tv Bloomberg Daybreak Americas Bloomberg March 1, 2019 7:00am-9:01am EST
miss. factory orders hit their biggest slump in six years. the collapse of volatility. equities inand u.s. a range. elon musk says by a tesla online. online. tesla david: welcome to "bloomberg daybreak." spring is coming. in the meantime, big news out of footlocker. alix: their earnings were really good. .omp sales up about 10% david: they also beat on earnings per share. stores. closing some alix: a string of certain
gap and old navy -- david: gap was the main store and they had old navy -- now, it has switched around, where old navy is driving the bus. alix: and jcpenney -- david: the announcement of the chief merchant officer. target. sold by is the deathd that knell of a high end brand. david: it doesn't always work out well. alix: pretty good for target. they sold out in seconds. in the markets here, it's been a really interesting week. w seeing the biggest
since 2007 --y how will we close? that is the key question. euro-dollar up .1%. a lot of pmi's were pretty terrible. the 10 year yield up one basis point. basis points -- david: off a pretty low base. alix: a pretty steep selloff across the board. david: crude is marching on. time for the morning brief. personal income and spending and the numbers the fed really likes to look at, pce core. followed by manufacturing pmi's
at 9:45. for itsected to file initial public offering any day now. it may be today. cfo extradition proceedings up in vancouver. time for the first take. we are joined by rachel evans and mark fasano. the inflation numbers we got out of the euro zone point in two different directions. down, although headline moved up on fuel and feud. you get a story of two different tales. --ng exports start to falter you have seen exports start to falter, which is consistent with what we've seen out of china and japan. that is one slight negative.
germany, you had employment strong, a growth in wages. as the consumer moves forward, the idea is europe will be stronger as the consumer helps the backdrop. alix: i remember that story a year ago. that's what everyone wanted to bet on. are there any flows to back this up? rachel: it has been pretty negative on europe. i was looking at the largest european focused etf's. that has seen 500 million of outflows this year and a good chunk of that has come out in the last week. people are more cautious on europe. yes, they are negative on europe, but they are negative more broadly on the developing market complex.
europe gets caught up in that because it is one of the weakest spots and that developing market complex. david: we got china numbers out. the pmi numbers went the opposite direction from the official data we got on thursday. which is it? mark: things will remain under pressure. if you think about how the chinese pboc has tried to focus on maintaining a certain amount upwardsh, they bought of 5% of gdp in january. at the same time, you had the lunar new year coming earlier. that throws things up a significant amount when you think about the timing. when you think about british exit, people are stockpiling completed goods. what will this look like?
we saw that started in q3 of 2018. you've seen that in terms of flows globally as people get very concerned about where the world can head and exports remain under pressure. alix: don't they focus on small and medium firms? and are targeting small medium versus the largess always oe's.rge s the market looking for any kind of catalyst here. this chart shows the lack of move, the 10 year treasury range the smallest since 1979. euro-dollar also trading in a tight range, the s&p bumping up against the 2800. what do you make of that in terms of how overbought are we in certain areas? athel: if you look volatility, there's been this downward trend over the last few
weeks. we are at the lowest point since october. however, if you look at that on an average basis, this year is still on average higher volatility since 2012. if you look at the broader horizon of the last few weeks, things have started to get more certainty when it comes to the trade picture moving forward, more certainty when it comes to the federal reserve. you see that when you look at the exchange traded product picture. they've seen a spit of outflows, 100 million outflows this week. people are waiting for something to come through and its new information. david: tesla showed us some volatility yesterday as elon musk came out and teased with those tweets before hand. he said we will cut the price of the series 3 by 6%.
by the way, we will not make any money in the first quarter and we will shut down a lot of our stores and do it online. mark: you can understand how they are trying to save money and streamline things. you areame time, cutting costs across all of your cars. you are now reaching the 200,000 car limit, which the federal government has said that will be where the federal tax rolls down. that could hurt the expected savings. alix: i love the timing of it. they have this nice, juicy bond due today. car,nally get the cheap let's buy the stock. mark: if you think about the preorders, there was a place to
get money through the door over the last couple of months to help bridge some of that gap. once you get people in -- it is a fun car to drive. you will get this retention if people can get in the car. it's going to be easy to return. how easy is it to return a car? alix: i hate returning things on amazon. people think they are going to return a car online. breaking news on caesar's. will name three directors to the board. david: with an option for a fourth, maybe. it's only been a week or so. we see more and more activism. seems like the attention span is shorter, too. they are up almost 2% now in the premarket. alix: is carl icahn looking to sell caesar's?
the firm expecting revenue to fall up to 2%. effects ofing the client losses and its agencies in north america are struggling with the shift toward digital marketing. shares have fallen by a third over the last year. msci making a move that could seek billions of dollars flowing into one of the most volatile stock markets. they say the increase will take place in three steps starting in may. pmi --china dictation china kai chin pmi's were up overnight -- joining us now, and th enda curran.
