This year, last friday, that round of risk off. It underperformed. That is true today. Over the last two days, down 2. 8 , the worst in more than a month. Investors not buying that area. One factor that could be at play, valuation. In blue, looking at the forward pe on the s p 500. Coming out of the financial crisis in 2009, we see suppressed levels for both. Over the past five years, lets call it 14 to 16 times. A pe on thee had s p 500 of about 8. 4 times. Unable to get back to that level. Last week hitting 20 times forward earningss, coming off of that level. It may suggest there could be a little bit of a coolingoff ahead given the frothy trading action. Renita i am looking at an big reduce her. The last timeshares had fallen this much was back in september. Big prices at the lowest for the season and at least a decade. They recently lost one of their major southeastern customers. All around, bad right now. Shut downans to older, less functioning, less efficient plants to defend the companys margins. Taylor a chart here is all about small tech versus big tech. Morerd pe ratio, what is undervalued . Islooks in this case like it small cap. Saying that small tech may be cheap on a relative basis. We are looking at the s p 500 and 600 technology indices. The smallcap Index Trading at a pretty big discount. At one point the Biggest Discount going back to 2001. You can avoid some of the big things that go into the smaller cap tech companies. Us, its still with Bloomberg News across asset reporter Sarah Ponczek, and jonathan. We just heard taylor talking about smallcap tech relative to largecap tech. Today, the faint the faang index lapping the general indices. For someep looking kind of rotation. Tech to cardboard boxes or something. Could we be wrong . Could it keep driving and lapping everything . It could. But i think the underlying Earnings Growth will be more challenged. You never want to buy tech because it is cheap. You want to buy it because it is expensive and growing fast. If you look at last year, look at apple for example with these extraordinary gains. It is so hard for Big Companies to be able to expand their earnings picture as much as some of those stock prices would justify. Cyclically gets stronger, i think small caps will outperform large caps for at least the First Quarter to half of the year. Scarlet what happened to the rotation into small caps . Sarah we saw it die down a little bit it picked up when we saw the very large rotation take hold. We saw a rotation from growth to value, from domestic to international. We have seen rotation from defenses to cyclical take hold. We have seen International Areas start to catch up. However, we have seen the russell 2000 start to lag once again and have a bit of a hard time. Many people i have spoken with dew point out the fact that earnings have been a challenge. Jonathan just said, i still hear many investors saying that they think this is the year that small caps finally do outperform. At the end of the day, it is about fundamentals or sentiment. At 2020 earnings expectation, it is Cyclical Companies that have been lagging the market. They are expected to deliver much stronger earnings that noncyclical. Overseas, those companies that export more were laggards in terms of their results. They are expected to do better. Techrespect to big cap numbers are expected to do pretty well. Internet companies were facing fromreal headwinds in 2019 an earnings perspective. Romaine i understand you are pretty optimistic. Why havent we seen some of the positioning into cyclicals a little bit more widespread . We really have not seen folks jump all into that cyclical trade yet. What is the catalyst to really unlock this . Ism that has not popped the way people thought. Market pmis, very similar, kind of a cousin, it is getting better. The most important indicator to the entire market has been sloppy. If we see what i expect, that forism moves toward 52 marchapril, i think you will strong. Trade come in if it doesnt, i dont think you will see it happen. A huge believer that over the long run, the u. S. Is going to do much better. U. S. Companies are really positioned for success. , they have oldre industries and banks. If you are right that you will see a cyclical upturn, it is those old economy stocks that tend to do better. Steepens, iturve is good for global banks. At least in the First Quarter, i would be positioned more in Companies Either outside of the u. S. Or those that have sales exposure to those regions. Scarlet it is january which means that people are contributing to 401 k s. Do we have a sense that there is a lot of money waiting to get in . We constantlyh hear this phrase that there is a lot of cash on the sidelines. It is in market money funds. If you look at the addition of etfs, mutual funds, equity etfs and mutual funds, flows have been negative for many years. If you just look at etf flows, we have seen a big pickup to the upside. Inflowsarge amounts of into equity etfs. Along the technology front, many people might be saying that can outperform just because they have been going for so long. Last year, the faang names adjusted for roughly one fourth of the names. Much going into the sector funds, really plowing into the market cap base. That was more than every other sector combined. It shows you that the demand for big tech is still very much there. Romaine if you were already invested, it makes sense that you would stay and ride it out. Lets say you were not invested right now. Get in. Romaine get in where though . It is about time frame. If you are looking at this as a trade, i think you will see smallcap stocks, emerging markets and nonus stocks, more cyclical names will be the wind. 23 yeary you have a view, largecap growth equities. Romaine for all of that proverbial cash on the sidelines, which could come out of treasuries or some other asset class, you go overweight equities . Jonathan you have to. The yield on the s p is 4 . On a bond, where we, 1. 