs will be an impact if there are trade wars and don't think it's effective that will be incredibly damaging. it's a company trading at a reasonable multiple going fast from the market we're attracted o those kinds of things. francine: patrick armstrong stays with us and we heard from gender equity. we're hearing from the largest marketing firm. ♪
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♪ francine: economics, finance, policy particulars, this is "bloomberg surveillance." i'm francine lauch with a. news today walgreen's is looking at going private. danny joins us from the conference. take it away. >> hi, francine, i'm joined with the head of private debt
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at c.e.o. capital. thank for you joining us. i want to start with a top story, walgreen's boots looking to take private and uber we worked massive writedowns from the company and clear the markets are getting more discerning with some of these highly valued publicing wit firms. are we seeing some of that spill over in the private debt sector at all? >> in a way i believe we'll have major impact as this is a whole chain and starting from soft about banks related to more v.c. prirmente that will probably impact the growth equity and cass tejadaing to private equity and private debt. i think it is kind of now massive new that potential high value on not for sure something you can rely on. it will impact and probably have maybe some kind of
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lowering down effect on valuation which were here and perceived as very high. dani: are these signs we're reaching the highest cycle? >> yes and no. as a private investor we believe we're bottom up type of approach and means we go and care to understand business with the companies and we understand the way companies operate. so i think we are not so much impacted by markets or global fluctuations but much more steady and we go step by step and here and there, indeed this valuation which has been so volatile and driven by very high v.c. type of price tag will probably have impact and hopefully in the way we are is e happy to see there
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investor awareness things cannot go up to the sky and that at some stage we need to be disciplined and what we are in a way yes and no to answer your questions which is the this top market, yes but by the same aspect, i think that's the reason why private debt and private equity are quite solid type of investment because we do care about what the companies actually are providing, the levering and how they can become and remain rofitable. dani: there is interest in the private debt space and last quarter you raised $1.21 euros and nothing to sneeze at. do you have any other funds in the works? cil: this is or flagship and continuing to invest in a highlight in this industry we work throughout funds but also manage the account because investors are quite keen on the
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asset class and also like this and the t.k.o., we're about to launch a very new initiative and we consider would be really also the market is with private debt and we have this view this asset class has been growing fastly and will be here and there similar to private equity portunities for buying and some private debt commitment. dani: where else are you seeing opportunities when we have this saturated market, secondary is one of them. >> and then the main street market being providing final solutions for companies that remain part of the secular trend that private debt is now here for good, that are really believed to be called shadow banking or nonbank provider and
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now are positively recognized as private debt funds and have many opportunities with corporate collectly, providing them any type of silencing so to back l.b.o., private equities situations but not only and do private financing for any type of corporate and there might be a sloan for that to be these companies, c.f.o.'s, the management team are looking for long term partners and like the fact we can provide 5-7 years debt or maturity and have this kind of one to one partnership that's in the way of what we provide. dani: and if you are raising more money for these funds, does it mean we're about to see bigger checks coming from your firm as well? >> yes, probably. the main maybe strategy for us is to address a wide range of situations, to continue to really concern and address this
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company in the range of $5 million to $7 million euro to potentially 100. in the industry we have seen some mega fundraising and able to in a way compete with the capital market distributions and do believe why we have this wide spectrum is again emphasizes that this is real alternative to financing and whatever your need could be, have access to any type of debts, yeah. dani: just quickly, we are at a women's private market. do you think enough progress is being made in terms of gender diversity in the industry? cecile: i do believe this conference today is highlighting the awareness which is growing, and i do believe that it is very important to really insist on this type of opportunity and that t.k.o. maybe we have been the pioneer in this field that
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we have this diversity and inclusiveness to this type. dani: definitely need to look out for progress there. the head of private debt at t.k.o. francine? francine: thank so you much, our bloomberg news reporter joining us from the woman and private markets conference. "bloomberg surveillance" continues in the next hour. we're joined in new york and speak to the president of south africa. we'll have that interview and focus on rand and trade wars. this is bloomberg. ♪ ♪
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♪ francine: opening the door, germany's finance minister
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offers a pass on euros for the banking union. and oped said the deadlock is at the end. and the and the first report of operating loss in 14 years. and troubling transcripts trump loyalists say giuliani's role between trump and ukraine became insidious and get the latest on the proceedings. good morning and good afternoon if you're watching from asia, this is bloomberg surveillance. francine lacqua joined with tom kean. the banking union towards the e.u. with mr. sholz being careful in his language but hinting they would not be against it as they have in the past for the burden sharing and softbank and what it means for unicorns across the record. tom: softbank is its own zazzer but for sholz, it's how unilateral and alone he is on
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this. he needs the support of chancellor merkel and the german people as well. francine: talking about yearny -- germany, matt miller is in conversation with the deutsche bank president. that conversation wrapping up and get you the latest of what has been said and not. now to bloomberg with the first word news in new york city with viviana hurtado. viviana: trump suffering setbacks in two states with kentucky and matt bevin faces what could be an upset loss. the race hasn't been called and let's go to virginia, considered a political bellwether and democrats seizing both houses of the legislature from republicans and a blow to the impeachment defense. the european ambassador to the european union gordon sondland came to presume there was a quid pro quo for aid to ukraine and underkits assertions by the president and allies he did not
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demand an investigation and the company linked to joe biden's son and transcripts released of sond lan's -- sondland's testimony and a revision he made this week. the u.s. and china saw some of the biggest rises in greenhouse gas ee middles -- emissions according to cap gemini and because of booming consumption dominated by fossil fuel and was a similar story in southeast asia and let's go to the largest leverage buyout in history, bloomberg learned walgreen's alliance presumed a potential deal and could take the company private and holding talks with private equity firms including t.k.r. and has a market value of $55 billion and almost $17 billion of debt. global news 24 hours a day on air on tic-tock on twitter powered by more than 2,700 journalists and analysts in more than 120 countries.
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tom: thanks so much. greatly appreciate it. a data check, equities, bonds, currencies, looking at yield, particularly a pause in the meltup, maybe not a meltup, that might be too strong but you know the equity story. on to the next screen with oil elevated all in all the last couple days, the vick's soggy with 13.38 and the 10-year yield, i'll get to the 30-year bond. yen was 109 when i walked in the door and gold has been a little soggy the last couple days. francine? francine: tom, i'm looking at similar data check, i'm looking at european stocks, the countrysideways because there's a mixed bag in terms of data and mixed bag in terms of earnings. we saw better than expected, worse than expected earnings and banks up after a key capital ratio was strengthened and a euro area economy made a
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broad turn around in germany which is why i'm looking at euro-dollar, currently 110.9157bd always look at recommend embee when you discuss a trade war. tom: what is a range to support the resistance and look at 309-year bond, price of the bond, price up, yield down from a year ago. a really nice move, a lower 30-year yield and here's the range and want to be suspect how i would inferment this and don't want to make a big deal, will we break out or will we not? here we define the range as price comes down the next couple days with the higher yields. >> what i did was thank to you hillary clark looked at remembi and it strengthened past the seven level and you see the red circle in the middle of the screen is when tensions reescalated and here in green
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is when first tariffs were announced and took effect and we'll have plenty more on remimbi and plenty more on where the markets go and speaking to charles evans and gives us a indication where he sees the trade concerns impacting fed. tom: charles is most interesting and mr. evans is truly one of the most interesting presidents and what's important is he's done a sea turn from a higher yield guess to lower yield demand by charles evans. scott tony reali with us from black -- tony is with us and charles gave a speech in frankfurt where he laid out the need for what olivier blanchard said is we knee to "symmetrically push for higher inflation. do you see that now we need a overt central bank overweight to bringing up inflation?