there are some people talking about green shoots and this private-sector gauge is one example of that. there is a signs of an uplift in terms of new exporter orders. it is still in contractionary territory. the official sector pmi was pretty negative, too. that's why there's potentially a sense of relief coming down the line. david: there's a trade deal with the united states and the national people's congress about to start over there. how much pressure does that put on president xi and the party to take some steps to do fiscal stimulus with more infrastructure spending? enda: this is the all important
national people's congress -- they will gather in beijing and set the tone. they will agree on the government's economic plan for the year and get the fiscal deficit. that will hint at where they are willing to go and how much spending their willing to tolerate. tolerate.e willing to the key target would have been agreed a few months ago. the trade talks heading in the direction they want, the feeling is they may stick with this nuanced measure, targeted approach as they like to describe it. if the economy doesn't turnaround in the coming months, there will be more pressure to respond. alix: the backdrop to all of this, the u.s. nearing a trade deal they will take to china. says the deal could be a boon to the economy. >> the resolution of uncertainty
is a big upside risk for the economy this year. it's great for china and great for the u.s. if we get a deal. this will be great for both of us. there's a big upside for the trade deal. alix: joining us is erik ristuben, russell investments chief investment strategist. upside risk to the economy and the stock market? erik: i see more upside risk for the economy. it's one of the things weighing on the economy. i don't think it is the principal thing weighing on the market. a lot of that has to do with the fact that u.s. stocks are really expensive. although earnings will be positive this year in our mind, there are people who would argue with that. earnings will be dramatically lower than they have been. people are forgetting that europe has a lot of exposure to china.
it may be even better for their economy and their market. david: bumping up against 2800 -- doesn't seem to break through that 2800. what's going to do it? erik: you will have to see every uptick of thee- global economy. the market has been able to rally so expensively, 19% from christmas eve, based on the fact that the fed went to the side and recessionary risk is still low. we don't think the fed will be on the sidelines for the entire year. alix: what does that wind up meaning for the portfolio? do you want to buy treasuries or europe? treasuries are a purchase that is a risk management tool at this point.
we think the next move in markets will be down, not up. strongl see a possibility of recession the second half of 2020. , you move through 2019 want to own treasuries. if you have a rollover in the economy with an associated bear market, those assets will do well. david: historically, you haven't had that. it feels like we've had the chairman say i'm paying attention to the markets, i'm not going to let it get out of hand. erik: the reality is this is the longest economic cycle in history -- july, it will become the longest economic cycle in history, the longest the u.s. has avoided recession. it is possible you keep the plates spinning.
you've got really tight employment market beginning to show signs of inflation in wages. if the fed went to the sidelines because of tight financial conditions and weakening economic data, you have to posit they will stay on the sidelines. alix: they keep saying u.s. economic data is awesome. problem.issues are the erik: this year, we recalibrated our growth estimate -- most experts are in the 2.5% range. our long-term expectation is 1.7%. above trend starts to put some pressure in terms of past utilization of the economy. the gdp number yesterday cause you to calibrate at all your expectations?
it came in surprisingly high a 2.6 -- at 2.6%. erik: we were thinking 2.5%. we think it will be slightly lower. there will be ebbs and flows. there often is. we will see about 2.3%. alix: how are you invested in the stock market right now? erik: we are underweight the u.s. we went overweight equities in general. that was a result of the fact that we saw sentiment is massively oversold in the markets, particularly the u.s. we are underweight global equities. within that, we are mostly underweight the u.s. we are overweight japan. david: what does the dollar due to that -- do to that? erik: there's been almost no
volatility in treasuries. largely, we expect that to continue. our favorite currency is the yen. it is a defensive currency. intends to do well in volatile it tends to do well in volatile markets. david: coming up, changes that tesla. elon musk announces a cheaper model 3 but warns on profitability. this is bloomberg. ♪
were you surprised at this announcement? >> we were surprised on the positives, the $35,000 vehicle coming out. july/august.t as it was time to rip the band-aid off. as aneed to go online thread the needle on profitability. it wasn't a big strategic surprise. the knee-jerk reaction will be negative but ultimately, this is the right medicine for the company. david: you sell the car for less, more people can buy it. can they make money at $35,000 and keep the quality of? -- up? dan: that will be the balance for them. , that will be toward the target for the company. that is key.
armor. you need to have a mid vehicle for the masses. you need to have a mid range vehicle for the masses. key forgoing to be the tesla taking off. next 3-5 years will be defined by the next six months. alix: raising cash, closing dealerships and there's a bond payment due today. fed officials say the economy is in a good place. we will speak to bill dudley. this is bloomberg. ♪
on the pmi gauge over in china. you had core inflation weakening, factory orders dropping, but it wasn't all bad. germany coming relatively strong. dollar-yen also seeing a huge move here. seeing a bidad steeper. mckee is sitting down with bob dudley, the former new york fed president. we are talking rates and the growth of the u.s. economy. welcome to all of our viewers and listeners on bloomberg television and radio worldwide. ,e are joined by william dudley
the former president of the new york federal reserve, now semiretired. you are keeping up with everything that has been going on. one of the questions that comes up here as people look forward to what monetary policy is going to be the rest of the year, what is neutral? the fed it seemed to think it was another 50 basis points are so higher. are? do you think we >> i don't think anyone knows with any certainty. this has been unusual cycle. generally, what the fed is saying in the language of being patient is that they will take a pause and wait for more data. a number of things moved them off more tightening. stock prices went down and credit spreads widened.