8 . The spread is too large. If you look at the growth prospect, especially in Technology Stocks in the u. S. Compared to the rest of the world, longerterm, it is a win. On a trade, i dont think that is the way to play, but longerterm for sure. Romaine if tom keene were here and told you about his triple leveraged cash portfolio, what would you tell him to do . Jonathan if he has been doing that for the whole cycle, god bless him. Romaine i have to pay for all our lunches. He is broke. Thanks to Sarah Ponczek and jonathan golub. That does it for the closing bell. Whatd you miss . Is coming up next. This is bloomberg. Romaine live from bloomberg World Headquarters in new york, i am romaine bostick. Here is a snapshot of how u. S. Stocks closed. The s p 500 rising for the third time in four sessions. Joe the question is, whatd you miss . Romaine the u. S. And iran, the conflict raising new questions about policy in the middle east. Gold rages to its highest since 2013 as some strategists say it may prove a better bet than oil if it escalates. And, criticism of the government response to the calamitous australian wire filers wildfires. Scarlet the fallout from the killing of iranian general Qassem Soleimani is continuing. President trump discussing sanctions of iraq after that country voted to expel u. S. Troops. Mark saying that the white house believes that the iraqi people want u. S. Troops to stay. Lets bring it eric brewer, Deputy Director at csis. He formerly served on the National Security council under president obama. He worked on the Iran Nuclear Deal as well. I want to start with the Iran Nuclear Deal. That country announced it would no longer be bound by the limits imposed under the nuclear deal. The happened with assassination of general sulli eimani, wasneral sol that in retaliation or a separate response . Eric this announcement that iran made recently, the timing of that was in advance. This was part of the plan that every 60 days, it takes another series of steps to walk back commitments on the nuclear program. This was planned, not timed to be a response to the death of kassem sulli money of Qassem Soleimani. There was some misperception, a lot of press came out early on and said iran would be leaving the nuclear deal. They said they would no longer be bound by the limits that number ofap eye the centrifuges they can install. They can install additional centrifuges which would reduce the breakout timeline, which is the amount of time they need to produce a nuclear weapon. This announcement is quite consistent with what they have done to date. These headline grabbing moves, but the may have been slow and methodical and following through. We dont see any indication that it has actually made a move to install these centrifuges. Willl indications, iran continue to cooperate with inspectors on the ground. Strategically, what does that say . Statements that grab headlines but moves that are slow and methodical, what does that tell us about irans thinking or how they are approaching this crisis . This is how iran has long approached its nuclear program. It has made moves and sort of hit pause to see how the International Community is reacting. That suggests that irans future moves, whether or not it does take these steps like higher levels, is contingent upon the way the International Community response. , maybe we can. Scalate perhaps we should not pick that battle right now and risk alienating europe, russia, and china, who are the other participants as part of the nuclear deal. Iran is still sensitive to the costs and risks of unimpeded escalation. Romaine if you weigh those costs and risks, they may be largerg conflict with nations, including the u. S. , but over the last decade or so, they have been created conflict with neighbors. Our those nations willing to sort of let that continue as long as iran does not attack those larger nations itself. That the way iran looks at its strategy, going back to may of 2018 when the Trump Administration withdrew from the Iranian Nuclear deal and shifted to a strategy of what they call maximum pressure, imposing a range of maximum sanctions, diplomatic pressure,ow even nila terry pressure iran waited for more or less a year. But, starting around may of this approachchanged its and pushed back on multiple fronts. On the nuclear program, in the region with regards to tax on tankers, saudi oil fields, and other bases in the region. It sees those two elements of the strategy sort of part and parcel of the same thing. Irans message is to try and increase the cost to the United States and allies and eventually force them back into a negotiation and back to the table where iran gets some of the sections relief. If you can look into your crystal ball, what is going to happen this week . Is it a slowmoving development where we start to get more hints . F what is to, in a month irans calculus with regards to sulli money. They dont need to hit that immediately. There is a sense of patience. They dont need to come out guns blazing. This is something they can respond smartly on and they want to respond smartly on. They know that in a wider conventional war with the United States, they will lose, so they are trying to balance competing objectives. On the one hand, they have to respond and have to do so because they do not want to find themselves in a wider war. Romaine thank you to eric brewer of csis. Some breaking news. Pier 1 imports, the retailer of home furnishings, is planning to close 300 locations and cut jobs. Waseported