tv Bloomberg Daybreak Americas Bloomberg March 12, 2019 7:00am-9:00am EDT
statement out of brussels and a trip to parliament for a vote on whether it's enough to seal the deal. troubled skies. more countries and airlines ground the boeing 737 max 8. the u.s. is now the powerhouse fox,l production says matt ceo of conocophillips. welcome to "bloomberg daybreak." i'm david westin in new york. alix steel is in houston for that big event. that we are the powerhouse. becomes ifssue then you have the u.s. being the powerhouse of production, that will weigh on the oil price eventually. what is that mean for the economy and inflation? david: at 8:30, we will get the
cpi numbers. we heard jay powell over the weekend saying inflation subdued. alix: in the markets, it's all going to be about brexit. is this when i can finally start ignoring the headlines again? s&p futures flat as we wait for that vote. the cable rate is flat now. it is paring back some of those gains. we had a big selloff in the bond market, particularly over in the u.k.. what does that say about growth and inflation? crude up by 1%. venezuela is all the talk here. the secretary making some headlines yesterday about venezuelan oil. david: in the meantime, time for the first take. we are joined by rachel adams and romaine bostick. we got that midnight news
conference out of theresa may and jean-claude juncker last night. crucially, what are the requests that parliament had? it should be possible to replace the backstop with alternative arrangements. we have secured a clear timetable that enables the backstop as defined currently to be replaced with alternative arrangements. david: whether clear or not, the pound quickly reacted to this news. romaine : right now, you have a downbeat move. most people are looking for some extension of this. are in thisu
holding pattern until the markets can figure out what brexit will be on march 29. alix: theresa may sounded tired and that conference. -- in that conference. he labeled brexit geopolitical risk that could affect the long-term outlook. rachel: he said if we have a messy brexit, you could see oil impacted. that has come up as a concern over the past year. i do something to watch out for -- that is something to watch out for. david: talk about risk. how about bowling this morning -- boeing this morning? more airlines and saying we don't want your planes flying airlines saying we don't want your planes flying here. >> there's not enough evidence to ground it for the u.s.
carriers. other countries is saying it's not worth the risk -- other countries saying it is not worth the risk. boeing has been through this before. they had a lot of issues with fires,reamliner, battery and they bounced back from that. david: countries can say we are not going to fly these planes. but there's a lot of these planes out there. >> what are you going to replace them with? some airlines are big enough that they have enough backup planes. you can move things around certain routes and put them on shorter routes that may be safer . otherwise, you are looking at airbus, potentially. the ceo ofmatt fox,
conocophillips. >> the u.s. is a powerhouse in production. production from the u.s. will dominate oil production growth in the world. we will become a very powerful exporter. case for the iea is pretty close to our own. alix: did you learn anything? rachel: we did see who was there. one of the shell pioneers, the , thef centennial now diamondback ceo and occidental ceo were also there. that thefrom the iea u.s. will take up more and more market share. it sounds like they talked about the u.s. shale powerhouse. david: we will be speaking to
rick perry, the secretary of energy. alix: bp as well. the ceo will be joining me later on in the day as well. we have more brexit heads coming out -- the attorney general of the u.k. giving a statement shortly. he is saying the brexit deal cuts the risk the u.k. can be indefinitely detained within the backstop agreement. there's a lot of doubt right now in parliament about whether theresa may got that. the real question is whether tos is enough ca persuade parliament to go with theresa may's plan. alix: the cable rate hits the day low.
a news conference late last night to announce a new joint agreement with jean-claude juncker. just moments ago, the u.k. government published its legal advice on the new deal with geoffrey cox saying the legal risk is unchanged. francine, thank you for doing this. thehe one hand, he says risk is unchanged but he says it reduces the risk of being trapped in the backstop. which is it? francine: first of all, political machinations are being reviewed by lawyers. night, may got back last she got two things she wanted -- --iding a hard irish border she did not get the two things , including avoiding a
hard irish border. are not fullys locked in. she's not confident in saying this is a better deal than it was last week. thise hearing from uncertain outcome. the legal risks of brexit remain. david: we will have a vote 7:00 your time this evening. francine: the concern is there's about six factions -- the national party doesn't want
the labourll, th party doesn't want brexit -- if more hardliners for brexit come out and say they swayrt the deal, it may more moderate brexiteers to vote with theresa may. the dup, they hold the key to supporting the government. if they support the deal, that may sway parliamentarians. unlikely, but things can change. this will be a volatile day when it comes to figuring out the nuances of who supports what. alix: it's not over.
you have the european commission president saying there's only two ways things can go. >> let's be clear about the choice. it might not happen at all. alix: joining me in houston, victoria fernandez and lale topcuoglu, j o hambro capital management limited senior fund manager. actions like with the around -- whippy action around any headline that crosses. astoria: we look at this how do we see this affecting brexit in the long-term. there's optimism going forward. so much negativity has been priced in. we know the next three days are full of uncertainty.