that was one concern. second, foreign growth looked a lot weaker. number three, there wasn't any inflation. the unemployment rate was low. you weren't seeing much of an acceleration in wages. as long as inflation stays acquiescent, the fed will be on hold. if the economy keeps growing, more pressure on resources, inflation will start to drift back up again. michael: how far do they go? at what point do you risk an accident. they don't want to inadvertently cause a recession with inflation the slope. -- inflation this low. if it were to accelerate a bit, you would have motivation for moving toward a tighter policy stance. hereel: this group
suggests a downturn may come in 2021. the fed doesn't have any ammunition at this point. >> that is one concern the fed is wrestling with. the peak federal funds rate is 3.5%. there's not much room between that and zero. there's been a lot of discussion among fed officials and other market observers. another --d have have enough firepower to get us out of a new downturn? like assetew tools purchases, open ended asset purchases. michael: one of the arguments there, a lot of that success that success the fed had with those tools came from the announcement value. now, people know the tools are there.
they may not have as much of an effect. if the fed announced we will agencysuries and mortgage-backed securities, that would be a good commitment strategy, making people realize rates will stay low for a long time. that is quite powerful in terms of supporting economic activity. michael: has the fed gotten too intertwined with the markets now? the fed went on hold because of the market problems we saw in december. now, everyone is back to the powell put. about fed doesn't care the stock market for the stock market's sake. it would have consequences for the economy. in the sense put that the fed is trying to support the stock market at a certain level. if the stock market gets t weak, that has an effect
on the economy. decided banks have a greater demand for reserves than the fed had thought. point for shrinking the balance sheet is earlier than anticipated. they never knew how many reserve banks were in demand. michael: doesn't that have huge consequences? effect tove the same the downside? >> people are worried about inflation being too low. if you look at what market participants call bond term premium, that is very tiny. that is quite different than
past economic cycles. michael: let me ask you about a point that chairman powell and the vice chairman made. the federal deficit is way too high and that will have an impact on the country. we talked about that for decades and bond rates are not going up. the u.s.ve to look at bond rates in the context of rates elsewhere in the world. we have very low rates in europe and japan. anxiety about budget deficits has gone down a lot. debt service cost will start to climb rapidly. interest rates are higher than they've been over the last 10 years. that will be a problem, just not a problem right now. michael: what do you think of that ifrn market theory you put money in your own currency, you don't have to worry about deficits for a
while? >> i think they are overstating it. if you issue debt in your own currency, you don't have to default. there is no default risk but there's definitely inflation risk. if you have too much money chasing too few goods and services, you have inflation. there is no free lunch. where do you think inflation goes from here? it disappeared in the fourth quarter. >> it will come back a bit because oil prices have recovered. you are seeing a gradual firming of inflation driven by the tightness of the labor market. all of this stuff is slow moving. i don't think the fed will do anything in the near term. dudley, thank you
for joining us this morning. back to you. david: michael in washington with bill dudley, the former new york fed president. fuss.joining us now, dan interesting isnd the conversation about the tool the fed winds up having. the next downturn -- we are still working on some audio for dan. the idea that they have a ton of , we will keep buying until this -- that's quite a commitment. david: it worked the first time because people were so surprised. now, they know you can do that. does the market discount that already? i will be curious about how that
expresses itself through the economy. alix: exactly right. i believe we have dan fuss now. can you hear us ok? >> i can hear you. alix: the fed has a lot of firepower and they can basically buy a lot of bonds in the next downturn and just commit for the longest amount of time they can think of. what do you think? dan: it is a useful theory. resources. unlimited made an excellent point. you carry this through to the money printing level, you can print all the money you want because you are good for it. that's what they said in the myanmar republic. if youu face longer-term
,et into that line of thinking the loss of individual confidence in the purchasing power of the currency. when that happens, it's called game over. you don't have to go all the way back to the late 1920's in germany for that. you can find other examples in the world. try argentina or venezuela. when that happens, it destroys societies and it is too late. we are the world's reserve currency. case, you that is the say we don't have to worry about it -- oh, no. if people start to lose confidence in our currency, 72%
of the world's reserves, they start to lose confidence in the monetary value around the world. alix: exactly right. other central banks getting into that as well. coming up, bill gross officially retiring today after four decades in the bonds business. this is bloomberg. ♪ >> that is deflation. the central banks are fighting it. ♪
david: today is the official day that bill gross retires. erik schatzker sat down with him. here's part of that exclusive interview. it becomesbuilds up, a burden and deflationary if interest rates rise. demographics are deflationary. , evenpeople like myself in their 60's, don't spend as much. they don't need another house or another car. deflationary.very amazon is deflationary. boom, the prices are low.
substantialree structural situations which aren't changing. that's not going to change. we know thehics, globe is getting older and technology will continue, so that is deflation. the central banks are fighting it with quantitative easing and low interest rates. we cannot deflate because the burden of debt is too large. if we deflate, companies will go under and the great recession ride ask like a fun -- you know, the world's largest roller coaster. it's a balancing game.