today that it planning to dismiss about 40 of its headquarters staff. The company now saying it plans to close about 450 stores and cut jobs. Shares were down almost 80 prior to today. They plunged today. A company of course that has been reporting eight or nine straight quarters of declining store sales. Joe coming up, is boeing planning to borrow more . Reports that the troubled plane maker may take on more debt after the lack of sales of the jet. This is bloomberg. Boeing closing higher even after reports that the troubled plane maker is considering raising 5 billion in fresh debt. Boeing halting output of the 737 max as costs associated with the grounding increase. In Senior Aerospace defense and Airline Analyst for Bloomberg Intelligence. Thank you for joining us. From a Balance Sheet perspective, what would be the justification or need for boeing to hit the debt market right now . Right now, boeing probably has about 15 billion of inventory on the ground. But that has used a lot of cash lately. They are also getting ready to purchase their share of the joint venture, which will cost them about 5 billion. They have about 11 billion dollars of cash on the Balance Sheet last we looked. It is probably the manageable just given the inventory on the ground. A number is probably of reasons to go ahead and add to the cash balance. One other point would be that they raised money midyear last year and all of those bonds have treated above par. They could probably raise 30 year money for less than 4 and 10 year money for less than 10 . Some airlinesow have asked to be reimbursed because some of the delays. Do we see that as being a cash issue . They have plenty to handle it, but we were going over some of the numbers today for southwest and they agreed Something Like 830 million in compensation. We think with a delay into one 1. 2, they will be paying 1. 3 billion. There are a lot of customers they will owe money to come and none probably as much as southwest. Thereve been reports that the 730 seven max has hardware problems they need to address as well. How significant is this development . Iswhat i have heard that it wiring harness related. It shows me that they are poring over this airplane to find problems. It could have been on the previous version as well. Again, it is disappointing longterm ibut think it is the right thing. Romaine George Ferguson of Bloomberg Intelligence giving us that update. Coming up, President Trumps impact on u. S. Real estate. That is coming up shortly. This is bloomberg. With i am Mark Crumpton bloomberg first word news. Amocratic senator tim kaine, member of the Armed Services committee, has introduced a resolution limiting president getps administration i iran. Administrations actions against iran. He says that President Trump did not provide advance notice of its airstrike on iranian official Qassem Soleimani in baghdad. Somewhatws that he is deranged about this. The pledge to attack cultural sites is likely a violation of international law. That he is doing these kind of threats and not even briefing congress. Mark in tehran, general soleimanis daughter threatened and attack on the u. S. Military in the middle east while speaking to a crowd of hundreds of thousands in iran. She said, the families of military members and the middle east will spend their days waiting for death of their children. John bolton says he wouldnt test he would testify at the impeachment trial if subpoenaed. He recently said he would not testify at the house probe. In a statement today, bolton said he has had to resolve serious competing issues as best he could. Aoomberg has learned that chinese trade delegation plans to sign the first phase of its trade deal with the u. S. In washington on january 15. The Group Originally aimed to travel earlier in the month but had to alter plans after President Trump tweeted that the deal would be signed on the 15th. New York Governor Andrew Cuomo came to the rescue of a passenger trapped in a wrecked van that had flipped over on the expressway. The governor had just left an event in manhattan when he came across the accident scene. There were no police or Emergency Personnel present when the governor and his state Police Detail helped pull the man from the vehicle. Onbal news, 24 hours a day, air and on quick take by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. I am Mark Crumpton. This is bloomberg. Scarlet as we enter the late snings of President Trump first term in office, lets take stock of how the Luxury Real Estate market in new york city is faring. We know that Developers Struggle to find takers for high end properties. Theoup that is focused on sale of commercial and Residential Real Estate in new york city. Of taxlame of the lack deduction for state and local taxes . Mainly in the salt states, the loss of deductions have been a factor. When you take into consideration properties that have to do actions up to 15 million, having a negative impact on valuations. Joe there is a story bloomberg published this afternoon about lots of inventory, particularly luxury condos piling up socalled shadow inventory, thousands of units not on the market. Just t prices just it just adjust and come down and clear like a normal market . We started seeing it last year, in the new york city high end residential market, i have not seen transactions more negotiable in 10 years. Developers are coming around to embracing the concept that we have to decrease pricing to gain traction. Romaine when talk about the impact the Current Administration has had on the Real Estate Market in major cities, we have to talk about the effect of foreign buyers. And their absence in some of these markets over the past few years. California, so much of our demand was fueled by