there's some wildcard events. there will be a no-confidence vote. that would give us more volatility in the market, causing us to be more cautionary in our investment. labor has been pretty good. gdp has been pretty good. there is some positivity going forward for them. alix: is there any kind of opportunity there amid this volatility? lale: sure. offe's nothing starting here bright and early sta talking politics. what's really interesting about brexit is the market assumes the vote fails and we go to a second vote and get a hard brexit. any chance that
people start seeing more of a hard brexit, watch out. that's extremely negative for the market. commissioner's comments were interesting -- he said this is it, there no coming back. -- there is no coming back. eu, will go back to the that heightens the stakes. you are only making things worse because you don't know what the outcome is going to be. that's what's really hard about analyzing politics. if you look at it from the equity perspective, there are a lot of u.k. financials that are listed that are not exposed to the u.k. economy. if you look at u.k. listed retail, mortgages, that's extremely sensitive to what happens in the u.k. economy. david: lale topcuoglu and
jon: we are here at the rbc capital markets financial institution -- joining me is the klein. himself, david let's talk about your expansion into the united states. so many people have tried to do this. every day, tom keene and i will efforts thatropean have failed to expand into the u.s. >> we've been working at this for 10 years. this goes back to the early part of the last recession when we put that balance sheet to work.
and aou're with a client strategy over the better part of , we will continue to expand our coverage and put our balance sheet to work and strategy tolending put our balance sheet across all of our dcm capabilities. suisse,che bank, credit rbs, there's many french players -- how do you identify the right strategy? david: our conservative institution is thinking long-term. businesses,f our not just capital markets. when we are looking at building a relationship with a client, we are looking at the long-term sustainability of that
relationship, the credit risk. we put it all into balance and we are looking to build long-term, sustainable relationships. that starts with a midmarket capital market strategy with multiple factors to diversify your book. we've graduated that with more bankers and operating bankers. were sold ontly the suntrust merger -- the ability to deliver value to clients and be that sole advisor in a historic transaction in that way as we continue to build trust with ceos across america. >> a lot of people were surprised by that. is this a moment in time or a consolidation store you can be a key player in -- story you can
be a key player in? david: they had the vision to build a competitive institution to compete with the top four and bring the scale to technology. a lot of ceos i've talked to in the last 24 hours are reevaluating the possible implications of scale and the openness to do something more transformational. digest. has paused to kudos to those who put the transaction together. it is foundational. being an active participant is different. are you looking at making acquisitions right now? david: we continually evaluate the ability to grow organically and in organically. we have a team looking through
opportunities to grow geograph geographically. thereonomics have to be for the shareholder. we made a transaction that was longer-term with city national ti national. we benefited from a rising rate environment and tax cuts. you look at those transactions going forward without those tailwinds, the economics are more difficult. we are incredibly disciplined with the capital. organic,t alternative returning it to shareholders. we don't need it for a platform basis. it's more for geographic expansion and acceleration. the economics have to work and the economics are still quite tough. to have to forecast some and the cycle -- some end to the
cycle. your cash flows could be delayed by economic cycle turn. all of those come into consideration when you try to drive shareholder value. the market punishes players that overextend. jon: so many ceos will say the spread has to widen to come in. there's a chance it won't widen until the next downturn. expanding your balance sheet and a recessionary environment -- >> if the deal is right, absolutely. the uncertainty of doing it now turne the economic cycle -- maybe the seller is not as willing to sell. there's a few willing sellers find out. you're taking a risk between every constituent coming together. it's an uncertain game. we have a growth platform
organically that we are really excited about. we continue to grow and add private bankers. on the capital market side, we are putting our balance sheet to work. another star banker is joining the platform. we are very excited about the opportunity to grow. if there's a technical acquisition, we will look at it. right now, we are focused organically. at the rbcmckay financial institutions conference. david: thank you for that terrific interview. we still have lale topcuoglu from j o hambro capital management limited. how difficult is it for them right now? lale: we look at the financials -- it makes it difficult to analyze the value philosophy.
we like the consolidation piece. especially as it relates to cost-cutting. that's where we have found balance. david: you're talking about the midsize banks, the regional banks? lale: that's exactly right. david: does that mean there's more upside potentially for the smaller banks? lale: we think so. the difference between the midsize banks and larger banks, we don't like taking the volatility that comes with investment banking and trading. there'st the same time, a lot of pressure on the big banks to return capital to shareholders. does that support the value of the stock? lale: it can. we look at the fixed income space. if you look at the retail you cands outstanding, earn more than what they pay in
dividends. david: u.s. versus europe? lale: on the fixed income side, we like the contingent capital issued by european banks that can pay you 7-8%, which is comparable to what you can get ccc in high yields. boeing'sming up, crisis deepens. countries blocking the 737 max from its airspace. this is bloomberg. ♪
dow jones off 81 points. the industrial sector in europe down .2%. ifbus could be the winner the boeing 737 issue continues. we are watching the cable rate. 1%.ling now off 1.30 after being higher for the past two days. you saw a lot of selling happening in the yield market. now, yields down one basis point. we are looking less and less like some sort of soft deal. crude up .8%. viviana: british prime minister theresa may has gotten the legal opinion on her revised brexit deal.