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>> clearly we need tools for the central bank to address the inflation concerns particularly in light of any potential real downturn in the economy and any future downturn and clearly one of the issues we've been discussing is this concept of using fiscal and monetary policy together to kind of promote stronger inflation, stronger growth profile and if we look at europe as a good example where monetary policy has done a lot for europe but has not pushed the inflation level to target. tom: the issue is monetary authorities with a mission and a national reticence to not oost the economy ala blanchard. what's the mechanism to move us away from austere physical policy? >> part of it is an interesting debt dynamic going on in europe because european sovereigns,
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particularly northern european sovereigns, germany, for example, funded negative rates and their fiscal balances are improving through the debt issuance. so if we look at, for example, if we were to refinance german debt at current debt levels that's a very positive push to fiscal balance. so i think there's both a willingness and the math behind it which suggest those balances are going to become more positive and thus maybe an easier decision to make. francine: where do you see value? >> for us merging markets tend to be a positive area in hard currency and local markets. we've had strong returns across the asset classes and 14% in a hard market and 12% in local. if you look where the returns have been coming from in the hard currency the lower yield so the investment grade you get 7% yield for high yield emerging markets. in a local market the return has been exclusively from compression in rates and carry. we think now f.x. could be an
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important component and the market is up 12% on the year and all driven by the rates and not by the f.x. so we look for f.x. to be weaker dollar and chart is interesting. francine: looking at the chart does it stay in holding pattern or range bound unless something happens with the trade war and what happens after phase 1 if they agree on something? >> there's some components to recent dollar. and it's weaker at a index level weaker from a strong point of a month ago. what is driving that? i think there are a couple things and one is the mood music around the u.s.-china trade relations and is positive and the risk on, risk off environment weakens the dollar as investors look for other assets to buy. really monetary policy we talk about later is pretty much on hold but relatively accommodative in the grand scheme of things and lastly but
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importantly brexit, the hard outcome of brexit has really diminished dramatically, the probability of that. european currencies which are 40% of the world index has been relatively strong the last month or so, so if you put things together, that is a stable if not weaker dollar and very positive. francine: thank so you much, scott, we'll have plenty more from emerging markets when we speak with the south african president. and the germany finance minister signals the country may be open to a new banking union and discuss how it would impact the industry next. this is bloomberg. ndustry next. this is bloomberg.
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♪ >> the new deposit rates of the e.t.b. will have an impact on the revenue next year, slightly, which will be the frame hold of my ubte in this year, 2019. and we think we can adjust our status to manage this situation. francine: the deputy chief executive severin speaking in paris after reported a 20% drop in equitys in third quarter results. while writing in the financial times, the german finance minister scholz announced a four-year plan and among his proposal is a mechanism to shield depossters when banks collapse and joining us is jonathan from bloomberg intelligence. you sat down and said does this
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mean business, will we get a banking union or does germany slowly paying lip service as you said? scott: i'm skeptical because if you look at the quid pro quo it's about the sovereign loop and all the deposits commonly across europe is germany banning out, italy, portugal and spain. we'll have a deposit scheme but look at italy, over $00 billion of domestic sovereign debt and look at portugal, 15% of assets is sovereign debt and don't see how the two work. and there are bits working but even things like capital, look at the bail ends popular and we haven't gotten that right and won't hold my breath. francine: a step in the right direction. does it spur consolidation or not even that? jonathan: we need various things to happen with liquidity and capital. as i say, i'm not holding my
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breath on a common deposit scheme because i cannot see a bank palatable not with the quid pro quo cutting the measures. tom: let's look at scholz's essay and is extremely important and clearly vetted and carefullyly worded as well. one of the ideas he mentioned in the essay is that london will exit, which i thought was very interesting how he goes to brexit as well. gone, the heart of the matter is germany doesn't trust portugal, etc., etc. how will you get a banking union through a miracle, the politics of germany and people of germany if there's a distrust of systems with more fragile, nongerm attic banking? jonathan: you need to read the prime. you never will get it full and don't see how a common deposit insurance scheme works. look at syntec and asset management and the playing field on capital transparency.
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there are things happening leveling the playing field but it is a meaningless phrase. tom: is this because of lagarde and if lagarde wasn't there would this essay not have been written? >> interesting question, she's been given the hospital part in rugby terms because there's not a lot of policy left she's got to prolong leavers so her rhetoric will be about fiscal union i guess and fiscal change so i suppose if you're going to ask europe to address fiscal, then you probably might as well talk about the other parts that don't work as well but i'm not going to hold my breath on the deposit insurance scheme. francine: there is a larger piece saying they're ready to talk but there are red lines, the famous red lines. when you look, scott, at how this translates into your world, this is negative rates
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are not usually for the banks. are they going deeper negative? scott: if you look at market prize, it's skeptical for change of rates going forward and very little pricing for the next seven years in european bond markets and obviously the impact of negative rates is something being felt to the comments from the banking president today was interesting. obviously we have been suggesting and what has gotten some air time at the e.c.b. is this idea of joining monetary policy so the monetary policy channel which is rate cuts, forward guidance, refinancing and q.e. to couple that with some form of managed and properly implemented fiscal spending to effectively address the issue of the next downturn. you know, the interest rate channel is the easiest but we mentioned at the outset, has it been effective in saving the european union, yes? and stabilizing economic growth but it hasn't been successful
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in addressing the inflation challenge, so for us it's one of the very interesting alternative is this idea of combining rates and fiscal spending and interesting the market doesn't really anticipate too much more easing if going forward and think that's part of the jury being out on the new president in trying to figure out what direction she's going to take. tom: we will continue this, an important essay by the finance minister of germany today. over in japan, managing $6.5 billion mistake, remember the craft writedown of a while back? there's the uber softbank where write down as well and the goodwill bloomed from 8% to 12% of the balance sheet in the last four years. here's some of the landmarks soft he way for sound about dank investment, $37 billion to $8 million is your marshall score. this is bloomberg. ♪
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>> we will discuss the united states economy of better that be good. john's report. viviana: you're watching bloomberg surveillance.