capital coming from overseas. To your point, in terms of highend luxury products, there has been a tremendous lack of demand and a sense of urgency. What about low Interest Rates . At least until the end of last year, we did not know how long Interest Rates would be low for . We had three rate cuts last year. Record has gone on saying they dont anticipate changing that in 2020. You have a year where you have to worry about it basically based on the fed statement. Joe shortterm, there are all these issues. Salt, lack of foreign buyers, etc. Here,erm, it is cold there are warmer places to be. We keep seeing announcements, amazon adding more employees even after not getting that big offer. Facebook, google, they are all expanding. Great tondamentals are buy now. Stock market at record highs, Interest Rates we just discussed. The fundamentals are there. Are 13alking jobs that years, new yorkers that want to buy property and invest here in the future. Romaine when you have clients that come to them, what do you tell them given the current environment out there . The same statement i made earlier, that i have not seen deals this negotiable in a decade. That everyone is predicting the future and everyone thinks prices can come down further. I tell clients, you wont be able to predict the bottom. You should decide to purchase when you feel like the time is good. Freddie likeie and to come out of likely to come out of conservatorship this year. Will that have an impact . We dont know what they will look like if they are privatized again. Will they become more or less stringent. Coming out of conservatorship, is of trumps policies reducing the affordability to less affordable housing. Scarlet a lot of openended questions. We have some headlines crossing here. American airlines and boeing have reached a confidential ked, an agreement on the confidential pact, agreement. We do not know the amount because it is confidential but we do know that it will include compensation in the 2019 Profit Sharing program. Composition will be received over several years. That is how the stocks are trading after hours. American higher by 0. 4 . Boeing is down. Joe coming up, oil not the only commodity moving on mideast tensions. Gold jumping to a six year high. More details on those market moves, next. This is bloomberg. Whatne time for a look at stories are trending across the bloomberg universe. New york subways with delays on monday as thousands of commuters returned from the holiday defined signal breakdowns. 55 have pushed for a billion Capital Spending plan with billions committed to Technology Including signaling systems which were designed in the first half of the 20th century. Netflix was snubbed at this years golden globe. 1917 beat out three other contenders from the streaming giant. For thedid when prizes tv show the crown, and another for marriage story. Amazon and dhl testing deliveries using bicycles in new york city. They introduced another program in seattle which has inspired amazon in its quest to be at net zero carbon by 2040. Gold surging. Fully on hitting a six year high today as tensions in the middle east drive investors to safe haven assets. The yellow metal approaching 1600 per ounce. Goldman sachs says the commodity has more room to run. Us, our metals and mining reporter. Syria, mideast tension, by oil. But goldman says by gold instead. Logic is what we have seen in the markets today. We have seen gold prices come back a little bit but oil prices come back more significantly. It seems like the reason is that this is more of a fearbased trade. See a meantime, we dont fundamental impact. People are starting to see that there is no risk to a lot of the supply in the market. Scarlet gold today got to as i 1588. How far will hold rally . Goldmans threemonth call is for 1600. A lot of other folks are forecasting 1600. That is definitely the level that people have their eyes on. Romaine joe has missed out on gold rally. We saw obviously that monster rally last year from palladium. Palladium is also expected to keep rising. People expect that rally to keep going up. , not justhe forecast for the precious metal investment but also the fundamental investment. Palladium, you can actually use it for stuff. Ins just to be held in the romaines safe. Gold does not need the economy to grow. Of their demand actually comes from industrial growth. Justina last year, there was that fear that the economy would keep growing at a healthy pace. With the Industrial Metals like palladium being one of those was a precious metals, it is teetering on whether or not the economy will keep growing and the precious metal demand it has. Romaine you know what is useful, joe . Aluminum. Nobody is paying 1565 for that. Joe you have to get the right mix. Find the sweet spot. Scarlet joe is not a fan of gold. Joe its all right. Im not against it. Scarlet top golf is getting closer to an ipo. The dallasbased driving range operator is working with banks including morgan stanley, jp morgan, and bank of america. The driving ranges, which bring the spirit of a Bowling Alley to the golf course, allow users to track their balls electronically while ordering food and drinks. Theon dairy has become second major u. S. Milk producer file for bankruptcy recently. Less than two months ago, the rival filed for chapter 11 protection. Recruit overns to a thousand programmers this year. Last year, roughly of three citis programs citis trades were electronic. Romaine bill dudley, who used to oversee the feds interaction with financial markets, is calling for a new tool to ensure that u. S. Cash markets remain calm. Monetary policy cannot do it all went there is only so much room to lower shortterm interest rate. We have not had as much room as the