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Speaker 1: Broadcasting live to New York, Gloomberg eleventh Yo to Washington,

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Speaker 1: d C, Bloomberg to Boston, Bloomberg Dwell unders to San Francisco,

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Speaker 1: Bloomberg to the Country General one, and around the globe

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Speaker 1: the Bloomberg Radio, Bloomberg dot Com. This is Bloomberg Surveillance.

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Speaker 1: Good Morning seven thirty on Wall Street and Michael McKee

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Speaker 1: along with Tom Keane some news this morning. Credit sweets

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Speaker 1: plans to eliminate an additional two thousand jobs this year,

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Speaker 1: deep and cuts at the investment bank chief executive officer

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Speaker 1: t J Ontarium telling our UH friend Franci Lakwa that

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Speaker 1: he is overhauling the Swiss lender to focus on wealth management.

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Speaker 1: The shares jumping up by one point seven percent right now.

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Speaker 1: SunTrust Banks, Georgia's largest lender, a big regional bank, says

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Speaker 1: its wholesale banking business, though will hire people two hundred

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Speaker 1: over the next four years, seeking to increase merger and

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Speaker 1: acquisition services. Sun Trust not trading yet. Yesterday closed at

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Speaker 1: thirty six ninety seven South Arabia Stock Exchange starting gas

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Speaker 1: Banks to bid for a role advising it on initial

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Speaker 1: public offering for two thousand eighteen. According to three people

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Speaker 1: with knowledge of the matter, and some of the biggest

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Speaker 1: shareholders of Deutsche borce cautuming management not to overpay for

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Speaker 1: the London Stock Exchange of a counter offer emerges, people

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Speaker 1: familiar with the matter say Intercontinental Exchange, contemplating a bid

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Speaker 1: for the LC last week, agreed to an all share

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Speaker 1: transaction valued at twelve point six billion dollars. Now, let's

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Speaker 1: check out with Michael Barr and get the latest news

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Speaker 1: headlines from around the world. Michael, Mike, thank you very much.

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Speaker 1: They are conflicting reports about one of the suspects and

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Speaker 1: the Belgian bombing. According to Belgian media, the main suspect

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Speaker 1: in the Brussels bombings has been captured by police. It

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Speaker 1: is reported that twenty four year old not Jean Leshrawi

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Speaker 1: was arrested by authorities. He was one of the three

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Speaker 1: suspects on video at the Brussels airport. Donald Trump and

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Speaker 1: Hillary Clinton were the big winners and US Today's contests,

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Speaker 1: each one Arizona's primaries, increasing their delegate accounts. Democrat Bernie

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Speaker 1: Sanders won the Utah and Idaho caucuses and Republican Ted

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Speaker 1: Cruz claim the Republican caucuses in Utah but Trump and

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Speaker 1: Clinton maintain a wide lead over their rivals. Trump has

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Speaker 1: an overall delicate account of seven hundred thirty nine cruises,

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Speaker 1: next at four hundred sixty five including super delegates. Clinton

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Speaker 1: has a delegate account of one thousand, six hundred eighty one,

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Speaker 1: compared to Sanders at nine twenty seven. Global News twenty

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Speaker 1: four hours a day, powered by our twenty four hundred

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Speaker 1: journalists more than a hundred fifty news bureaus from around

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Speaker 1: the world. I'm Michael bar Mike. Thank you, Michael. Time

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Speaker 1: now for the Rancatina Auto Group Bloomberg NBC Sports Update

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Speaker 1: with John's Taesh Thanks Mike Matt. To the Yankees last

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Speaker 1: night in Tampa. They won't play each other in New

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Speaker 1: York until August. Yanks won six three. They scorent five

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Speaker 1: times in the second in and all off Stephen Matt's

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Speaker 1: Alex Rodriguez a two on single. Luis Sevareino pitched into

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Speaker 1: the fifth that ain't struck out five Opening Day week

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Speaker 1: from Sunday for the Mets in Kansas City. In the

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Speaker 1: day after that for the Yanks against Houston and Havana. Yesterday,

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Speaker 1: Tampa Bay Rays beat the Cuban national team four to one.