becomes can central banks inflate. it is a tossup. it is a coin flip. >> let's throw fiscal policy into the mix and ask you about modern monetary theory. of monetaryn terms and fiscal policy risk, they are co-joined or becoming more and more the same, one in the same. it used to be the fed and central banks were their own separate thing. they accommodated the treasury a certaindead at level to keep interest rates low -- debt at a certain level to keep interest rates low. the bank of japan buys everything the government issues. they are the same. in the case of europe, in the
last five years, it's been 30% or 40%. the u.s. was 20% or so for a while, no longer. they are almost one in the same. a bubble inst like a way. if the monetary and fiscal together, why can't the government have a $2 trillion debt if the government will buy it like they do in japan? it would be inflationary. because ofn't been these deflationary forces. i would say trump or the next $2sident could go to trillion as long as the fed was
willing to accommodate at. alix: you can watch the full conversation tonight and 9:00 p.m. in new york. -- at 9:00 p.m. in the ark. 9:00 p.m. in new york. what do you do with that as an investor? bill raised an interesting point an example -- japan. a decliningey have population in total. not tokyo, but the rest of the country. an aging population. factynamics are in deflationary. if there's less people, there's less demand for houses, etc. japan can do that, although they have to be careful.
they are still only 10% of the world's reserves. if we do it, we open another door that isn't often discussed. we will get inflation because we are so much of the world's reserves, people lose confidence, etc. that is very true. there's another currency coming in. is therency coming in chinese currency. the trade war is more than a trade war. it is a working out of the emerging power, meaning the established power. politiciansthe geo sit down and look at this, they will say you cannot do that in the u.s. all you are doing is handing it over on a platter to the emerging power. to keep their
currency under control, they will make much more rapid movement into becoming more and more the reserve currency for many countries in the world or for many aspects of trade. this is not a minor factor. this is a major factor. we have to be aware of that. is the fed aware of it? i'm sure they are. these are bright people. it doesn't show in their formal has majorut it ramifications for our economy and political well-being. there's more to this thing than just our economic models which show over short periods of time. i do understand this is an argument or a statement, but i have to tell you, if it is the
case, this is starting to play out in markets. david: the shifting of economic balance in the world, we talk about italy and japan, even the united states, an aging population. doesn't china have been encroaching problem -- have an encroaching problem as well? dan: they do. population doesn't have the same demographics as the japanese but they aren't that far beyond. if you stretch the working 75, theyn to 72 or have more track to run on. , if china is heavily influencing the countries around them, they will run into some resistance, but to the degree
that power shifts to asia, that influence on the countries around them will become more important. now, you have a different demographic if you start to take and then as a whole you have a different setting. all sorts of rough edges in there. david: thank you so much to dan foss joining us from boston. congress extended the debt ceiling to keep spending money. the debt ceiling comes back tomorrow. does that mean we will spend less? this is bloomberg. ♪
we talked to chuck grassley recently. why don't you just increase had it now? >> congress never makes a decision until the midnight hour. march 1 is roughly the midnight hour. i've one inime, congress knows the treasury department -- everyone in congress knows the treasury department has the money to take from this sinking fund to keep the government running, borrowing and then when we make a decision, pay it back. expect congress is going to do what we always do. make sure we pay our bills. basically, saying we've done this 100 times.
how stupid is the bond market? we will increase it sooner or later. alix: i love the frankness. i appreciated that. it matters when it matters. how much money we are borrowing doesn't matter until it matters. david: that white line is the debt ceiling. we are now over. we will see if it makes a difference. alix: coming up, jim polson will be joining us. really tight ranges in fx, the equity market and u.s. treasuries. what will be the upside catalyst? we will break that down. this is bloomberg. ♪
miss. the biggest order slump in six years. e data -- the collapse of volatility. u.s. equities plagued with a tight trading range. elon musk says buy a tesla online. they will close many of their stories in exchange for low prices. david: welcome to "bloomberg daybreak." i'm fascinated by this tesla announcement. they are cutting the price and would make any money in the first quarter. they are going online because they think it is a better way to sell cars or saving costs. alix: saving costs. david: then the question is will they be able to sell as many cars. alix: i understand why you want to have lower prices for the model 3. why do you cut them 6% for your
other cars? david: that was a great question to dan ives. issue. they do have an alix: that payment is coming today. we will be discussing tesla throughout the next hour. you are seeing a relief rally underway. manufacturing data out of china doing pretty well. that's where the pboc and government had been targeting in terms of any stimulus. that is flowing through to europe and the u.s. euro-dollar flat on the day, weaker inflation and now, the euro losing a bit of steam. yields up by two basis points, the highest level since the beginning of february. crude flat on the day. losing a bit of steam on the margins. eastern time, we
get key economic data including personal income and spending and pce deflator npc core -- and pce core, followed by isi manufacturing at 10:00. ft expected to file for an initial public offering soon, maybe as soon as today. and the huawei extradition proceedings in vancouver. this morning, the lack of volatility is the story. taylor: it is the lack of volatility across all the major asset classes which is something we are currently looking at. i will start off with the cross asset which are -- picture.