singh the legal risk of the brexit agreement is unchanged -- saying the legal risk of the brexit agreement is unchanged. liberal democrats in the u.s. congress don't agree with nancy pelosi's comments on impeachment. she says she doesn't want to impeach donald trump unless there is bipartisan support. there is a growing crisis of confidence in boeing's 737 after a crash in ethiopia. singapore banning the planes from flying in its airspace. some mexican and brazilian airlines grounding their fleets. lion air may switch to airbus. first 737 max
crash. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. alix: thank you. boeing responsible for 150 points on the dow yesterday. list of of countries -- countries is getting longer and longer, banning the 737 max. joining me now, benny campbell. when you look at the last 24 hours, how bad did it wind up getting for boeing? >> it is pretty bad for boeing. there's a sense of insecurity at the moment. we know the plane crashed. that's all we know. the data recorder has been recovered. we had that similarity to the lion air crash in october.
insecurity is really weighing on the boeing stock right now. today, abit of a slip dramatic fall yesterday. that lion air may ,e switching to archrival airbus. alix: some of these contracts are locked in for a long time. are there some airlines that will have to take delivery of the 737 max if they don't want it? >> it is hard to wiggle out of these agreements. those are locked in. it's not going to be easy. we've seen the relationship between lion air and boeing deteriorate.
it could be the pilot didn't do things properly. the relationship has come to a standstill. we are seeing that escalation tot lion air may say we have get out of this and switch to airbus. alix: thank you very much. david: we will keep watching boeing. beyond that, we will watch u.s. cpi. another read on inflation in the state of the u.s. economy. still with us, victoria fernandez of crossmark global investments and lale topcuoglu of j o hambro capital management limited. what are we expecting and how important is it? is there expectation
should be an increase in the cpi numbers. that can change how the fed looks at the policy. cpi is one of the data indicators. overall, there is no data that suggest the u.s. economy is slowing -- now data that suggest yo the u.s. economy slowing. -- overall, there is now data that suggest the u.s. economy is slowing. victoria: we don't have a concern of recession at this point. we've had some issues. goods, ismble manufacturing have been on the downside. the nonmanufacturing numbers have been good. the labor and jobs number have
been good. --are still three months consumer confidence has been higher and retail sales were a bit higher in january as well. cpi is key because powell and the fed have mentioned that as reasons they can hold back on raising rates. key inlter component is that cpi number. alix: morgan stanley said corrections likely not over yet, not over until margin numbers stabilize. how do they stabilize? victoria: it will be difficult. wages will be key. we are 3.4% on wages. we had a good bump in the jobs report. that will play into margins as well. we also have ppi coming up later this week. we will see how that plays into margins for companies.
they are trying to eat that cost a little bit. we will see how the two numbers relate. alix: we talk about how inflation is not really there. when you take a look at breakevens, they are starting to tick up. are we seeing the market inflation? bit in lale: the companies certainly see pressure on the consumers. they are putting through price increases to offset the margin pressures they are seeing. over time, we should see some inflation. again is whether the fed will still pause and look through this on a temporary basis. at this point, the downside is said that the
market to disappoint because they said we are here, we are pausing, we will stop everything. the market really believes that. if we suddenly changed are tune, that will change the dynamics for many people. david: so much of the u.s. economy is driven by the consumer. we had disappointing numbers in december. then they came back with really strong numbers. lale: the numbers are just noisy. we had so many things happening in q4. we had the government shutdown and weather related issues. the market is right to look through the noise at this point. importance to the forward indicators after this. the market has not settled on the view that q1 numbers will not be great.
we are taking off in q2. we willdoesn't happen, be here for volatility. david: dick's sporting goods numbers illustrating confusion in the marketplace overall. our comparable sales are down but not as much as expected. per share of. -- earnings per share up. a mixed bag. alix: is a little bit bad ok? when you look at the earnings --son we had, if the idea is troughed? victoria: you have second and third quarter staying flat. we are looking at consensus numbers in the first quarter -- up 800 basis points.