past. Romaine for more on dudleys fiscal policy ideas, we are joined by bloombergs alex harris. Was a lot of talk after the big repo scare in september or whenever it was that we would get some signs that they would abandon the idea of a standing repo facility. Where do we stand . Alex in the minutes released on friday, they have kind of said it is among the topics to be discussed at a future meeting. The more certain we are in terms of timing, the more likely we will see something by the first half. Ideaintuitively, the cents. If you have high quality collateral, you spend it over, they give it to you, maybe a little haircut or whatever. What is the difficulty . The issue is that there are a lot of moving parts. For starters, who do you extend this to . Do you extend it to the primary dealers or go the route that will dudley and others have proposed, opening it up to counterparties. Getissue is about how you that liquidity into the system. In september, liquidity was there but it could not get out. It was trapped. That is one of the issues. Some of the issues, where you set the rate . For the fed, the existential question, how big of a footprint market . Ant in the repo how much do they want to be in this market . That is another thing they will have to figure out. It is so much more complicated than just flipping a switch. How these details come together. And they are still so far apart on doing that. Scarlet is there a lack of urgency right now. We are past the end of the year, when people were really worried things would snag. Alex the october fomc meeting, people are saying, reserve management, Treasury Bill purchases pushes that level of reserves up, theoretically we may not need a standing repo facility. I think that is what a lot of people are banking on. In an abundant reserves regime now. Now it is up to the policymakers to decide. Having to micromanage every time there is an issue in the market . Joe thank you very much. Coming up, bushfires continue to rage in australia with weather conditions further deteriorating. This is bloomberg. Arelet firefighters getting a break in australia, but only briefly. Cooler weather along with rain today but authorities warned the weather will return later in the week. Talk about how much of a break firefighters are finally getting. Coin, sides to the unfortunately. These firefighters have been absolutely exhausted with this unprecedented fire season which has been going on for many weeks and months. That little bit of rain overnight has been giving some rest bite, but on the other hand, a little bit of rain, rather than enough to put out the places, is seen to hinder the rescue and recovery as well, given that a lot of climate experts say that creates patchy or fires in some parts. We are expecting temperatures to start heating up again friday ato the weekend, some parts about 120 fahrenheit. There will not be much of a window for these firefighters to do their work. We had the death of a 71yearold man, which brings the death toll to 24 for this fire season alone. A little bitlike of a reprieve but it will not last long. Romaine do we have an idea of the impact with regards to tourism, etc. . You have to look outside or walk around if youre brave enough. The air quality is terrible in sydney, melbourne. In canberra at one point last week, they had the worst air quality in the world. We are in the peak of tourism season, it is school holidays, peak retail season. People are not necessarily going outside. Tourist have been evacuated. We had the largest peacetime evacuation in australian history. Numerous businesses have either been shut down or completely destroyed by the fire so they are not bringing in any money either. Them one of, one of the biggest decliners yesterday after canceling flights over the weekend because of smoke haze. Dairy companies have been some have been impacted, suppliers have been impacted. We had an estimate from the insurance counsel upping their estimates of the claims. 700 million is the number thus far but many are saying that number will continue to rise. Also saying that it is more about focusing on rescue efforts thenmound painting maintaining the budget surplus. The macro environment and for the rba. Beingow is the government seen in their handling of this that the have a sense perception of the government is deteriorating . I think it is fair to say that. There has been heavy criticism. Even at the Golden Globes overnight, we saw a number of hollywood celebrities calling out the australian government, not only what has been perceived as a bungled effort to respond, starting with the Prime Minister being in hawaii on holiday, but also for the longerterm issue that the government has had when it comes to lack of clarity with its climate and energy policy. We have heard from the likes of the former foreign minister Julian Bishop as well as another number of highprofile individuals and corporations, saying the government needs to take this opportunity to come up with a more coherent energy policy. This is a government that has refused to draw the connection between climate conditions and what we have seen in this brushfire thus far. Scarlet the numbers for the u. S. Trade balance for november comes out at 8 30 a. M. Eastern time. Romaine joe President Trump meeting with the Prime Minister of greece at the white house. Romaine the u. K. Parliament resumes with debate on the brexit deal in the house of commons. Scarlet seems like 2019 all over again. Romaine Bloomberg Technology is next in the u. S. This is bloomberg. Taylor im taylor riggs in san francisco, in for emily chang, and this is Bloomberg Technology. Iran mourns its fall in general and threatens attacks on the u. S. , cyberattacks are possible. And, it is buy time