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let's get the business flash. xerox is reportedly considering the takeover of h.p. according to dow jones and may make a cash to stock offer and h.p. has a market value of about $27 billion. the company is more than three times the size of xerox. maysayoshi lionaire son is reporting the first quarterly loss in 14 years. about $6.5 billion. softbank writing down a string of marquee investments and the losses calling into question's son's deal making approach and trying to raise a larger successor to hised 100 billion vision fund. that's a bloomberg business flash. francine and tom? tom: thank you so much. an ordinary story playing out for 2020 or 2022, james diamond of jp morgan wants price discoveryy, jim of bloomberg
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opinion is truly leading the world debate on what exactly is going on in japan. jim, a basic question, could softbank exist in the united states under united states accounting rules? jim: yeah, it could but would be interesting to see how it does survive. i think the accounting rules could pretty much go either way but would be accounted for differently, whether it could survive in the business environment, that's another thing but you know they could list softbank vision fund in the united states if they wanted to and would be a few to give it a go, why not? tom: anyone with equity in the vision fund to read tim culpan and put the essay folks out on twitter. what would you say, tim, to a given sovereign wealth fund that's ponied up millions and billions right now? what's the urgency to clear this market? to clear this transaction? tom: well, the thing to
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remember about the vision fund and you and i don't get to invest in it. we're not the crown prince of a middle eastern country but can invest in softbank group which is listed in japan and the difference is kind of important but does exist and that is most of the earnings of softbank group are basically coming from the vision fund now and most of the earnings are essentially rewriting the valuations of its holdings and what it is, these mostly unrealized gains. they will be realized gains in the future, more and more of them but to have a realized gain, as you know you need to sell the asset and they've had a bit of a struggle in doing that and did get uber off to an i.p.o. and slack off to an i.p.o. but since have sunk and they couldn't get rid of the shares before they sank so they're caught wearing the losses on those. wework is the real elephant in the room and you know, that was
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a $47 billion valuation to $8 billion valuation and getting caught with those shares on the balance sheet and having to revalue the end of the quarter is really painful and goes straight to the bottom line because as i say, it's all about valuations every quarter, what is the assets worth and at the moment they're worth less than they were three months ago. francine: how much more money will they put in softbank and the chair was defiant and has a plan to fix wework to profitable. maysaoschi son talked about a presentation in only wework and tells you a lot. he was doubling down on it saying hey, we didn't do a bailout but got the shares at a quarter of the previous price and is basically proud of it like a used car salesman. it was brilliant salesmanship and he thinks this is a brilliant deal for him and he will turn around and show
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everyone he was right and everybody else was wrong and unfortunately at some point in the future he's going to have to sell wework on a public market somewhere and hopefully do so at a profit so this is really, really important. he says he's not going to do another bailout or put more money in wework but the first fund is tapped out and now looking at a second $100 billion fund and need that desperately because guess what, softbank makes more money from the fees of managing the funds than actually owning a stake in the fund and something unique to keep an eye on. francine: thank so you much, as always. tim culpa, technology columnist joining us. coming up, we hear from the president of south africa, cyril ramaphosa. this is bloomberg. ♪
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♪ tom: the day after a handshake with the president of china, we have headlines. they are rolling out now. ms. lamb hopes to try their
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best to hold district elections in hong kong. right now with an update, your rst word news with viviana hurtado. viviana: a surprise disclosure, a blow to the president's impeachment defense. the european ambassador reversing himself on the issue of quid pro quo. gordon sondland telling investigators he presumed ukraine was tied to the investigation of joe biden's son by ukraine and said he told that to a ukrainian official. sondland is supporter of president trump. billionaire hedge fund manager says the world has gone mad with so much free money. the founder of bridgewater associates posting his thoughts, free money is quote essentially unavailable to those who don't have money and creditworthyness which contributes to the rising wealth opportunity and political gap and voters here in new york city approving a measure to create a rainy day fund. the savings would help seal the
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city from rate hikes and program cuts. new york still needs state legislators to lift physical controls imposed during the 1970's. global news 24 hours a day on air and tic-tock on twitter powered by more than 2,700 journalists and analysts in more than 120 companies. i'm viviana hurtado. viviana and tom? tom: a lot of good analysis on 24 hours on trade and the dynamics of trade and want to show you one chart to begin the discussion francine will have on london and is the u.s. trade deficits on goods and services and down we go. this is all the financial crisis and easing of the deficit and we reassert essentially the linear function down. here's the president's election and francine, we've essentially rolled over to a sum ever greater u.s. trade deficit the opposite of what the president wants because of reduced u.s. exports. francine?
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francine: we're hearing from the commerce secretary wilbur ross speaking in jakarta he's optimistic phase 16 the trade deal with china can actually be done. let's get back to scott from black rock. when you look what's exactly going on in the trade, what does a phase 1 actually mean? is it like a truce? scott: there are multilayers to the u.s.-china relationship. it's not just trade but technology and 5-g and so what looks -- the mood music is improving and getting softer is the way i would think about it is that they're clearly looking at least the top line agreement to move forward in a trade deal and that obviously will be very important for global trade and actually in some of the numbers we're starting to see, albeit slightly, a bottoming in some of the global trade data. but it's a multistep process and this is just the first step but the markets obviously have cted positively.
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francine: is this what the fed has to do with, the economy is doing ok at the moment and just dealing with world issues, i.e. trade. scott: right. but the u.s. economy as we've talked about on the show before is driven by the u.s. consumer, right? the u.s. consumer is a big part of the u.s. economy and so yes, manufacturing has been weaker and yes, trade has been weaker but if you look at the other side to the consumer, that data still looks relatively positive, right? look at the unemployment numbers we had last week, stronger than expected and despite the offings with the united autoworkers, etc., we look at average hour of earnings, 3%, still very strong. so you know, i think what the fed is trying to grapple with here is this idea of the u.s. consumer continues to look ok despite the impact of trade and wait y're clearly on at and see approach on a data
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dependent stance now and the phrase i heard the other day was time for reflection, i think that's right. as they reflect they'll reflect on how has the u.s. consumer done over the course of the year and again, the indications look relatively positive. tom: time for reflection, i love that. a now reflect withether from marketing team. what is the critical moment now for emerging markets if we have phase 1, a soy bean transaction and a save face transaction on the u.s.-china trade war and if we see the trade deficit yesterday that all the leakage went to countries like taiwan and vietnam, what is the new observable die familiar nick emerging markets of all this tension? >> yes, surely the slowdown on china growth is the key to watch and it has been confirmed by the data that still plenty of results across the board in
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yen. what will be encouraging for the market is to see more delay in the tariffs. at this stage i think it's a bit tricky to imagine where you can have meaningful rollback on tariffs at this stage. tom: let me write your next paper, are you allowed to go long, countries that benefit from the trade war? i don't mean to pick on vietnam and taiwan but if there's leakages out from this do you go long those country snps esther [yes, we have the ability to look at what countries will benefit from the diversification from the trade war if you'd like. francine: what's the one thing you want to know about china? i know those on fixed income, we were talking about yuan and how it strengthened past seven. how strong is the china's economy if we have a phase 1 deal but nothing much more? esther: the markets have been priced in and commean is ready to support the growth target
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and looking for probably around 6% and slightly lower for next year. francine: what do you see as one of the biggest things the people misunderstand about china? scott: i think it's very complex obviously to understand the dynamics particularly given the involvement of the central bank and government together. we would agree kind of 5.75% or higher is where we'd see growth coming out in 2020. i do think that our view is around the upside potential as opposed to downside potential because it doesn't really factor in a tremendous amount of policy stimulus over the course of the year which is something obviously that could be delivered. i do think it's important to know for investors to play the china-u.s. trade tariff. the emerging market is not the only asset class you can use to trade, look at japanese equities have come ripping back the last couple months as a result of japan being very exposed to global trade. there's a lot of ways of
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expressing this idea around kind of a softer stance of u.s. china. i would say again it's very early to signal the all clear here by any means and therefore in our emerging market investments we are looking at being more cautious on these global trade china exposed parts of the market. but obviously the mood music is positive and the markets reacting very quickly to that. trey: we'll come back and listen. we have two guests stugging this. you'll hear it on bloomberg radio, mr. evans of chicago. he's had some fascinating, really interesting speeches recently on the courage needed as his institution. charles evans in the 8:00 hour. this is bloomberg.