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Speaker 1: The leadoff hitter for the Rains of outfield the day,

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Speaker 1: Ron Verona, who grew up in Cuba before leaving on

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Speaker 1: a boat three years ago. He was reunited with relatives

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Speaker 1: he had not seen since then. The latest Nets lost

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Speaker 1: one of five one hundred of Charlotte as Jeremy Landing

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Speaker 1: back in New York score twenty one points of The

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Speaker 1: Hornets have won nineteen of their last twenty four games.

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Speaker 1: Brook Lopez at twenty nine for Brooklyn Nixon in Chicago. Tonight,

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Speaker 1: Rangers host the Pruins. Washington won four to at Ottawa.

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Speaker 1: The Caps already have clinched the Metropolitan Division. P y

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Speaker 1: U and Valparaso quarterfinal winners in the n I t

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Speaker 1: S have both now headed to the Garden next week.

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Speaker 1: Alfred Morris, who rushed for over forty seven hundred yards

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Speaker 1: over the last four seasons in Washington, has joined the

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Speaker 1: Redskins Division rival, signing with the Dallas Cowboys. With Bloomberg

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Speaker 1: NBC Sports Update, I'm John stash Allen. Thanks John. As

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Speaker 1: we uh watched the markets, we are seeing a recovery

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Speaker 1: in the US futures. They were flat for the longest

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Speaker 1: time this morning. S and P futures moving a little

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Speaker 1: bit higher now. Europe decidedly higher. The docks up by

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Speaker 1: a hundred and twelve points right now, and even the

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Speaker 1: Belgian stock market is up by twenty four points. That's

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Speaker 1: seven tenths of eight percent. This is Bloomberg surveillance sim

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Speaker 1: Michael McKee along with Tom Kinge SMP. Futures up by

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Speaker 1: a point now, a tenth of a percent down. Futures

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Speaker 1: are up by four points. That's barely registered as a

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Speaker 1: percentage change, but it is green and has like one.

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Speaker 1: Futures up by three points now, also a tenth of

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Speaker 1: a percent. Time now for the Bloomberg n j I

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Speaker 1: T STEM Report brought to you by a New Jersey

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Speaker 1: Institute of Technology partnering with government and industry to apply

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Speaker 1: the university's world class research assets to innovate and spur

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Speaker 1: economic growth. Learn more at n j I T dot edu.

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Speaker 1: Here's Bob Michael, Good morning. Here's what's making news and science, Technology,

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Speaker 1: engineering and math. Now that the FBI has come up

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Speaker 1: with a strategy to get out of its messy court

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Speaker 1: case with Apple over accessing a dead terrorist iPhone, new

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Speaker 1: complications could arise. The possible hack that the FBI says

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Speaker 1: it's trying may be subject to a relatively new and

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Speaker 1: little known rule that would require the government to tell

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Speaker 1: Apple about any vulnerability potentially affecting millions of iPhones. That's

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Speaker 1: unless it can show a group of administration officials that

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Speaker 1: there's a substantial national security need to keep the flaw

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Speaker 1: a secret. Wave and pay wearables are supposed to be

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Speaker 1: the next big thing, and indeed, users like the convenience

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Speaker 1: of having their wallets on their wrists at Florida's while

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Speaker 1: Disney World tourists can wave their magic bands to pay

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Speaker 1: for food or get into their hotel rooms. A jogger

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Speaker 1: wearing an Apple Watch doesn't need to carry cash or

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Speaker 1: a credit card on a run. But there hasn't been

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Speaker 1: wide adoption yet, and one of the reasons is something

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Speaker 1: the tech industry is still struggling with, the potential for

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Speaker 1: theft and hacking. Companies are testing a variety of tools

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Speaker 1: for verification. Isn't enough to pair the payment device with

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Speaker 1: your phone, or maybe they need to go as far

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Speaker 1: as measuring a user's heart rate for verification and a

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Speaker 1: fresh blow to BlackBerry. By the end of the year, Facebook,

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Speaker 1: the most used mobile app, will drop its support of

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Speaker 1: the BlackBerry platform. BlackBerry has posted a support note recommending

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Speaker 1: users just use Facebook from their web browsers. And that's

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Speaker 1: this morning's Bloomberg and j I t Stem report. Michael,

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Speaker 1: thank you, Bob. Well, as we mentioned we were talking

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Speaker 1: about with Bob Hormaz a few minutes ago, markets have

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Speaker 1: recovered very quickly from yesterday's shocking news from Belgium. Robert

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Speaker 1: h looking at it from the sort of geopolitical point

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Speaker 1: of view that we see these things a lot. David

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Speaker 1: Kotak looks at it from an investor's point of view.