the overall jp morgan global fx volatility index, you have to go back to april of last year. saying they will support growth if there's any sort of slow down. the markets are relatively muted. you were talking about treasury volatility. 500, you've been bumping up against this 2800 level. in red, you have the 200-day moving average, showing the calmness of all this. euro-dollar broadens out, we look to the ecb next week. down three cents, the lowest you've seen since 1999. holding pattern for inflation,
holding pattern for central banks. markets are really looking for any kind of catalyst. here's what our guests had to say this week about where things go from here. >> markets are in that manic phase. profit growth will be make. -- meek. >> we expect a slowdown. >> the u.s. is about to slow, about to slow, about to slow and it doesn't. -- au look at the ratio of 10% rally over the next six months. do i think we will get the full effect of that? maybe not. >> what you need to have across the board -- sidelined is on the
trade war coming to some kind of resolution and we are paying 16.5 times for that. would rather get there at the end of the year rather than sooner. given the positioning, if you continue higher, there is the potential for this self-fulfilling prophecy. alix: joining us now, jim paulsen, leuthold group chief investment strategist. inclinedess i'm still that we move higher during the course of this year. we've said marginal new highs around 3000 at some point. it will be a straight line. some of the lack of volatility is caught between the two outcomes. you still have the concern about is the slowdown may be a recession,- maybe a
will the data start to go to too weak? we got yields that are lower and we got fed support. people already trailing the market this year because it was a violent rally. if it breaks to the upside, people want to be in. your such a sharp rally, don't want to be caught coming in ahead of the first pullback of the year. those forces are lending themselves to the lack of volatility of late. is whatow much of that you just called fed support? the chairman has come out and said repeatedly that i will pay attention to the markets and if it's going sideways, i will take some action to support them.
jim: it certainly helps. the message of the fed changing course from tightening to easing and making that very clear that now haswhere they are at ou helped support this market. you have a pause in rates. you've got an increase in the money supply growth rate since december by about 1% year on year, which is quite a bit after falling over the previous two years. you have fiscal stimulus as a percent of gdp, which is 1% stronger today than a year ago. gas prices down at the pump. a lot of stimulus helping us now. alix: that's also dealing with
the fundamentals, too. --ustrials, tech and energy if you look at the earnings growth, the cyclicals will be leading. defensive. -- be beat defensive. is that lending potential support to the s&p? part of it is easier comparisons on these cyclicals. i totally agree, the price action is suggesting this is just a slowdown. maybe as we approach late second quarter into the summer, there will be a consensus develops that the economy is indeed recovering again a little bit and the slowdown is over. that could be another big catalyst. correction is more of a
14 or 15, the fact that you are seeing cyclical leadership in the stock market here and in europe, cyclical areas like small caps doing so well or even emerging markets, all of that length of support that this is more of a midcycle slowdown -- lending support that this is more of a midcycle slowdown. alix: ebay up 3% in the premarket. >> this is all about the activist investors. ebay announcing a strategic initiative -- naming an independent director to the board. ebay is reviewing their portfolio, including stubhub and the ebay classified business. come into a cooperation pact with elliott and star board. elliott had suggested the sale planubhub in a five-step
on january 22. we are hearing from the president and ceo of ebay. they've met with a number of shareholders. we are all committed, we see tremendous opportunity and this is a result of that constructive dialogue. we are getting other reaction from jesse cohen at elliott. he says their conversations with ebay have been positive and productive. they will look at driving more meaningful shareholder value. he looks forward to joining the board. initiative,trategic reviewing the portfolio, including stubhub. ebay shares much higher this morning. we will have more, next. this is bloomberg. ♪
viviana: this is "bloomberg daybreak." ebay began a strategic review of its portfolio, including stubhub and ebay classifieds. they working collaboratively shareholders from elliott management and star board. tesla won't post a profit in the first quarter. tesla will finally start building at $35,000 version of cutting costsdan, by closing stores and only taking orders online. msci making a move that could see billions of dollars flow into one of the world's most volatile stock markets.
they will expand the weighting increaseshares -- the will take place in three step starting in may. china pmi's were out overnight. they showed an uptick after numbers on thursday pointed the other direction. joining us now, noto economics noto economist -- the in economics chief economist. know, it is a very frustrating time of the year for analyzing chinese data. yearlly, the chinese new creates a big problem in terms of seasonally adjusting their data. februaryre getting
data, painting a picture of what's happening in the first quarter. we must always remember it doesn't just happen without an economy. we are seeing a very weak economy. china was close to a technical recession in the second half of last year. growth was much more buoyant in the first half of last year and 2017. deterioration has been extremely sharp. david: we've seen the regime in china take action with monetary policy and some physical as well fiscal as well. fiscal stimulus in
the old-style, which is bad news. credit fueled infrastructure investment spending is not what we want to see china engaging in. we want to see supply-side change leading to consumer growth. the sharp growth slowdown has spooked them. the expectation is more fiscal stimulus, more monetary stimulus. comes an increase in the debt to gdp ratio and all these danger signs we are looking at from china. alix: one possible backstop is what happens with trade. kevin talked about the upside risk to the u.s. economy. >> the resolution of uncertainty is a big upside risk for the economy this year. it's great for china and great for the u.s. if we see a deal
that we are beginning to see sketches of. there's a big upside from the trade deal. alix: is that what we saw this week with the huge rally in global bond yields on the back end? jim: some of that is true. the data out of the united states showing we were growing a bit faster had something to do with the bond yields. would really help put the pressure off china and improve sentiment about the united states and the global economy if the trade war stopped. combined with stimulus that's already in place, if you end the outlooks fore global growth improve quite a bit.