we go down for the first three up in thend then go fourth quarter. earnings have been decent for retail. look at target, best buy, dollar tree. you had good numbers. there's some positive movement with earnings. david: we have to talk about employment. we had disappointing numbers last friday. why aren't we seeing more inflation? lale: that is quite interesting. it is a bit anecdotal -- i was at a conference and that was the question i asked. it's not really translating into numbers. specifically in retail, there's secular challenges affecting the
industry. companies are eating it to attract foot traffic. unfortunately, it is not a streamlined, easy story. alix: when you walk it forward the next six months, what will wind up bleeding? it should be value. will it be energy or tech? victoria: tech has started to come back. we sell that with apple and saw that with apple and facebook getting upgraded. industrials are having some issues with the global growth concerns we are seeing. you have to step back and see where you can find opportunity. are usinglatility, we
options to take advantage of that. with the lower rates we are seeing, we are using dividend plays in our global equity products. specific butsector more on a global basis. david: thank you for being with us. sloan heads up, tim to washington. lawmakers will be quizzing him on progress and cleaning up wells fargo. this is bloomberg. ♪
ceo. sign that at&t is putting profit ahead of subscriber growth. customers will see a $10 monthly increase. rivals include sling tv, youtube and hulu. state attorneye general opening an investigation into the financing of four trump organization projects. the new inquiry was punted by testimonies from michael cohen. hisays mr. trump inflated
assets -- the bank says it expects tesla to hit an air pocket in demand sooner than expected. morgan stanley cutting its first-quarter delivery by 23%. david: we turn to wall street beat. up, british firms preparing for post-brexit world. money managers have transferred $86 billion out of the u.k. tim sloan returns to congress. the wells fargo ceo prepared to testify before the financial .ervices committee google investors target larry pageower --
awarded a stock grant to andy rubin without approval. joining us now is jason kelly. let's start with brexit. it is the story of the day besides boeing. a new survey of financial firms --es out and says >> we all got the headlines last time, late last night u.s. about may's new deal. a year ago, a lot of firms in the city started making their decisions -- 200 firms have moved people out of london. david: if you don't resolve this
quickly, we will have to make some decisions. almost regardless of what comes out of parliament, they will leave. >> you start to see who the winners are. losing, who is gaining? dublin is leading the pack. there are some caveats. everyone says london will still be an important financial center. most firms are moving 10% or less of their staff. you are seeing some meaningful moves out. david: no question. alix: dublin won. i'm looking at wells fargo. tim sloan going back to capitol hill. is he too big to manage?
>> what is so interesting about this, he is facing a very different congress. he is testifying in front of a house committee, not the senate. the house has turned over to the democrats. he will be questioned by the rising stars of the democratic party. some of the most vocal representatives we have, including alexandria ocasio-cortez. david: she's been more diplomatic -- she does not love financial institutions. >> not at all. what is so interesting, there are big questions about tim's leadership, whether he's the right guy to do it. forhands are too dirty
having overseen all of this. it will not be a friendly audience. the title of this alone doesn't seem very welcoming. david: another leadership challenge at alphabet. a lawsuit has been filed alleging that larry page did a for without board approval a $150 million equity grant to a prominent executive and a time when he was under investigation ar sexual harassment -- at underhen he was investigation for sexual harassment. up in they on the up and terms of the way they run their companies and interact with consumers? it raises questions about who is running the show and whether the
board has the oversight it needs. boardg a bit of the tesla in terms of how much the board is involved. place the blame on tesla or google, but this reminds me of les moonves at cbs . why aren't they on this? out lot of this didn't come without journalism. the new york times was the publication that put a lot of this out -- a lot of this would .ot be known also bringing forth allegations against another executive at google. there were protests about this whole issue and the treatment of
these sorts of complaints at google. david: you can listen to businessweek on bloomberg radio tensions and brexit are weighing on his company. alix: taking a look at the cable rate, down almost 1%, reversing earlier gains. at one point, it fell the most since december 2018. the deal reduced the risk of being trapped in a backstop. the markets not optimistic it will pass through parliament. this is bloomberg. ♪
-- it's over in germany. matt miller spoke to the volkswagen ceo. >> we have the same outlook to keep profitability at this level. really difficult the first two months. we are still optimistic because that can change between china and the united states. this short interview encapsulated what you know so well -- switching over to electric, pressure on margins and trade. alix: you talk to the tech companies here, the refining guys, all across the board, they are partnering with companies
like vw because they are trying to get the electric charging stations up and running. volkswagen needs that kind of partnership. you ask the oil guys and they say we will not have a peak demand kind of issue. the energy revolution totally front and center here. david: tech infiltrating everything. zuckg up, christopher' in houston with alix steel. this is bloomberg. ♪
statement out of brussels. she goes to parliament to vote on whether it's a good enough deal. lion air saying they may switch to airbus. powell sayslac inflation is subdued. welcome to "bloomberg daybreak." i'm david westin in new york. alix steel is in houston. there's a lot of technology going on. alix: a lot of technology, a lot of big oil talking about how great they are. there's still the battle between opec and shale producers. what's missing is a lot of blockchain technology. in aseems to be missing way i didn't notice last year.
i was talking about what it means for venezuela and the u.s. what's the conversation like with venezuela and canada? news: we have breaking right now. ford is looking at $1 billion a year in health care costs by 2020. it hurts ford. it's a continuation of the inflation of health care costs overall. industry is about to enter into those negotiations. alix: maybe i need to get into the whole warren buffett amazon conversation. what is the title? nature? david: i forgot. i let you down.