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Speaker 1: He is the founder and chief investment officer at Cumberland Advisors,

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Speaker 1: and he is in New York today, so we thought

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Speaker 1: we would ask him why it is become so easy

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Speaker 1: to put these things behind us. When we saw terrorist

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Speaker 1: attacks in the past that would have a major impact,

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Speaker 1: particularly equity markets, and then you would see a major

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Speaker 1: flight to safety into US bonds and certain currencies. All

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Speaker 1: of that happened briefly and went away less than twenty

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Speaker 1: four hours after the attack, well even less than eight

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Speaker 1: hours after the attacks. Well, yeah, good morning, Mike. It's

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Speaker 1: nice to always be here. Um, we are becoming used

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Speaker 1: to this, We're accustomed to it. The first time is

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Speaker 1: a shock, second time less of a shock, third time

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Speaker 1: less of a shock. So reactions and markets are becoming

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Speaker 1: used to a sequence, a continuum of these kinds of

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Speaker 1: events and a developing expectation that there's going to be

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Speaker 1: more of them. And therefore, when it comes to markets,

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Speaker 1: markets say, okay, I need to reprice discount, take a

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Speaker 1: look at the implications in financial and economic terms, and

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Speaker 1: then move on. And that's what markets are doing well.

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Speaker 1: In no way do I want to minimize this. But

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Speaker 1: what you said about discount and taken into account the

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Speaker 1: implications of this, there don't seem to be financial market

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Speaker 1: implications to the kind of terror attacks we have seen,

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Speaker 1: say in Paris and in Brussels. I think I think

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Speaker 1: there there's two. One is a terrorist attack slows economic activity.

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Speaker 1: Somebody doesn't take a trip. People change behaviors, and when

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Speaker 1: they do, at the same time, the governments that are

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Speaker 1: involved have an additional cost. So you have a shift

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Speaker 1: in fiscal policy that worsens and you have behavioral changes

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Speaker 1: which reduce economic activity. We saw this after Paris when

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Speaker 1: tourism fell off. We're gonna see it again after Brussels

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Speaker 1: in cities not just in Brussels, will see it, in Paris,

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Speaker 1: will see it, in Amsterdam, will see it because people

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Speaker 1: have fear, so they change their behavior. The second thing

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Speaker 1: is for Europe. I think we now are zero interest

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Speaker 1: rates for the rest of this decade because there's not

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Speaker 1: a lot of resilience to an economic shock, and this

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Speaker 1: is an economic shock in addition to the personal tragedy.

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Speaker 1: And now if you look at dragging the banking system

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Speaker 1: which is not resilient, which is trying to recover, and

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Speaker 1: you administer another shock take it down another level. What

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Speaker 1: do you have to work with only the central bank

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Speaker 1: only negative interest rate policy. I would expect the interest

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Speaker 1: rate in the Eurozone and it's peripheral other places in

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Speaker 1: Europe will be zero or lower for the rest of

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Speaker 1: this decade. That is a remarkable financial market event. I

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Speaker 1: only have thirty seconds here before you have to take

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Speaker 1: a break. But I presume that doesn't mean you would

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Speaker 1: stay out of Europe. It would just change what you

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Speaker 1: look for. No, because when you value stocks as a

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Speaker 1: basket of stocks in Germany now and you're up against

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Speaker 1: a zero interest rate for years, they look very attractive here.

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Speaker 1: David ko talk is with us from Cumberland. Advisors will

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Speaker 1: continue our conversation in just a moment. Do you want

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Speaker 1: to pass this along? The news website d H dot B,

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Speaker 1: which had earlier reported on the arrest of the man

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Speaker 1: thought to be the mastermind of the Brussels attack, is

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Speaker 1: now withdrawing that report. We don't know whether or not

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Speaker 1: they have arrested the man, but prosecutors in Belgium say

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Speaker 1: they will hold a press conference at the top of

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Speaker 1: the hour at eight o'clock Eastern times, so we will

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Speaker 1: keep you informed of the latest developments from Brussels. Latest

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Speaker 1: developments from the markets show futures are higher, yields little

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Speaker 1: changed on the day, the U s held curve moves

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Speaker 1: up just a little bit. Dollar gets a little bit

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Speaker 1: stronger against its major trading partners. This is Bloomberg Radio Worldwide.