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♪ ♪ viviana: this is "bloomberg surveillance." let's get the business flash, the third quarter b.m.w. profits soaring better than expected 33%, the reason is sales of high margin models and cost cutting program. that offset the pressures of b.m.w.'s investments in electric cars. avala beating third quarter earnings estimates and had improved sales in north america after months of supply chain probts. adidas sales in europe return to growth. that's the bloomberg business flash. tom and francine? francine: thank you so much. the prime minister boris johnson we saw with various pictures, the prime minister cross town to the queen, to the parliament and looking at 10 downing street and unclear whether the prime minister has gone in number 10
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or will go in, no matter, it's all about brexit and the election on december12. let's get back to scott thiel and esther law. scott sat down and said i hope we talk about brexit and he said no not today we'll look what the prime minister does. but it's unresolved and don't know what the election brings on the 12th and no idea to trust the polls so don't know how the markets move on the back of it. scott: we discussed this earlier the idea the no deal brexit at least for a considerable amount of time, realistically that's been removed from the outcome or the probability of that has been dramatically reduced to almost a noninvestable probability. the market has retained its gains. the pound has maintained a lion's share of the gains it experienced as it worked through that process. i think going forward it's very difficult for a number of reasons. one is that with the emergence of multiparties in the british political system for this
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election, plus you have the domestic agenda and then you have brexit and brexit cuts across party lines and cuts across con-- constituent senseys and particularly as it relates to polling and what we glean from polling and try to make an assessment. the important part is the no deal is off the table but i think the uncertainty now relates to how we're going to try and forecast what's going o happen in the election because of these different components and could be the deal comes back for a vote or we get another referendum. francine: what does the b.o.e. do or the guilds do? scott: the guilds have performed because the fact no deal has been removed and now performing in line with bunds and if you look at the sellout, it's four basis points the same as we had in germany. those markets have
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underperformed the u.s. which i think makes some sense given where the yield levels are overall. i think for british investments, it's really going to be about getting clarity and in this period no deal is off the table, i think they track the european risk market more generally. we remain relatively positive on the pound because the valuations overall and again because the no deal so the table. tom: with that uncertainty to september 12, scott, do you look at cash as a useful asset? scott: yeah, there's cash, tom, as obviously something that's an interesting alternative. so when we talk about resilience or reducing risk in portfolios you can own government bonds or go to cash from it, let's say an equity allocation and in cases where there's a tremendous amount of uncertainty particularly about the direction of rates and here it's a reaction function to
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brexit, not necessarily a reaction function to policy and economic fundamentals and so that's where you look at resilience as protections, reducing to cash. the other thing we're talking about with the u.k. equity market there's a very important distinction between the companies in the u.k. in the ftse that have exposure externally and those that are domestically focused so what we've seen kind of commensurate with this rally in the u.k. and british pound has been kind of a comeback of the companies that are domestically focused so financials and realize as examples. so the ftse also has an interesting component to you can effectively look at overweighting the companies that have weak pound positive and those that have kind of a weak pound negative but i do think this idea about resilience and moving into cash as opposed to government bond is particularly pardon the pun germane conversation to have in the u.k.
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tom: thank you. a lot going on here. it's a interesting nuance day and discuss emerging markets and a bounceoff and trade war maybe in search of a global trade peace and as well, we'll be joined by another guest and thrilled we'll bring with michael mckey running our economics and charles evans and the courage to generate higher inflation. this is bloomberg. ♪
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francine: this is "bloomberg surveillance." we're talking influencers in the london desk and need your views on influencers but we hear from the president of south africa, cyril ramaphosa. don't miss the conversation and there will be a conversation on the rand and overall about trade. we're back with scott thiel of black rock and esther law. esther, you focus on emerging markets and focus on south africa from a fixed income point of view but how damaging is trade and trade wars and a possible presidential tweet from the president of the united states from a country like south africa?
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esther: i think from a trade war perspective from an external level south africa has been very high currency and never intervene which is a good thing in all fairness that the currency adjust and always been a good way to let the pressure off the system but then at the same time with south africa is struggling with slow growth and the current account deficit, i think from that perspective, south africa will be hit from a different side and when we have a sell-off like the mexican peso will be used as a proxy. in terms of locally, the domestic budget, that has the latest budget last week was also very, i would say very restrictive for the future growth and also the budget deficit outlook as well for coming years. francine: overall has the south african president come short of what he promised investors when he came into power? esther: it's a tricky one and
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done the best key. sometimes some of the reforms, especially structural reforms take time to come through. however, i think on numbers, it's a bit short of expectations, short of the hope investors would like to see. francine: speaking of the south african president, we caught up with him and here now the conversation with cyril ramaphosa. cyril: we don't have to be dramatic to get things done, we've got to work together with our partners and build consensus and take people along a style nd that is that is sure to produce better results. now, of course people want dramatic events, they want bones to be broken, they want heads to be smashed, and we are saying, in this country, we've one things a lot better by
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building consensus, working gether and it is this that has brought us to where we are. this, 25 years later, yes, our economy has challenges but is poised to grow, our political environment is stable and has been borne out of precisely this way of working. >> may i talk about the growth element, for 2019, people are slashing the growth forecast. how important is it the u.s. and china do have substantial trade deals to make a difference to your growth numbers? cyril: important they should. the u.s. is one of our biggest traders and as is it is with china. they're not good for growth or our economy.