i like the price action out of china. it is tremendous upside movement in the shanghai of late, very suggestive of what future economic performance might start to improve by the spring or summer, particularly if we can bring resolution to this trade war. i think it is a positive. the markets may reflect a lot of it, but it will be a positive for the economy if we get it done. david: we have a viewer writing in a question. why are we getting so excited about the lending in china right now? 90% is going to state owned enterprises. we have state owned enterprises defaulting for the first time just recently. are we overestimating the importance of this lending? routechina goes down this
, they managed to engineer may be a couple quarters of growth revival, but after that, the economy will really be struggling. i've been the most worried i've ever been in terms of china's development model. whether it can actually work and pull it off. there's two very important headwinds. one is the external pressure. i disagree with the view that a trade deal will be good for the economy. it will be more good for financial markets. what we are seeing between china and the u.s. is an all-encompassing geopolitical confrontation. the tech side of it is much more important. that will impact the real economy in china. xi jinping coming to power has
china 180urned degrees backwards to becoming a maoist, socialist economy. the middle income chinese have been the right spot in terms of consumer led growth. david: fascinating. thank you for being with us. jim paulsen of leuthold group will be staying with us. coming up, changes that tesla. we take a look at challenges facing the electric carmaker after elon musk announces a cheaper model 3 what warns on profitability. -- but warns on profitability. this is bloomberg. ♪
theyre with land rover -- cannot sell them in china. brexit is affecting the british market. they are really struggling at tata motors. we all of jaguars. motors coming out and saying there's no truth to the report. i guarantee they will be blamed on brexit. david: notice the language there. fromn to divest, different a joint venture. alix: the fine line. i'm taking a look at gap. they are spinning off their own navy unit. unit -- their
old navy unit. five dollars a share. that shows you how much value was in old navy. billion.be $9.5 gapd: fascinating because was so dominant for so many years. alix: they wanted to see that value unlocked. david: tesla, we've been watching it all morning long. we are now joined by taylor riggs. taylor: it's all about volume versus profitability and the way to reduce that card to $35,000 $35,000. last summer, musk made some bold calls, wanting to be profitable in every quarter starting in q4 going forward.
it looksual basis, like we will get some positive free cash flow even though there apex isive -- their c massive. that should give investors some relief even though the profitability in q1 might come into question. david: people love their cars. do they run a risk of compromising the quality? you can't to online, go to a showroom floor and sit in one. this is ashort-term, good way to rip the band-aid off. long-term, it is a good thing. we always talk about the short-sellers. i sometimes feel bad for elon musk. he's done an incredible job of creating such an incredible
company and he gets killed every time these shorts come out. david: he almost airs them. -- dares them. come after me. alix: he does see 2019 being pretty hard for economic reasons and idiosyncratic. taylor: if you go in and see the car and like it, you can still go online. a lot of the retail stores they are closing our in california. are inin california -- california. alix: this is bloomberg. ♪
will the data confirm or not good euro-dollar using steam. it has been quite a run. good that up .5% level sitting at the highest since december. the 210 spread -- 19 basis points is where we said good the .ata dropping just now 1.9% month by month. .2%. if you go back to november, that is being revised up .2 percent. for january, personal income is down .1%. they thought it would be up to 3%. personal spending for december is up .5%. we said december personal spending backs up the retail sales numbers. pretty bad. fornovember, those numbers
real personal spending were revised up. that is something. seeinggiven what we are the job market, wages as well as employment, it is surprising that personal income would be going down rather than up. alix: u.s. incomes overall falling in january. you had a big boost in payoffs dropping off a little bit there. david: joining us now is peter coy, bloomberg businessweek economic editor and still with us is jim polson. i suppose this reinforces what chairman powell has been saying. we do not see inflation. patience.sage is if we are data dependent, this is one more piece of data that tells us no rush about raising rates. we had a great piece by craig torres of bloomberg news in washington about this topic of patients and the idea of preemption.