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Speaker 1: We're cutting down to the ompening bell, brought to you

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Speaker 1: at your local Jeep dealer Today. Global Business news twenty

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Speaker 1: four hours a day, if Bloomberg dot Com, the radio

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Speaker 1: plus mobile act and on your radio. This is a

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Speaker 1: Bloomberg business flash. And I'm Karen Moscow, and this update

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Speaker 1: is brought to you by S S and see more experienced,

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Speaker 1: superior technology, independence and expertise. That's how S S and

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Speaker 1: They are the future of fund administration. Credit Suiss Group

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Speaker 1: chief executive Tjantiam pledged to accelerate a restructuring through deeper

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Speaker 1: cost cuts and by eliminating an additional two thousand jobs

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Speaker 1: as he forecast a first quarter loss. Tilla made the

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Speaker 1: comments in an interview with Francine Laquix on Bloomberg Television.

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Speaker 1: In essence, what people announced today is really pushing because

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Speaker 1: program fervor and shrinking Google market more so for ninety

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Speaker 1: five and really but he is largely a reaction to

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Speaker 1: what happens since then. If you look at markets, January

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Speaker 1: was the worst January ever. Yes, we had a plan

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Speaker 1: but was robust and that was designed for most conditions,

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Speaker 1: but not the worst January ever. And again that's Credit

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Speaker 1: Spree Script chief executive John T. M speaking with Bloomberg's

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Speaker 1: Francy in Laqua us Dock Index futures. Meanwhile, a little

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Speaker 1: change to hire this morning. S and P Emnate futures

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Speaker 1: up two points, DOWI Mini futures up eight, nasvac Emedi

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Speaker 1: futures up four. The acts in Germany's up one point

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Speaker 1: two percent ten, Your treasury up to thirty seconds. The

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Speaker 1: year at one point nine three percent. Nim X screwed

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Speaker 1: oil down seven tenth percent or thirty cents to forty

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Speaker 1: one fifteen a barrel comex goal down one point two

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Speaker 1: percent or fifteen dollars to twelve thirty three sixty announced

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Speaker 1: the euro a dollar eleven ninety five, the N one

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Speaker 1: twelve point five nine. That's a Bloomberg business flash. Tom

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Speaker 1: and Mike karen Moska, thank you very much. We're talking

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Speaker 1: with David Kotak, the founder, chief investment officer of Cumberland Advisors.

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Speaker 1: He's in town to visit us, and Tom, uh David

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Speaker 1: mentioned during the break two of your favorite subjects, so

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Speaker 1: I'm gonna I'm gonna let him explain this to you.

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Speaker 1: But he's doing a study heavy on math, your favorite

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Speaker 1: and I'm asking your permission to do math on the

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Speaker 1: program here. And financial repression Okay, well that's interesting. Well, yeah,

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Speaker 1: two of my colleagues, Leo Chen and Bob bison Pie

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Speaker 1: are working and we're working on trying to find how

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Speaker 1: much US interest rates are being suppressed by negative interest

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Speaker 1: rate policies coming from Europe and now Japan. And we

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Speaker 1: are first draft work with our squares that are forecasting

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Speaker 1: those spreads of E D and ninety. We are getting ranges. Now,

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Speaker 1: this is preliminary work of between thirty and ninety basis

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Speaker 1: points on the ten year US trigury yield from what

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Speaker 1: it would otherwise be on the existing economics that we

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Speaker 1: know if we didn't have nerve. And what we're finding

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Speaker 1: is to spread is widening all the time. You can

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Speaker 1: see it visually in a shark, and you can estimate it.

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Speaker 1: Let's translate that in our square is a conventional way

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Speaker 1: to look at two ideas and say how linked are they?