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we want the trade wars to come to an end the peace that exists between the two big economies in the world can unleash their own growth. >> do you think there will be a deal? cyril: once there is a deal that unleashes the growth in our own economy. >> three months, moody's, you just dodged a grid, they want action. and the markets want to see the action. i was warned and said don't expect something dramatic but the market wants to see something demonstrable from you and what will that be in the next three months? cyril: moody's wants to see a scom and deal with expenditure. we've already committed to reducing expenditure on a number of platforms but same we're focusing now as i said in
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my main speech on the debt on how we will be able to deal a deal with what happened in scom because it was broken. >> are you prepared to take on the debt on the government balance sheet, it will be cheaper, take the debt and stick it on the government balance sheet and move on. and we have taken on that and given them bailout and the minister said we'll no longer give you bailout but loans and these are loans that yes, over time you will have to pay back and that in a way is a very important step. in the end, the government has to stand behind eskom because eskom is too big to fail and just too important an entity in the life of our economy for it to fail, so we are committed to
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supporting eskom going forward. >> have you treated a moral hazard, you say it's too big to fail but the reality of it is you're at war with some of the people in your cabinet in terms of over what to do with eskom. perhaps, mr. president, if i may challenge you, it is you who is blocking a road through eskom. cyril: no, it isn't. the way to certificate out eskom is the way i announced and we're going to restructure eskom and we're not turning back from that because the way that we've announced the modernization of our energy supplier is the way the world has gone in a number of countries and there is no other option. and of course, of course people have the right, they have all the freedom to express their views. >> and the healthy point. cyril: and is very healthy, in a democracy you have to allow people to express chems while
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the caravan moves on. >> what about the caravan because the reality is everyone says to me there needs to be substantial job cuts with eskom and wage cuts. are you prepared to enact sizable job cuts with eskom or for that matter cut public wages? do you think society can take it and will you do it, first of all, those two things? cyril: what we're seeking to do is actually engage in discussions, engaging in discussions to show the stark reality of our situation so everybody appreciates right now not everybody fully appreciates exactly where we are and we are now engaged in a process of getting people to appreciate where we are and with that level of appreciation, then we will then be able to move forward, and in the end moving forward is going to give us a number of options. i believe in looking at options, the best option being that, the worse option being
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that. >> what is the best option, mr. president and what is the bad option? cyril: that will come up as we discuss matters and we delve into what needs to be done. in the end the solutions that will be crafted are going to be solutions that everyone is going to own and believe that this is the way, the best way forward. now everyone -- i mean, people become so populist, people without even thinking about issues, the first thing that comes to mind, cut jobs, cut wages. >> that is what everyone is screaming for. cyril: that's populism. >> that's reality. cyril: the reality is you've got to sit down and discuss all matters fully with everyone because we're not lone rangers, we're involved in all this with our various partners and once we've come to a solution, then we push the button and then implement.
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francine: that was a spirited conversation with our correspondent and the south african president talking about trade and saying they're committed to reduced spending on a number of platforms. he's also asked about eskom and he said he's fully committed to eskom without being too radical. we're back with esther and scott. was that convincing enough if you're an investor in south africa? esther: i still like to see the actual matches being translated into numbers. like i said, the budget last week, it was honest, at least with the growth forecast in particular. but just constant commitment, you know, with the governments we're backing at this stage for me is a cautious stance. having said that, of course, the bond yield has reflected with the long-year bond offering 10%. so i think it's still too early for me to become very positive
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on the story. scott: as we mentioned at the outset, i think in the emerging markets based more generally, the favorable kind of dollar dynamics we discussed earlier will be positive and the higher yield component to south africa is attractive as i mentioned at the outset we look at the higher yielding parts of the e.m. local market and e.m. hard currency market as attractive given the return returns we've seen in the more rate sensitive parts of the market particularly in the dollar denominated bonds, the investment grade quality has been driving the returns in the market. francine: what's your base case for dollar, esther, because that impacts a love the emerging markets? esther: is appears the strength is petering out but still with quite a lot of pressure in euro right now, i find it very difficult to see a very meaningful deappreciation of the dollar at this stage. having said that, if you ask me
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about my view on the amex, i would expect it to be a little bit on the low range but if we have a trade deal there should be relief there. tom: esther law with amundi asset management and emerging markets and scott thiel, thank you for the important comments on the scholz essay. we have much more coming up. we start the next hour strong. michael mckey is dark in the door because the bruins lost and tom will within us on an important day, a conversation with charles evans. this is bloomberg. ♪ tom: this morning, what is needed is a "full throated
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response" to inflation. talk -- charles evans of chicago, along with michael mckee, on the vast outcomes. imagine --e guard, banking union now. will chancellor merkel agree? and what is the message of a $6.5 billion loss? mr. son regrets. this is "bloomberg surveillance" from new york. nejra cehic is in for francine lacqua and london. the prime minister goes to see the queen. i don't know if they discussed a new episode of the crown, which i should point out is getting rave reviews. is the prime minister still the prime minister this morning? nejra: you know what is interesting, a tidbit of information i got this morning is when he takes the podium to speak in front of number 10 is whether he is actually the number 10 feeling it. that will tell you is he is speaking as the prime minister or the leader of the
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conservative party. if it is the latter, the political gloves are off. he could say something in the other position about jeremy corbyn. he has met with the queen and we are expecting him to start an election campaign. jeremy corbyn doing that later today as well. tom: right now in new york city, here is viviana hurtado. viviana: the trump administration is optimistic about reaching an interim trade deal with china, according to wilbur ross he spoke with reporters in indonesia. china says before a deal is signed, president trump rolled back tariffs. settingrepublican party -- suffering set box and two states. matt bevan faces what could be an upset loss. that race is too close to call. , political bellwether state virginia, democrats keeping both houses of the state legislature from republicans.
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last year india, the u.s., and china, seeing some of the biggest rises in greenhouse gas emissions, o'hearn to -- according to a report from a consulting firm, because of food energy consumption dominated by fossil fuels. be the largest leveraged buyout in history, bloomberg has learned walgreens is studying a potential deal. value of has a market about 55 billion dollars, almost $17 billion of debt. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more i am vivianatries, hurtado. this is bloomberg. is equities, bonds, currencies, commodities.
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pausing here this morning as well. screen,- onto the next quickly peered as well with a 13.31 backing from a 12 level, 2109 02. that confirms the risk to see nowweakened, 1.07, 1.08, 1.09 02. nejra: following data out of germany, factory orders, the global manufacturing cycle is bottoming. the 10-year yield just 10 basis points. a 10-year high as what we hit, down to basis point today. we see strength in the u.n., past seven for the second day. tom: we are setting up a framework for an important listen this morning. charles evans of chicago said he is always thoughtful, out of virginia, out of carnegie mellon. on the labor
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economy. and michael mckee chose to join us as well because he knows i need a briefing so i can get through the evans interview. let me begin with you as well. he has two speeches in the last year that are absolutely stunning. one was in germany on monetary choice, the other was at the and abe as well. -- he wants the courage to institutionalize a lifted inflation. where does that come from, mike? michael: it comes from the fed tradition that if you lower the -- inflation goes up. that has not happened yet. fed officials who want to boost inflation have not explained -- we know there is a problem getting inflation higher, so how do they overcome that? tom writes when evans speaks. afteroes he want to give
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the press conference? i thought he was going to walk out of the room after that first question? onto the vice chairman, now evans. what message does he want to convey to the institution? tom: evans has been relatively balanced after a handful of weeks. generally speaking, when he says he was not one of the ones looking for a cut, we were surprised. he tends to lead on the other side. there has been sort of a mass of doves that has come out and more or less said the same thing. i think everyone is really comfortable where we are for me policy perspective. that is the hurdle for any additional cuts. it is incredibly high. it would take real deterioration from here for the fed to reengage the cycle. not the least of which, it is an election year next year. we have done this for long enough to know that the fed has not engaged in policy action.