haven. alix: maybe they need to get into haven. david: something has to be done about health care costs. it's up to 18% of gdp. markets, it is a wait and see when it comes to brexit. s&p futures now flat. sterling off .7%. in the bond market, seeing a little selling on the margins. yields have pared back their gains. crude up .4%. the british pound is down, reversing earlier gains at a deal between theresa may and jean-claude juncker. this morning, the u.k. government released its legal advice on the new deal with geoffrey cox saying it reduces
the risk of the u.k. being trapped in the irish backstop. we welcome francine lacqua. it reduces the risk of getting trapped in the backstop but doesn't change the overall risk of leaving the european union. exactly. this is why theresa may went to see jean-claude juncker in strasburg. there was a rally in the pound. she will come back and there's more of a chance that her parliament will vote it through. then, the attorney general said the main risks are still there. the probe brexit hardliners -- saying thehardliners
backstop is part of their strategy -- it will trap the u.k. into this relationship with the eu. in the negotiations about the future relationship of the u.k. in the eu, if they were to be unreasonable, they could unilaterally pull it out. the attorney general pouring cold water on it because it will brexit -- pro brexit faction incentive devoted to vote it down. to go through the numbers. whooke to brexit hardliners
said they were expecting to have more news. lawyers -- eight lawyers who will give their findings on this agreement. let's say the hardliners vote against it. we are hoping to hear more about the dup. they are a crucial vote for is -- crucial vote for the support of the may government. there may be an amendment to see if no brexit is brexit is off the table. you need to understand on the eu side whether they want a short extension or long extension. and whether that extension is attached to anything.
you need to give us something, a second referendum. may decide to put it to a vote before march 29. david: we appreciate you rising .bove that crowd behind you really feisty crowd over there. what does this wind up meaning for the market and investors? joining me in houston, christopher zook. also in new york, michelle meyer. volatility, one month volatility for the cable rate has picked up. christopher: we think this is a coin flip as to which way this
is going to occur. we see from this overall trend the potential that we could see a real problem in europe which could carry over into the u.s. to --ld encourage people watch stocks with exposure to the domestic economy? christopher: for us, it's been trimming our long positions and putting hedges in the marketplace and taking advantage of the pullback in volatility put in place structures that give us downside protection and give volatility returns to the market. david: let's talk about the u.s. economy. specifically said one of the risks to the u.s. economy
was brexit. slower growth in china and as well. michelle: there are these discrete risks out there that could end up creating major challenges for the u.s. economy. it's not to say that brexit itself is a challenge. if you get a no deal brexit, it will ripple through the global economy and impact of the u.s. economy as well through tighter financial conditions and a lack of confidence. there are things out there that could go wrong. they would rather wait and see how the discrete risks play out. alix: in the meantime, the search for yield is still front and center for investors.
particularlywe like things in the private market that have yield. the bond market in the u.s. is fine, i don't see a lot of risk there, but i don't see a lot of upside. i prefer yield in the private debt market. from the standpoint of the overall yield around the world, it is not a good place, not a good risk reward to be investing in bonds. alix: a basis point of six on exciting?r is not david: breaking news about ford -- the automaker sees health care costs topping $1 billion in 2020. is for the hourly workers. doesn't count the white-collar
workers. >> that's excluding the salary and. -- the salary end. make seen the uaw concessions over the last decade or so. they've been willing to bend on wages and except a starter wage -- accept a starter wage for new hires for companies that had to do significant and painful restructurings during the great recession. this is one area they didn't bend on. they weren't willing to give up the goldplated plans where they pay 3% of their health care costs. salary workers pay 30%. , as is a serious expense
tesla by 23%. a growing crisis of confidence 737.eing's australia joining china, south airlines andican grounding -- in grounding their fleet -- one of the biggest buyers of the plane may switch to airbus. the airline is refusing to take delivery of four more of those plans. boeing's troubles continue. alist of countries putting side of the boeing 737 max aside the boeing 737
max getting longer. does that mean the lower it gets, you would like the valuation? >> no question about it. you have to look at the situation through two lenses. the tragedy of the crash and the financials. now, you are starting to see orders getting canceled. suspending up lights doesn't mean orders are being canceled, but now, we are seeing some orders being canceled. -- suspending of flights doesn't mean orders are being canceled. there aren't many competitors out there. you can't just turn on a dime to switch suppliers. let's see if there are more cancellations.
this could be a short-term issue where the stock could selloff and investors could overly discount future cash flows to the negative. of the bpeminds me oil spill. if you have pictures and video of planes crashing, it doesn't matter what your balance sheet looks like, that will weigh on investor sentiment. why not play on airbus instead? airbusrly, you will see on the backs news of boeing's demise. there could be a play here. the long-term story of emerging economies growing, more air travel and further demand in fleets iss -- air
still intact. you will see airlines take a hit on this. with oil prices still well off their peaks, the airlines are an interesting play here. joining me on set in houston is christopher zook. michelle meyer in new york. with boeing, you have idiosyncratic risk and general market risk. christopher: anytime you see a company go through a situation like this -- if you have a great company with a one time, fixable problem, it does create a significant opportunity. if you really want to own the -- you get to keep the premium. that is a way to play this.