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Speaker 1: How tight are they? And what it comes down to

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Speaker 1: is the word tension and and basically, David, what you're

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Speaker 1: saying is the tension is increasing is we move from

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Speaker 1: policy prescription to chronic policy prescription exactly. I think the

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Speaker 1: keyword here, Michael, and it's something for James Bullard is

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Speaker 1: when do you shift from well intentioned guidance to chronic

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Speaker 1: outcomes that are much like chronic illness. You know you're

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Speaker 1: going to have a conversation with James will An interesting

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Speaker 1: question to put to James Bolar It is when you

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Speaker 1: look at five year five year forward rates, when you

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Speaker 1: look at the U. S. Treasury yield curve, the distribution

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Speaker 1: of interest rates, are your traditional forecasting tools broken because

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Speaker 1: outside of the United States, you're have a force which

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Speaker 1: is forcing those yields lower. What do you do to

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Speaker 1: make policy in the United States? And this implies the

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Speaker 1: export of disinflation, MIC and deflation to the United States exactly.

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Speaker 1: We did see uh five year forwards declined significantly over

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Speaker 1: the last six months. Over the last six weeks they've

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Speaker 1: started to go the other direction. Is that the result

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Speaker 1: I mean, we have seen a change in the yield curve,

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Speaker 1: Say in Germany we've gone it's still negative, but we've

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Speaker 1: gone up by about the eight basis points or so.

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Speaker 1: Or is that because we are seeing more inflation in

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Speaker 1: the United States. Well, we don't know, maybe some of each.

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Speaker 1: We're doing an interesting set of work now and we're

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Speaker 1: using the There is no German inflation index bond. So

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Speaker 1: we're using the French inflation index bond and tips and

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Speaker 1: watching that spread widen, and you've got it. Lots of issues.

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Speaker 1: This is a complex kind of thing, but the fact is,

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Speaker 1: if there is a force beyond the borders of the

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Speaker 1: United States that suppress interest rates in the bond markets

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Speaker 1: of the United States, that is not a tool in

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Speaker 1: the usual policy kit of the Federal Reserve. And we're

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Speaker 1: not overheating, are no, we are basically, I mean all

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Speaker 1: of our listeners are going wait, pushed rates lower. All

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Speaker 1: my textbooks in my childhood told me that's an overheated America.

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Speaker 1: But exactly, Tom, you have to I think you take

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Speaker 1: the textbooks, everything written about pre two thousand and nine,

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Speaker 1: throw them in the trash. You look at textbooks and yeah,

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Speaker 1: well there you go. And and you look at textbooks

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Speaker 1: and you say, there are is nothing in the textbook

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Speaker 1: about negative interest rates in one fourth of the output

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Speaker 1: of the world GDP of the PAN. And like, what

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Speaker 1: I would take here is modern economics, which I have

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Speaker 1: a great respect for, and it's mathiness is in the

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Speaker 1: general phrasier folks, without getting into the details. It's called DSGE.

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Speaker 1: But the mathiness and optionality of modern economics maybe doesn't

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Speaker 1: work within the blunt instrument of financial crisis, banking crisis,

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Speaker 1: and stagnant nominal GDP, which hearkens frankly the pre World

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Speaker 1: War two. I think that's exactly well put. I don't

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Speaker 1: think the FED would necessarily disagree with you. One of

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Speaker 1: the issues has been I agree with corporating financial markets

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Speaker 1: into the DSGE models, and we'll stop there because we

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Speaker 1: don't want to have everybody have everybody turning off their radios.

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Speaker 1: But the idea that the FED is has not found

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Speaker 1: a good way to incorporate developments in markets into the models.

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Speaker 1: Of what happened is when they raise a lower rates.

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Speaker 1: So let's just go straight to the question of raising

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Speaker 1: or lower rates. David at fifty basis points is the target?

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Speaker 1: Base points? Is the range um? Are we still seeing

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Speaker 1: financial market distortions? And how high would we need to

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Speaker 1: go if we are to get rid of them? Well,

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Speaker 1: we see some distortions, fewer do you o curve flattening

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Speaker 1: maybe another quarter point, maybe to one percent because the

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Speaker 1: far out my view, in his opinion, the far and

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Speaker 1: downward pressure of negative rates is doing part of the

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Speaker 1: job for the Fed. They do not have to raise

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Speaker 1: the short term interest rate very much. They widen a

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Speaker 1: spread when they move, and a spread gets widened if

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Speaker 1: Japan moves, or even Hungary a little smidge now, or

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Speaker 1: the European Central Bank or somebody else. So it's a

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Speaker 1: spread widening phenomenon. Doesn't know how to deal with it.