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but you need a real deterioration. why don't we continue. dallaswe heard from the fed president, robert kaplan yesterday, and he said the steeper yield curve is a sign that rates are now appropriate. could we hear something similar like that from charles evans as well? michael: we could. the fed generally thinks that is a good sign but not a definitive one. everyone of the fed i have spoken to says the yield curve does not send the same message you use to because so much cash fed's and from -- flows in from is not assigned necessarily that the fed is too tight in any particular area. by lowering the short end, they have steepened the yield curve. they feel that is at least a positive sign, if not a definitive one. tom p.: to pick up on that
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thread, because it is an important one. we have heard this from so many fed officials, the fed, some members were worried in the flatness of the curve. but now they are happier and that there is some steepness. thecommon thread is that curve does not matter as much as it did. so why are you trying to put in steepness? if you are going to be dismissive of it on both sides of the argument, that is a holy inconsistent idea -- a wholly inconsistent idea for me. inra: i wanted to follow on terms of, we were talking about the steepness of the curve. do you think the market has shifted in its view that if the fed is on pause at this point and we do not get any more cuts, that is good news rather than lack of accommodation? tom p.: yes, the market has embraced it. look at your screen. the market has really priced out
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any meaningful additional cuts. and i think hopefully tom is pulling this up as i write, or goi speak -- you have to well into next year, beyond the middle of next year before you get to another 50% odds of a cut. i think the fed has come and powell in particular, has done a good job of scaling back expectations. i will say what i said a moment ago. you need real deterioration from here for the fed to reengage. look at this and i look at the thrust of what evans wants to say today. i want to go back to the chart. roundly criticized for say we need a 4% charge on inflation. evans is continuing on this tradition of saying let's go. to your point earlier, what is the mechanism, the zero balance
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to jumpstart inflation, given technology and the foreign impulse of disinflation into the country? mike: olivia was saying in october as well, there does not seem to be a good one, tom. one of the other things that they did at this paddle -- at this panel, they looked at inflation and why dynamics have not come up at central banks around the world, there is one reason -- there is not one reason, there are a lot of reasons. capital flows across countries. there are various impediments to growth that are keeping inflation from rising. trade tensions keeping in from rising. there are a lot of reasons and there is not one particular thing you can target. the fed only has that one tool. for low inflation for a long time. tom p.: don't we find this ironic? one of the great phrases, you
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learn it in undergrad economics, --t monetary politics is a if monetary policy is such a blunt tool, why do we think with any greater precision we can get anything beyond a 2% target? it does not make any sense. the fed is supposed to be calling this a victory. ae fact that you are 18 from core pc victory, this is a victory for the fed, that means we are below target. they may go to a range because i do not think they think they can hit it anymore. tom: not to editorialize, but does that make mmt a sledgehammer? humor,e bit of economics it is so early in the morning. michael and tom porcelli join us. i am sure michael mckee will give us perspective.
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on charles evans. i said to his people in chicago, i have no idea what we are going to talk about until we see the moment of this november warning. we will do this in the 8:00 hour, a conversation with charles evans worldwide. this is bloomberg. ♪
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viviana: you are watching "bloomberg surveillance." xerox reportedly is considering a takeover offer for personal computer and printer maker hc. they make -- hp. hp has a market value of about $27 billion. the company is more than three times the size of xerox.
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masayoshiillionaire son -- a reported its first quarterly loss in 14 years come about $6.5 billion per softbank writing down a string of for son'ss, calling dealmaking approach. overcoming a roadblock in the u.s.. the german sports shoemaker beating earnings estimates. this because of an increase in north american sales. the european market also returning to growth. adidas sales up more than 3% there. and that is the bloomberg business flash. tom: thank you so much. any number of things to talk about in washington, but when there is an essay as transient as this, you go to kevin cirilli to provide perspective. david ignatius in "the
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washington post" with a subtle yet scathing essay on the secretary of state. mr. pompeo is essentially in hiding for -- protect himself while subordinates took the hit. that has to do with all the distant testimonies, evidently -- what is character? difficult to define, but as national public radio's scott simon recently noted, a short summary in the u.s., a cadet will not lie, cheat, steal, or tolerate those who do." wow, kevin, what an essay. tell me where the secretary of state fits into the mix of the impeachment ballet in washington. kevin: several state department officials have testified behind closed doors to the investigative impeachment inquiry committees that are looking into this. from the secretary of state's
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perspective come he would argue he has been continuing to do in full as it relates to the cease-fire in northern syria and also as it leads to withdrawing from the paris climate accord. he has not been formally called to testify, so i think from his perspective, he has a job to do even as the impeachment inquiry is going. tom: well said. let me go to the gossip of the moment, running for kansas office. is this what is really -- is this what this is really about? him, interviewed him, and that is very much the assumption, the working assumption in washington, d.c., that he is eyeing that senate race. but if you look at the gubernatorial race in kentucky last night, for this major upset where a democrat attorney general, andy bashir, was able shear, against -- andy be
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was able to win. this is a lot to sort through with a year out from the next election. nejra: speaking of sorting through, we are digesting the sondlandts from gordon and kurt volker, and looking ahead to rick perry, who has been invited to testify on wednesday, today. what can wake spec from that, given what we have learned from these other two transcripts? kevin: democrats have said this would illustrate more evidence of a quid pro quo. but it was not the testimony that caught my attention yesterday. it was senate majority leader mitch mcconnell, because just hours after that testimony, including the modification, was released, the senate majority leader told reporters he does not believe the impeachment inquiry as of that towing time would lead to a removal in office. because of that period in time
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would lead to a removal in office. -- tom: kevin cirilli, thank you so much. our chief washington correspondent. we will drive forward the political debate. debit westin would do that david westin will do that. he will speak to a brace of senators. mr. surreally speaks of -- mr. cirilli speaks. intainly, that election kentucky, absolutely stunning. stay with us. this is bloomberg. ♪
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nejra: this is "bloomberg surveillance." china is setting its price, any intra-trade deal with the u.s. drops the tariff. the white house is being asked to roll back and withdraw the threat of any new tariffs. the question is whether president trump will agree. tom porcelli is still with us. the question for me sitting here after what we got out of the u.s. yesterday as well is, are a differenceo see
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in the global manufacturing cycle? tom p.: we think the pieces are in place to stabilize here. obviously a trade deal is the linchpin for this whole thing. it is interesting, if you bring it back to the united states, looking at the data, it has been very interesting. i think we all appreciate -- this is the thing that grabs all the attention. what is more interesting is, if you look at the hard data, and you have to make some adjustments because of gm in particular, and boeing, and these idiosyncratic factors on the hard data. the hard data has been holding up better. given the negative tone. here is what i think is more interesting. if you look at the sentiment data, there is a schism within the sentiment data. so the regional pmi's in ism
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adjusted terms, have been holding up better than ism. i think that there is a lot of worry about manufacturing broadly, but i think the data in the united states does not necessarily suggest that manufacturing is falling off a cliff as so many people think is the case. nejra: also the concern with the united states is whether the slow down, or whatever you want to call manufacturing, spills over into services, but also that the impact of the trade war on companies might be translated into margin compression. are we too worried about those things? tom p.: i do think that is true, particularly on the margin side of the equation. was, wage pressure is rising -- wage pressures rising in and of themselves do not lead to margin pressure. you have to look at compensation adjusted for productivity, which is unit labor cost. that is the thing that actually matters. gainingor cost has been
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relative to compensation. as long as you have productivity that continues to move along -- and it has been -- when was it that we were talking about, lamenting the death of productivity a year and a half ago? productivity has performed well. as long as it continues to hold in, which we have every reason to believe, you can worry less about margin compression. go philosophical here about productivity. does productivity follow the news, the growth, the gdp, or is it the other way around? tom p.: here is a really interesting way of thinking about productivity, particularly recently. if you ask corporate executives what one of the big challenges is, one of the big challenges right now outside of trade is the fact that they are having a hard time funding -- --t they have been doing
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they have been doing that, raising wages. i think if you were to ask them about their biggest problem, they will tell you it is wages. so here is what is interesting about that. what they are doing now is trying to engage in productivity enhancing technology to basically try to alleviate some of that problem. i amthis is so important, going to rip up the script on this later in the hour. tom, stay where you are. softbank bet on silicon valley takes its toll. its biggest loss in 14 years. ♪ sometimes your small screen is your big screen.