it is a worldwide story. this is not going to go away as a demand curve. what is the right time to get in? david: there's idiosyncratic risks here. let's talk broader risks -- industrials, for example. how they are faring in terms of global growth, u.s. growth as opposed to other sectors. function ofey are a what's happening in the global economy. the survey at the end of last year, you are seeing signs of softness there. there was some weakening in december. think that is the theme. it's the cyclical parts of the economy the markets are focused on. an important driver for
the u.s. has been housing. how is housing faring? michelle: it's been slowing. the data of late have been mixed. existing home sales has weakened pretty meaningfully. we had a big shock from higher interest rates in the fall, the stock market sold off, that her turnover. -- hurt turnover. we should see some recovery into the spring selling season. alix: christopher zook and michelle meyer will be sticking with us. coming up, we are talking more on banks. mr. sloan goes to washington. tim sloan addressing wells fargo's efforts to address the scandal.
david: the royal bank of canada is holding its annual conference in new york. gerard cassidy is here with his take. thank you for joining us. >> thank you. large-cap favor the financials. why? withat you are seeing large-cap banks, they have a competitive advantage over smaller banks when it comes to the consumer banking area. the consumer banking area is driven by technology. they have the best technology. that will continue to be the case. they have a diversified revenue stream. that should benefit from continued strength in the u.s. economy this year. like the extent to which their price to which their price-to-earnings ratio dips below the norm for the s&p.
>> that's an interesting question. when you look at the valuations of the banks, we are not at levels that would be considered excessive. in 2018, the selloff was particularly hard in december. we recovered nicely from that point. seeing.hat people are the valuations are very attractive. jp morgan and bank of america and citigroup are attractively priced. we expect this year to be year of record profit. alix: we are still not seeing the inflows into financial etf's. will there be something fundamental that we can hold onto here? trendsre watching those on financial etf's.
when you take a look at the outflows, assuming the u.s. economy continues to grow this , we are setting up for a period similar to the 1990's. the fed tightened, there was no recession after that. it was the heyday of bank stock investing in 1997 and 1998. we had big mergers and acquisitions. we think big m&a is coming back. this could be more similar to the late 1990's, which would give us a couple of years of doing well with faang stocks. well?what stocks will do is it loan growth or investment banking? >> the diversified revenue.
will see good revenue growth in those areas. if the fed has truly finished raising rates, the so-called deposit beta, the percentage of the interest rate of the fed funds rate increase they passed ther customers, now that fed has finished doing that, the deposit beta should stabilize. the banks will have an advantage on spreads because they don't have to pass on rate increases to their customers. that would steepen the yield curve, which would be positive for banks as well. it will come from the commercial lending area and the consumer. david: what about their own m&a? is there an advantage for the regional banks? some.re is the economies of scale are
industrials rollover a little in europe. in other asset classes it is all going to be about the u.k.. the cable lower .4%. point up only one basis and a spread of 16 basis points in the u.s.. steeper in the cpi number which is out. david: the cpi for february went up 2% which was right what was projected. excluding energy it is up only .1%. rejectingyear it is cpi up 1.5% versus 1.6% expected. a little light on food and energy year-over-year. w a little bit softer than what the experts thought we would have. but overall we are still on the same zone. i wonder if this will be a goldilocks scenario.
the dollar index releasing any .ains it is not too hot or too cold feds.e fence -- for the david: it certainly does not change what chairman powell told us that he did not feel a rush to increase rates. alix: where we saw the cooling in cpi was going to be auto and drug prices. auto and truck prices weighing a little bit for february. if itses the question will be an inflation over suit or inflation targeting. christopher and michelle are still in set with david. christopher, a little bit of a disappointment when it comes to cpi. what does this tell you about the fed? christopher: i think the fed will stay on hold. my biggest concern is we have slowing growth and high pressure on wages.
blue-collar pressure euro per year across multiple industries and sectors. that is margin compression we think has an impact on stock prices. you feelwhat point do like you will start to see that filter out into the market? inhave hit peak margins 2018? christopher: i think the next quarter earnings will be telling. we have seen a lot of guidance lower. when we get first-quarter earnings sometime in april and may it will be a wake-up call for how little growth there is in topline and how much serious pressure there is on the bottom line from these inflation numbers. michelle, what you see beneath the surface of these numbers? michelle: there is obviously the headline and then you want to dig into the details.