the idea that you look at your model and if it predicts inflation, therefore you want to preemptive in raising rates, it is out of the fed now and for good reason. given how can that be what is going on the job market and wages? >> that is the mystery. we are at a goldilocks time. extremely low unemployment and below target inflation. it is truly amazing. we should be enjoying it. former new york fed president echoing similar statements. here is what he had to say. as large as inflation stays quiescent, fed will stay on hold. more pressure on resources, inflation will start to drift back up. my best judgment is the fed is not done. alix: when you pair that with what peter was saying, how much of a green light is it to buy risk assets and continue to say
-- jim: from an investment standpoint, it is a good report. last year we were overheating in the economy. the end game was coming. if it was continuing, we were going to have to raise rates and incur recession. the fact that we are now getting weaker reports and so the pace of this recovery, i think one outcome is we have elongated the recovery and elongated the bull market. , 4% or lessoyment unemployment, we cannot grow at 3% plus and keep a recovery alive. if we grow at two percent if, i think would definitely could i think we could keep this recovery for a few more years. as long as reports do not go off a cliff, i think it allows the fed much more comfort in their approach and allows equity
market to continue to climb higher. what is the connection between personal income and spending on one hand and gdp growth on the other? so much of the economy is driven by consumer spending. muche do not who have as money are not spending as much money. peter: personal consumption is what fuel -- the biggest part of the gdp. personal income comes from the wages people are earning because of the growth. it is hard to say which is the chicken and which is the egg. a pause like this with weak numbers in december/january is not enough, given all the other indicators we have that we are hitting the skids. gdp: how you register the versus the tracking index? if you come inside the bloomberg , the yellow line is what i want to focus on. despite theing over
fact that fourth-quarter gdp held up because it is forward-looking. gdp forecast tracking under 2%. short-term for you? peter: the current situation is great. it will be weaker in 2019. we will not see three plus growth in gdp in 2019. it was nice while it lasted. i just read an interesting morgan stanley report drawing from the various regional fed surveys and it concludes we will see a slowdown in capital spending. it will blow at a slower -- it will grow at a slower rate in 2019. the gdp report was so strong because of good capital spending. those things will not be there in the coming months. slower growth but i agree with jim that as long as it does not roll over into recession, then it is a good spot for the economy and for employers and for profits. david: how does this affect an
investor? can we keep this up and how long? do you get worried we are coming to the end of the cycle and may stay too long at the party? we will have the longest recovery in u.s. history by june. the fact that it is long on the calendar makes you anxious about how much longer it can go. that combined with the fact that we have an employment at 4% or guess we have on employment at 4% or less. we have this regularly slow glowing recovery. it has been the slowest growing recovery in postwar history. one of the silver linings is it could last a long time. in the state of balance sheets, private sector balance sheets, if i look at the consumer balance sheet, even the business balance sheet, they are phenomenally healthy for being 10 years into what a recovery. balance sheets stress is what
generally brings a recession. right now it is hard to create one because they are in such good shape. if we can avoid having to jerk interest rates higher quickly with slower growth, i think the recovery could last a few more years. if it does, i think the bull market continues. if you are an investor right now, you need slower growth. withoutt grow fast ending it. it you want the bull to continue, you have to root for more slow growth to extend the recovery. david: i do not want to rain on the parade but we have great balance sheets. that is because we took a lot of debt and put it on public balance sheets, central bank balance sheets. every time they try to cut back the markets go crazy. we just will that happen with chairman powell. should we be worried about that at all?
there is a difference between the central bank accumulating reserves by buying bonds versus the private sector accumulating debt. there is not a risk the fed is going to go bust. the only issue is how quickly the fed will let the bonds runoff the balance sheet. the latest indication from jay powell is they will get down to maybe $3.5 trillion and sit there. we will have a big balance sheet and that is the way the economy will be steered. it does not strike me as a big risk. to thato the -- alix: point, biggest gain since 2001. we are good to go as long as it is not high. bloombergs peter coy and jim polson. alix: i want to update you on breaking news with vale.
the mining secretary is requesting an investigation into whether the company colluded with auditors and misled authorities over the risk assessment with some of the tailing, which is how they dispose of mining waste. if they did, they have strict laws in brazil and it could be as much as 20% of its revenue. the stock is usually lower. david: 20% of revenue -- not of profits but revenue. that could hurt the company. haven't there been reports that they've been warned about these problems and ignore them? alix: there was a report that auditors would look at it. investors saying i do not like it but we will prove it anyway. they did alert vale to some of the potential issues and maybe they wound up getting strong-armed into saying i will give it a pass. this is a string of other tailing mine issues we have had
globally. david: let's get an update on what is making headlines outside the business world. viviana: at the india/pakistan border the india pilot who was captured when his jet was shot down waiting to be free. the pakistan prime minister calling it a gesture of peace. india is accusing pakistan of using u.s. made fighters in its rate on kashmir. that would violate the agreement between the u.s. and pakistan that only allows planes to be used for counterterror operations. bill gross calling it quits today after one of the most storied careers in finance the. he tells bloomberg yes asperger's syndrome. he says it helps explain why he was such a successful investor. >> it helps you focus on longer-term things without getting mixed up in the details.
it allowed me to take what we call the secular approach and it was a good view to take. viviana: do not miss the full special, a conversation with bill gross on bloomberg tv tonight and over the weekend. the u.s. laid out its vision for a post-brexit trade deal with the u.k. the trump wanting comprehensive access for agricultural goods and an end for unwarranted barriers to trade in the form industry. the u.k. has pledged not to lower its food standard. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. alix: they are not supposed to do that. you cannot do that under the eu laws, they are not allowed to make deals? david: i lived in london a few years ago.