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and with the xfinity stream app, which is free with your service, you can take a spin through on demand shows, or stream live tv. download your dvr'd shows and movies on the fly. even record from right where you are. whether you're travelling around the country or around the house, keep what you watch with you.
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download the xfinity stream app and watch all the shows you love. tom: bloomberg surveillance, good morning, everyone. nejra cehic in london, i am tom keene in new york. let's get to first word news with viviana hurtado.
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surprise disclosure is a blow to president donald trump's impeachment sense. the u.s. ambassador to the european union reversing himself on the issue of quid pro quo, gordon sondland telling investigators he presumed the crane was tied to the investigation of joe biden's son by ukraine. managerire hedge fund ray dalio says the world has gone mad with how much free money. the founder of bridgewater associates posting on linkedin, "free money is essentially unavailable for those who don't have money and credit worthiness, which contributes to the rising wealth opportunity and political gaps." unintended health effects because of the protest in hong kong. millions have been exposed to tear gas. police have fired almost 6000 tear gas grenades in areas where up to 88% of hong kong residents live teargas can cause
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respiratory issues, skin irritation, and rashes. voters in new york city approving a measure to create a rainy day fund. it would shield the city from tax hikes and program cuts during the next economic downturn. new york still needs state legislatures to lift the controls imposed during the 1970's. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more i am vivianatries, hurtado. this is bloomberg. with us porcelli is from rbc capital markets. show a bar -- our tim's ball chart chart. chart. the mother of all losses adds pretty much up to the gain of the last x number of quarters. you have seen the facebook
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effect. joining us right now, let me ask you the same question i asked about the brilliant executive this -- the brilliant essay this morning. is there any things in accounting loss in japan? >> i am not an accounting expert. this clear -- this company is clearly taking liberties of the type we have not seen in business before, there are a variety of different sorts of liberties. to some extent, their willingness to make gigantic bets is impressive. however, clearly with the case that we work, they made a foolish that. had faith in adam neumann, who it turns out to be close to a con man, based on what i can tell. company, it is an entrepreneurial -- this is not carlisle, naming schwartzman.
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what is the softbank distinction versus the bigger u.s. and london names that we know in this area? david: i am not going to answer in terms of accounting, i am going to answer in terms of vetoes. there is a fundamental distinction -- of ethos. there is a fundamental distinction. they have made the biggest bet anybody has made on the digitization of the new economy. -- sono she son believes believes we are entering into a new type of economy, which i agree with. i believe that is admirable, but he is going overboard. he has such conviction that we are going into a transfer made -- a transferred economy -- a transformed economy. nejra: there was so much conviction when son said that he was committed to starting a vision. he said the vision fund alone and lost ¥970 billion for the
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quarter, which means it was weworkter even before came along. masayoshi son was straddling the line before -- between what they suffered and being defiant about his broad record. should we buy into that, that he is the affiant about his broad record? does that redeem him from the losses the echo david: it is so easy to jump on somebody when they are down. i absolutely think he made idiotic decisions around wework, extent, uber as well. one of the other companies he has made a huge bet on is arm, which perhaps is one of the great companies in the modern tech universe. and profitable. story, not a clear-cut and i do think he has a track record that one has to admire, even though wework is
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unexplainable he bad. what are the prospects 2, then?ou vision fund david:'s reputation right now is really bad. i am trying to be generously long-term in my view, but generally speaking, people are not going to be willing to trust him with their money at the scales they have in the past. everybodyasic idea is has to save face. jamie dimon is mentioned, we are learning about wework. you have to believe jamie dimon and his team are livid about this. what do they do and how do they respond now to what we see at softbank? david: the real question is what does mohammad bin salman think? his money is most involved here. they were counting on another $50 billion from saudi arabia
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come as i understand it. this is a guy whose standards i also do not agree with or applaud. his judgment is clearly egregious on other matters. son can convince him he should make a bet. tom: david kirkpatrick with us. thank you. tom is on the phone to his wife. do we own any softbank? outme show a chart on cvs, with earnings. if you can grab up this chart, this is known as a train wreck acquisition. cvs goes out and wants to get modern and they are enjoying from 1.10 down to -- on a bit of the beat. they spend it with nice guidance. going forward. that is a really difficult chart . this is bloomberg. ♪
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tom: nejra cehic in london. i'm tom keene in new york. we are looking forward to speaking to evans in new yorker he always speaks his mind he had two important speeches, including in europe. they say a lot about courage and what are monetary leaders need to do. we have the courage to combine tom porcelli with david kirkpatrick on the single best
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chart. this is never been accomplished in the history of financial media. when you have kirkpatrick and tom porcelli on the set, you have to go to ibm, a 40-year train wreck of technological wave and innovation. all you have to know is on the right side of that chart, you -l-o-u-d.c this goes to what charles evans talks about today, the technology mix. we really do not know where we are or where we are going in our technology as a society, do we? david: that is an interesting question. i don't know what it has to do with ibm. pace of change has gotten faster than anybody can adapt to, if that is your question. i think ginni rometty has done a decent job. way, jeff bezos has a situation a little bit like
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masayoshi son or his willingness to make giant bets, the financial markets, decisions to ,ack him no matter what he does investors' unremitting confidence gives him the ability to invest in services per microsoft has really found a way , nonetheless because of experience, incredible leadership, and a lot of preparation, to slowly come up the tailpipe. ibm seems not to be able to do that. at rbc capitalre markets. have you figured out the technological impact, plus or minus, on all of our economic assumptions? so where the errors are? tom: where the errors are. david kirkpatrick set a world compared to the charles evans
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world, it is a mystery. tom p.: it is a mystery. thinkou think about -- i it is easy to get lost in the idea of the population is aging, growth is going to slow down as a result, you are going to go from a 2% to 1% trend, but productivity can save the day. productivity can put a floor underneath what would have happened from a trend growth perspective. the bigger problem is, how do you forecast that? how do you know when you are going to get these productivity booms? no one saw the boom coming in the late 1990's. no one will know what happens in the next handful of years. that will always be a challenge. nejra: i think you hit the nail on the head because i was having this conversation with somebody else about how they talk has shifted in monetary policy, reached its limits. everyone is banging the drum for fiscal stimulus, but when you want to make the changes on the supply side, that takes digital
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innovation, and that takes time and it is difficult to predict. tom p.: it does and i think fiscal policy can help. fiscal policy can create a drop conducive to companies enhancing technologies and going through that investment process. i think there is a role for fiscal to play in that regard, but getting that to come online particularly today is a completely different question. nejra: just to bring it back around to the tech and what tom was referring to in terms of cloud, who is nailing the cloud game at the moment? david: the one i am most impressed with is microsoft because they are slowly creeping and athe leader, amazon, some point they might overtake them. that is a long way off and we do not know all the numbers. amazon has a real problem when they are competing with others, in that they compete with a lot of their clients in a way microsoft and ibm and a lot of others do not.