-- a .3% month by month increase. where the weakness came from his medicare commodities, hospital services, some of the more volatile components were week. my view is we will see a move back in the next couple of months, closer to .2% month over month. i do think we are seeing a gradual move up in the trend of inflation. it is not a big adjustment. i think it will take time for wages to move in to underlying inflation. i think the trend is higher. david: how much of it is what we pay for things and how much what we expect to pay? michelle: that is critical. expectations are so important when you think about inflation. people have to be willing to pay more and companies have to believe they have the ability to increase prices and pass on some of the higher labor costs to the
consumer. expectations matter and there is a variety of different --ectations you look at as in the street. consumer survey has an expectations component. the latest data showed continuing softening in terms of expectations. that is critical. for inflation to move up we need expectations to move up. if you are taking a look at inflation expectations, kind of muted, you want to take on more risk now in the market? christopher: i would take it in the other direction. i would take less risk. companies are going to have a tough time passing on pricing, especially if people are going to be willing to pay for those higher prices regardless of what is happening on the wage side. wages,es cannot raise and markets will compress on as a result of that, that is a time
to reduce risk. david: michelle meyer, thank you very much for being with us. christopher will be staying with us. now we return to the budget. president trump said the outline of his budget capitol hill yesterday, including 5% cuts in discretionary spending, and projections for balancing the budget over the next 15 years. we welcome the man who be the point person for dealing with , democrat john yarmouth of kentucky. good to have you here. you know much better than i do that the budget request is an opening bid from the administration. it is long process we have to go through to come up with a budget. some saw this as an aggressive opening bid. did you read it that way? it is pretty much in line with what republicans have been calling for going back to paul ryan stays. on thebeen cut taxes
rich, scream about deficits, and then cut investments to help middle americans. that is what this budget did. another $1 trillion to the debt, slashing medicare and medicaid, student loans, investment in medical research, a lot of things took a hit i do not think the american people would stand for. david: you just talk about the deficit and the debt and does budget says it will be 15 years and not 10 years when it comes to a balanced budget. that is aggressive about -- aggressive by most economic standard. is there any serious proposal to actually get our arms around the deficit? rep. yarmuth: what we have done is over the last nine years, we of restraint is grocery spending -- we have restrained discretionary spending pretty well.
the problem is on the mandatory side. that is medicare, social security, and medicaid, particularly medicare and social security. we have 10,000 americans every day turning 65. we have a demographic issue. in recognition of that, the idea that you would come -- that you would cut taxes in 2017, cut them again this year and add additional debt to the country is absurd. the budget is called a budget for a better america. for meat is the budget for a declining america. david: that nondiscretionary, the entitlement element, as this budget do anything to address that issue and to the democrats have a proposal to address that issue? it is seen as a third rail politically. rep. yarmuth: the budget does of the two address that because it cuts $1.5 trillion out of health care spending. it approaches that.
that was one of the things trump promised he would not do, which is cut medicare. he reveals the affordable care act at the medicaid expansion. that saves a lot of money. and my stated takes health insurance away from half a million people. he would cause a great deal of pain in the process. do you see any common ground with the present administration? american people are not excited about the process of another one -- another shutdown. rep. yarmuth: there are several areas where we work together. the budget proposes an effort to rein in prescription drug prices. we are in favor of that. that was one of the three pillars of our campaign last fall. it talks about additional investments in cybersecurity. that is mandatory for the country, the same with modernizing our government technology.
we are behind on those investments. ,t does make an investment although a real inadequate one in an infrastructure program, we look forward to working with the president to do infrastructure. that is something the president emphasized a great deal. we thought maybe the democrats could get together on what is realistic to expect with respect to infrastructure? rep. yarmuth: we all of the same goal. close to $1 trillion over 10 years invested in infrastructure . that would mean hundreds of thousands of new jobs and preparing our economy for the future, which we need to do. it is not just roads and bridges. it is broadband, water systems, there are a lot of needs in the country. what the president proposers is $200 million over 10 years, which is not 10 -- which is not sufficient.
he is relying on state and local government sources to match that money to get close to $1 trillion. i do not think there are enough resources in state and local government to come near that. we have other plans to help fund infrastructure. right now the rates are low to borrow the money to do that. infrastructure, as opposed to other forms of government spending does have her return to the economy. it is an honest debate. we are not near consensus among democrats on what the best way to finance and infrastructure program would be, but we need to talk about it. the opportunity is there to work with the administration. david: is the senate going to be the referee? we have seen the president's, we've seen the houses position, we have seen with the emergency declaration it is up to the set to resolve. do you have any indication where they're headed? rep. yarmuth: we have had talks.
we have a serious issue approaching with spending caps for 2020 and 2021. if we do not react and reverse -- and revert to sequestration levels, we have to negotiate with that. a year and a half ago we negotiated with the senate and came up with an agreeable plan. we are that spending pattern right now. we have a template for going forward with the senate. the wildcard will be the president, whether he wants to precipitate another fiscal crisis by holding out for wall funding. we can work with the senate to come up with a reasonable agreement on spending. david: that is comes been john yarmouth. chairman of the house budget committee. sounds like more spending and more borrowing. alix: yes, which be interesting on the heels of that three-year option. 24 billion dollars of 10-year note's.