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Speaker 1: You get to the kind of one, the heart of it.

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Speaker 1: For professional investors, it's not the rate, it's the spread

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Speaker 1: that matters, and spread matters absolutely. I just put on Twitter,

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Speaker 1: can we do? What can I do? An advertisement? Here? Sure?

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Speaker 1: This portion of Bloomberg surveillance brought you by our friends

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Speaker 1: at Dynamics Stochastic General Equilibrium on Twitter. It's always worthwhile

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Speaker 1: to explain d S g E. But I think if

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Speaker 1: you go any farther, everybody's gonna be tuning over to

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Speaker 1: the Disney music stations. Now more people listening in the studio, David,

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Speaker 1: When did we get Matthew's If you look at Samuelson,

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Speaker 1: Paul Samuelson's iconic textbook, or even Blanchard, I think it's

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Speaker 1: in its fifth edition. Alan Blinder on the other day,

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Speaker 1: I think eleventh, or there's not that much math in there. No,

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Speaker 1: there's not a lot of math. But now math is

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Speaker 1: driving everything, and that's a shame trying to be precise

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Speaker 1: forward looking with math. Samuelson, you remind me of the

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Speaker 1: famous quote, how accurate can accurately can we forecast? And

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Speaker 1: he said minus three quarters? And it gets better with time.

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Speaker 1: And that's where we are, and it's worse now. And

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Speaker 1: to purport to do anything else is to mislake. Our

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Speaker 1: government officials have to plug in GDP within our budget reports.

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Speaker 1: They also have to plug in interst rate guestimates. Are

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Speaker 1: they changed by Mr Eisenbis's work on the subdued yields

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Speaker 1: due to international policy? Well, we believe so. And therefore

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Speaker 1: the this hand ringing about the big interest bill that's

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Speaker 1: going to hit the US budget. It may, but it

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Speaker 1: may be years from now before it does because suppressed interest.

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Speaker 1: So what do you do for a client who is

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Speaker 1: financially repressed? Oh, now you've got a real pot, don't

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Speaker 1: you look at me? Turn to John Tucker and John, look,

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Speaker 1: if I had his millions, then I wouldn't have to work.

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Speaker 1: But the fact is, if you look at interest rates,

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Speaker 1: you have to find places they're cheap. You've heard me

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Speaker 1: many times. Say you've got a four percent high grade

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Speaker 1: sovereign day tax free bond in the United States. It's

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Speaker 1: a great bargain. People don't want it because they're afraid

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Speaker 1: rates are going to go up and the price will

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Speaker 1: go down. And that's a mistake. You have to look

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Speaker 1: at equity markets. You have to look at other asset classes.

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Speaker 1: Can you buy Belgium this morning? Can you go along Belgium? Well,

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Speaker 1: you can get an e t F to get you there,

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Speaker 1: and they're in lies of a selective issue. I would

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Speaker 1: rather own Germany than Belgium because companies like Siemens in Bear.

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Speaker 1: You look at the German stock market, it has an

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Speaker 1: earrings yield of six percent and it has a flat

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Speaker 1: line at zero for a sovereign debt interest rate. And

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Speaker 1: you can now on the heels of this say gee,

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Speaker 1: that zero is gonna be there for five more years.

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Speaker 1: Those stocks are now cheap. Same thing in Japan. Never

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Speaker 1: never dold David Kotaka with this, with many, many different views,

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Speaker 1: we have to leave people with his his uh main

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Speaker 1: advice of the day. Who's telling John Tucker and I

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Speaker 1: you are at the studio trout are smarter than economists.

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Speaker 1: Amen troutler smarter than are the neo classical trout. If

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Speaker 1: they're speckled, they're speckled trout that Acasian David Coach Cumberland

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Speaker 1: Advisers look for their research on low interest rates. James

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Speaker 1: Bowen at the nine o'clock are we begin another hour

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Speaker 1: of Bloomberg surveillance