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there are an increasing number of big companies that are aware of that, concerned about that, and some that have moved off. tom: the word scale is in vogue now, and people are noticing that uber cannot scale. how does amazon scale? do they do that? how do they scale and get away with that, versus uber's inability to scale? tom p.: amazon? how are they able to do it when others are not? well, leadership matters a lot. jeff bezos is a great visionary, and for all of our criticism of masayoshi son, so is he. i think that is probably the single biggest difference. i don't think uber had leadership that wanted anything other than to win. they did not really have -- tom: come on, they wanted the leadership to cash out. david: may be that, too.
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jeff bezos did not even try to become a cloud hosting company he was a retailer who kept making the next right move, which is a really brilliant way to operate a business. not many people can do it. amazon basically always ruled their own when it came to technology, and as time came along, they said, my gosh, we developed this kind of database and we can sell that separately. we did it for our own retail business but we can do it in this business and that business. that is what it takes. tom: what is the next best move for chair powell? we are waiting for data, aren't we? tom p.: we are. but i think he set up the right framework for everyone. i have to give him so much credit. chai have not done in a while. the way he set up the way that we are set up the next several either need a
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significant deterioration in data to reengage the cutting cycle, and two, risk easy, we are not going to be raising rates either. his exact phrasing was it would take immaterial lift in inflation. i think he has the market very much in, we are in wait and see mode at this point, which i think is the right call. nejra: i think that sums it up in terms of where the market is today as well. thank you for joining us, tom porcelli, and david kirkpatrick. we appreciate your time, both of you. manus cranny is in johannesburg ramaphosa.o cyril cyril: the trade war's that are taking place are not good for the economy. so we want the trade war's to come to an end. more ofou can catch that interview throughout the
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day on bloomberg television and radio. a touch weaker in today's session. this is bloomberg. ♪
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as always pushed up by the world series champion washington nationals. in the sun. i cannot say enough about mr. rubenstein plus new book. right now we need a story on the news. viviana: and the third quarter, bmw is at a better than expected 33% p the reason, sales of high market models and a cost-cutting program that offset the pressures of bmw's investment in electric cars. mosthipmaker falling the since january despite posting earnings that beefed estimates. dialogue announcing it is on track to reduce its reliance on apple. revenue went from 70% to 40%.
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theceo is happy about relationship with apple. >> june, the quarter, we announced several new large contracts that would take the company much further forward, particularly from 2021 onward. we are very pleased with the way we work with them, and we are getting new contacts. viviana: shares of dialog were up 95%. 70% of thoseut voting in the city's election cast ballots to restrict companies like airbnb. society jenna rao -- societe jenna rao missing estimates. aboutputy ceo speaking
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negative interest rates and a slimmed-down investment bank. the newly engaged deposit rates, they are making an impact on revenue next year. saying that, we think that we can adjust our growth status to manage the situation. viviana: that is the bloomberg business flash. tom, nejra? nejra: let's stay with a left schultz a plan with the full's banking union. mechanismproposals, a -- journey is to discuss is a bloomberg opinion columnist. the offer to support the deposit insurance came with a full stub demands paired are we getting too excited that this might clear the path to banking accommodations with e.u.? >> we have been here before and we are back here again p having
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said that, symbolically, the fact that there is an explicit desire to support a common european deposit insurance game will be seen as a step forward. what was the most important redline for you? few.: there are a the language is worded carefully. corporate tax regime across europe. you have references to soften debt, which at the moment does not carry a risk weight on banks. that has been a stumbling block before. a number of issues that intentionally will hold up the progress again. tom: i thought it was exceptionally well-written, very different than most u.s. authorities as well. i thought it was really line by line extraordinary. let's look at some of the highlights of the scholz essay.
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the deadlock has to end p goes of london is on the verge withdrawing from a block. we need to build on the example of the sti see, and then he goes on to say that it would be subject to certain conditions. this is that quid. this is why germany, together with france, is calling for the adoption of a common corporate tax base. his madame lagarde a catalyst for this essay? elisa: that is a good question. i think clearly what will happen next, it will be in the quarter of the finance ministers generally. there is a high-level assessment that goes to them toward the end of the year. equally, the pressure will be on italy, which is in the past uncomfortable with shifting on the sovereign debt risk. but equally, there could be pressure on germany and its own
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banking center, what it could be doing itself at home. you have a highly fermented, hugely competitive market where banks own north of 40% of the assets. and the market pressure for germany to do more in its own backyard. a, what is so important is the essay. chancellor merkel, the banks, the people of germany -- elisa: that is something that is going to be debated over the coming months. the political landscape in germany being in a state of flux. i am sure that is where their focus is going to be. tom: thank you so much. we greatly appreciate it this morning. nejra cehic, as always, thank you so much. it is the most nuanced and interesting day. looking at the screen, high rates up against the range. they have not broken out, and that will be a point of debate.
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also resounding is a discussion of the manufacturing slow down, the trade war, and trade deficit and the dynamic we saw yesterday. the trade deficit on an annual basis not going in the president's direction as well. these will be some of the scenes , and charles evans is the most interesting federal reserve bank chairman of chicago. evans has done a full turn in the last 18 months, looking for a higher rate regime down to an aggressive desire for lower for longer. that would be what we talk about. i also want to speak with him about the american auto business under the purview of the midwest. this is bloomberg. here, it all starts with a simple...
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that was easy! glad i could help. at xfinity, we're here to make life simple. easy. awesome. so come ask, shop, discover at your xfinity store today. alix: softbank issued a mea
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culpa when it comes to investing in we work. he is confident about future opportunities. , the germaneurope finance minister sums up the banking integration and opens the door. market pauses as u.s. equities sit at record highs. commodities hit their highest in six months. welcome to bloomberg daybreak on this wednesday, november 6. i wonder if that lasts. s&p futures climbing higher. they were negative earlier this morning. everything really closing in on a record. materials of a record. all that percolating in the market. story coming of that massive selloff in the bond market over the last two days with yields about 180 and now you are seeing a break there.


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