what kind of demand will we wind up seeing? if we will have to have more borrowing, there will be more issuance. counting on all of the foreigners to invest in those bonds. alix: come on, china. coming up, the second wave of the shale revolution. i sit down with the coo of conoco phillips with where they stand in the permian basin and what the potential is. this is bloomberg. ♪
alix: time for follow the lead. a deep dive into the stories making headlines and moving markets. today, we're looking at the oil production following the iea report that u.s. shale oil will account for 70% growth in global production through 2024. i sat down with matt fox, the coo of conoco phillips and we spoke about the u.s./shale revolution. his view about making the reality true. matt: production growth from the u.s. will dominate growth in the world. we will become a powerful exporter. it is a question of the pace. you can debate the pace. the iea estimates are close to our own. alix: from conoco's perspective, when do you feel production plateaus? matt: that is a great question. depending on where you are in
the lifecycle, that becomes a critical question. think ofike to do was the full lifecycle before we get started so we can understand what our plateau is paying for -- somewhere between 80 and 100,000 barrels of beer. a few years to go before we plateau there. we do not know where that will be. the permian is still in the barrier. still on the phase of working out how should we build these barrels. our philosophy is better to do it right then do it fast to make sure you are maximizing value. too early frost to establish with the plateau will be. gas --ou are utilizing how is that going? matt: there are parts that are
shower and where it is shallower it is left gas dissolved in the oil, which may be a good thing because we want to sell oil, not gas. it turns out there's not enough gas dissolved in the oil. this is in the shallow parts of the offered. gase going back to inject and let it soak into the oil so it's wealth the oil up and then we flow back again and repeat that cycle. it is called half and half. half -- huff and puff. alix: a technical term. matt: this is only for the parts that are shallow. alix: for the permian, what we're hearing from a lot of producers is the way we were drilling was not working. wells too close together and you
have to rethink the resource. where does conoco land? matt: we have been anticipating this parent/child interaction for a while. we do have some going on. we hired 100 psychologists council the parents and the children. [laughter] matt: that did not work. it is worth a try. what we are trying to do was try technology solution. we are testing a new wave of completion. that is to reduce the interaction between the parent and the child and improve the recovery factor. individual well tests last year. this year we will yell four multi-well tests and one in the permian.
couldnk this technology solve parent/child interaction and we get low recovery factors. alix: does this mean you could to more wells? matt: potentially. it changes the type of completion. it is radically different from what we are doing. most people see how that plays out. it will be part of the parent-child interaction and improve recovery from the wells. alix: that was my interview with matt fox, conoco phillips ceo. christopher is still with me. when you talk about how they are using technology, is opec relevant? christopher: opec is relevant today. we are making them less relevant every year and as we continue to utilize technology to revolutionize the way we are getting resources out of the ground, opec will not be able to
keep up with that rate of growth we are producing. they will become less of a factor. alix: are you playing oil well? christopher: we like the entire space. it was midstream infrastructure or their stock enough of that. we continue to find innovative ways to get things out of the ground. we stuck to use traditional methods to transport, process. there is an opportunity in the public market. there is still a lot of opportunity in the sector. zook, thankopher you very much. i will be speaking with a host of characters. rick perry front and center on my list. a good mix. stay with me for that. david: you already had a great mix. terrific people. i wonder if the balance i shifted toward the united states ? are they feeling their oats down there? alix: 100%.
alix: what i am watching is going and its deepening -- is boeing and its deepening crisis. are falling after countries keep grounding it's 737 max. joining us is an edwards jones senior analyst who downgraded boeing to a hold from buy. why not sell? jeff: it is a balanced story. of course the tragedy with the 737's top of mind in putting pressure on the name, but long-term we look at -- they
still do good portfolio of the 787. they have launched recent defense business and we know they're focused on safety and will be working through this issue. overall we believe it is a balanced story. short-term, what is the worst-case scenario for boeing and what is it wind up doing to their capex? jeff: the worst case would be a full grounding of the fleet. that has not happened. .e have seen 40% grounded in the u.s., the faa has not issued that type of determination yet. they are still looking at the causes of the accident. that would be the worst-case scenario, and then extending it over any duration. right now we are looking at increasing spending. there are going to be more expensive associated with the
potential software fix, associated with training. we anticipate an increase in spending going forward. we need to get to the bottom of what happened in these aircraft. whether there's anything boeing should have done. does it raise any questions in your mind about the management of the company and quality control and a fundamental structural problem with the company? jeff: no. we have seen anything that would raise those type of concerns for us with the management of the company. we know the aerospace industry is very safety conscious. had an boeing has excellent traffic record in safety in the industry and we know there is a considerable amount of regulatory hurdles as far as flight testing and looking at all the regulators that look at these planes. we are continuing to watch the story.
we will continue to help see what the determination is, or what the cause is for these accidents and then we can continue to evaluate moving forward. at this point we've not seen any of those red flags that would cause us great concern. alix: jeff windau of edward jones, thank you very much. havell be so hard as we the headlines crossing and pictures of the plane crash, to move forward on this. david: is worldwide with regulators around the world having something to say. dpw investment management and cofounder. this is bloomberg. ♪
jonathan: u.s. inflation easing, unlikely to test the federal reserve patients. airlines from singapore to australia grounding boeing 737. prime mister may brexit deal does not look that new. price action in new york city. futures positive five points, up .2%. in the fx market, the euro firmer. treasuries with the smallest of its post-inflation -- of bids post-inflation. we begin with the top story. investors comfortable with the idea inflation will not test the fed patients anytime soon. slowat has happened is a grind down to is luxury low-inflation. not only inflation, but inflation volatility. >>