they're are very protective of their agricultural products. they want to make sure their standards apply. they are very protective of their standards. the united states will say we will get agriculture we can ship in. that is a real hot button. alix: because it is the u.k. is the eu. they have strict jim overrules. gtmo rules. strict david: they also want to fix the pound. looking at emerging market currency, i don't know. it is a pass forward for terminal approval. we will speak to the federal energy regulatory commission chairman. significant for u.s. growth and energy production. this is bloomberg. ♪
viviana: this is bloomberg daybreak. coming up later today on "balance of power," republican senator john kennedy of louisiana. this is "bloomberg daybreak." bloomberg has learned they are gold has no intention of raising it 17.8 billion author for newmont mining. newmont says it's toward will consider the mining -- the offer but it criticizes barracks model. the oil producers have spent this week making their cases to the biggest investors. elon musk is delivering on one promise and falling short on another. elon musk says tesla will start building a model 3 sedan that costs $30,000. he acknowledges is the company will not make a profit in the
first quarter. tesla is closing its doors and will only take orders online. it will be another tough year for london-based advertising group of epp. the perp -- group wpp. the firm is expecting revenue to fall. its agencies in north america are struggling with the shift toward digital marketing. shares have fallen by more than a third over the last year. that is your bloomberg business flash. alix: time for all the lead -- a deep dive into stories making headlines and moving markets. today we are looking at natural gas. the first wave of export terminals are coming online now at the next wave will hit in 2022. venture global is part of the second wave and recently got approval for an export project in louisiana. the company's co-ceo has high hopes. months from to 39
start to finish for construction . the bulk of the projects in the u.s. have been closer to 50 to 60 months. alix: that first shipment will be set for 2020. joining us from washington is neil chattergee, federal energy regulatory commission chairman. great to catch up with you. on a more projects you expect to pass this year? neil: we have a number of projects. what anflection of incredible transformation has taken place in the u.s. energy space. we are now in a position to be a net exporter is incredible. it speaks volumes to what the gas revolution has done for the american economy, the environment, and for the u.s. geopolitically. alix: true. it has been your goal to help speed that up. how many more can you get done this year considering there are a lot of projects in the queue?
neil: we have a number of projects. we look at east one on an individual basis and assess them taste on their own merits. that said, i am optimistic that in striking the deal my colleagues and i came to to approve the past, we got over the thorniest issue, which was over the question of how to assess the address -- the direct g hg emissions. now that we have that agreement in place, i am hopeful that barring something unforeseen with these other applications, we have a framework in place to get them expeditiously approved. alix: your estimation? how many projects you have. you have a goal? i want to clear 20% or clear --? neil: we do not believe we do not prejudge any of the applications that come before us. we willview them hopefully use this framework to
approve them. i do not want to prejudge the outcome of any of the applications. i cannot make a prediction like that. alix: fair. you have a lot of permits and approvals waiting to be approved. the other thing you have on your plate is what you will do about grid resilience. you have any idea on timeline of when you can reach a consensus on any market reforms we need to see on the grid? this is a serious question and one we want to get right. the safety, security, and reliability of the electric grid is the foremost responsibility. we are seeing a rapid transformation of the way our generation mix is trending, the way we distribute and consume power in this country. we want to do a careful assessment to see whether there are any potential threats to the resilience of the grid and if so what actions might be necessary
to take. when you're talking about something the significant, we want to move carefully. we do not want to do anything to harm our markets. istever approach we take going to be fuel neutral, technology neutral and we want to make sure we do it right. i do not want to make a prediction on timeline. this is one of those things where it is more important to get it done right and get it done fast. alix: fair. i wonder if the urgency is heating up? you have received more than 200 comments and increased shutdown in coal-fired power plants. if we need the coal and nuclear and we need the storage, is there a new sense of urgency? neil: no question. there is absolutely a sense of urgency. we all understand at the commission and policymakers throughout the country understand the urgency of the issue. we also understand we have to be very careful here to ensure that
we know what we are dealing with. what is great resilience? what are the attributes necessary for resilience? is there a threat to resilience that is provable and based on the evidence and the record before us? ,f we find that to be the case we will have to determine what steps to take to address it. if such steps are necessary, i am hopeful they would be done within markets and not distort our distinct framework. alix: you have another thing on your plate from pg&e. you've been trying to block pg&e from canceling wholesale contracts. contracts are quite expensive and you are trying to prevent them from canceling them. what happens if the court overrules you? is a jurisdictional matter between the commission and the bankruptcy courts. the position the commission has taken is to assert our jurisdiction. i'm reluctant to comment because the matter is still before us. alix: neil chattergee, federal
alix: here is what i am watching. vale shares falling after brazil's mining authorities opened a probe into whether they covered up safety procedures. here is a safety mining analyst. talk about the investigation and what the fines could be. >> the fine is 20% of 2018 revenue. the fourth quarter has not been released yet good we are estimating about $36.5 billion. that is well below what we think the stock is discounting. our estimates are somewhere around $12 billion. that includes the discontinued dividends as well.
they have to factor that in. that was yelling for billion dollars to $5 billion. alix: walk us through the investigation. what are they being investigated for? andrew: they are still -- there are still over 100 people missing. you had the dam burst. about 52 there are million tons offline from them. we will see if there's anything in addition to this penalty, which can also service. alix: is this going to impact their ability to operate, or how will it? andrew: nothing so far out of the news suggests any of the minds which are currently shutdown will be allowed to return to operation. there was also something that across the wire that said an anticorruption probe is also being opened.
that is another wrinkle coming into the mix. alix: andrew cosgrove of bloomberg intelligence. thank you very much. vale taking a hit. this might be different. david: it has affected iron ore prices in the past. how does it affect competitors? a lot of competitors in australia. going to bes systemic risk for the company. much more follow-up on that. coming up on the open with jonathan ferro, michael purves. we made it to friday. good job, everybody. this is bloomberg. ♪
jonathan: good morning. futures positive .6% on the s&p 500. up 16 points on the s&p and the bond yields higher to 2.74. euro-dollar firmer at 1.1381. we begin with the top story. some may say the data has been underwhelming. many investors gripping for the silver lining. >> good macro data. >> tangible catalysts on the horizon. >> the key driver of the slowdown was a collapse in trade