Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20240713

Our bloomberg voices are on the ground with this mornings top stories. We begin in asia. Chinas economy stabilized last quarter, showing greater than expected strength if december. Fourth quarter g. D. P. Rose from the year earlier. Joining us now on the phone from beijing is james, bloombergchina economy editor. Walk me through the details and where the question marks are still Going Forward . Reporter looking at the data that came out today, it really was a surprisingly strong finish for 2019, for chinas economy. I think if we look past the g. D. P. Numbers, chinas g. D. P. Is more a political target than a real indicator of whats going on. If you look at the retail sales, Industrial Production and fixed investment numbers, there was a bit of a rebound in december. Sort of ending the year on a high note. A part of that was, i think, the chinese numbers efforts to sort of support companies is working and also i think the optimism you may have seen in december from the signs that the trade deal was going to come together affected chinese businesses, more invest and uptick in production. All those things combined. It was a surprisingly good end to a year which had been basically a story of continually slowing economy. Alix thank you very much. And now we go to europe where the e. U. s new trade commissioner using his First Washington trip to warn against protectionism. He didnt pull any punches, criticizing President Trump over shortterm thinking. Bloomberg spoke with him exclusively on resetting relations. This is the objective of the visit, is to reset the relationship, try to understand each other in relation to a number of trade errors at the moment and find Common Ground with the United States in trollings many issues. In relation to many issues. We started on a positive note. Alix give us the latest. What can we expect now . Reporter first of all, i would say the louge there was very interesting. Phil hogan is the head of the European Commission for trade. This is a huge portfolio for the europeans, its no secret that the relationship between the e. U. And the United States has been difficult of late. So it is interesting that he was in washington to reset the relationship. But used that kind of language where he openly said, look, trump is too obsessed about deficits. Hes also not being fair. By the way, he is playing politics with trade and hes shortsighted. This is not good for the u. S. Or europe or the Global Economy. Then he also said that the europeans at this point should also fight back this notion, this narrative, from the u. S. That the relationship is unfair. That they are somehow taking advantage of the United States. So hogan also suggested that if you look at the data, its much more balanced than you would think. Now, going into next weekend, this is interesting, phil hogan said to Steve Mnuchin and the mayor, the football minister of france, will be talking finance minister of france, will be talking in davos and that will be seen if we get retaliation from tariffs. That would have a detrimental impact on french products. Alix thank you very much. And now we want to head to the u. K. Where we tail sales unexpectedly fell. 6 during the crucial Christmas Shopping period. All of that adding to speculation that the bank of england may cut Interest Rates. Joining me now from london is our reporter. Put the numbers in context. Reporter end of the day, another kind of poor data release scene out of the u. K. Here. Retail sales unexpectedly fell in december. Thats the fifth straight month where theyve seen no growth or a decline. Obviously that covered the crucial christmas period, covered black friday as well because of the quirk of the reporting period. So not great news on that front. Bigger picture, the bank of england, theres been this january rate cut and markets now priced in the 75 chance of such a move. Thats really almost a slam dunk s far as thats concerned. Alix thank you very much. And then we turn to the u. S. Where the treasury is going to start issuing 20year bonds in the first half of 2020. The government is looking at different ways to balloon a fund a ballooning deficit. Steve mnuchin said the government will continue to look into other products to finance debt at the lowest cost over timement here in new york with more time. Here in new york with more. Whats the longerterm implication of this . Reporter its going to be interesting to see who steps up to buy these 20year bonds. Typically when you look at the 30year treasury, thats your pension funds, Insurance Companies, so its going to be interesting to see if those are the natural buyers of 20year debt as well. That said, europe and japan also have 20year bonds so it makes sense that the treasury went within the existing Market Structure and we could see domestic funds really interested in these as well. Alix do we see any longer term, like 100 year, 50 year . Reporter mnuchin said theyre looking at that. He said in september and in august that they were seriously considering that. But it makes sense that they went with this 20year security and didnt go with that sort of wild card longterm bond. Alix thanks so much. Now we want to go to industrial earnings. A stock down by about 4 , 5 in premarket. Our Bloomberg Opinion columnist is here with the result. What did we learn . Reporter it is. Its customers tend to be the big manufacturers that we hear from later in this earnings season and i have to say, looking at these numbers, it doesnt bode well for those results. Part of this is just great expectation. Shares of fastenal ran up significantly at the end of 2019 and these numbers do not measure up to those expectations. A couple of the disappointments, daily sales increased 3. 7 . That compares to 13. 2 a year earlier. And 6 in this Third Quarter. So a significant step down here. Fastenal talking about the general slowing in Economic Activity that they experienced in the second and Third Quarter it bed continued in the Fourth Quarter. Theyre not seeing a turnaround here. But also on the gross margin front, this of course is a particular watch point given the entrance of amazon in the Industrial Distribution space. And the cost of competing with that. Fastenal stock continued slippage in its Gross Profit Margin and they say thats because of Onsite Services for customers. But of course what has been offsetting that for them is continued stability in its operating margin. They did not get that this time around because of that weak sales growth. Alix thank you so much for the analysis. And finally, we wrap it up with politics in the u. S. The impeachment trial of President Trump kicks off next week in the senate. The most controversial issues will be tackled behind closed doors. Chief Justice John Roberts will preside over the proceedings. Joining me now from the white house is our bloomberg chief washington correspondent. What do we expect . Reporter good morning. Yesterday i spoke with several Top Republicans in the senate about a potential timetable for how long precisely this trial is going to last. Theyre saying anything from a couple of weeks. So the anticipation at least from the white houses perspective is they would somehow be able to get this trial completed before the president s state of the Union Address on february 4. Meanwhile, democrats doubling down, trying to push for there to be, what they say, more transparency. They also wlike to see key witnesses. Theyre looking at the testimony and Public Comments made by parnas, a former close associate of the president s personal attorney, rudy giuliani. This, of course, they feel is all the more reason there needs to be a continued investigation in the senate. However, you look at the math in the senate and im just not sure that the democrats are going to be successful based upon my reporting in their efforts. Im also keeping my eye on senator joe manchin, a democratic from west virginia. Where will he fall in this . Thats a state that President Trump carried by more than 20 Percentage Points in the last cycle and whether or not he sticks with democrats or reverses course and joins the republicans will be a key indicator of momentum heading out of this impeachment trial. Alix thank you very much. And one other story were all watching today, and that is google, its Parent Company has joined an exclusive club. It has a market value of more than 1 trillion. Only three Companies Currently have broken through that threshold. Four if you count amazon. Apple, microsoft and one more is the gainers in that club. Heres why we really care about it. The top five members of the s p 500 now represent 18 of the weight of the s p. Thats much more than it was 25 years ago at about 5 . That gives them a huge oversized impact on overall market direction. Makes it really hard for active managers, as well as passive funds, who do not own these stocks. Much more on your morning trade analysis on the markets. This is bloomberg. Alix time now for first take. News and trading analysis of the markets. Im going to start with damian. The trade data. First of all, regardless of if we trust the numbers, is this a green chute now in china . It confirms that manufacturing is stabilizing. Whats underneath the surface more me is the auto data. We had good auto sales and production data. 1. 8 year in year increase in december. Thats the First Time Since july. Alix when they started cutting subsidies. Exactly. Thats a great point. This good data, if you expect to see more of it in the first quarter, theyd be found wanting because last year, if you remember, there was a lot of front loading ahead of the tariffs. These comparisons will be tough to beat. Im not holding my breath. But its a little bit of a stabilization. Confirms what we already know. A little bit. Well see if this is a debt cap bounce. 10 years ago i was working at the journal, the Conference Board of china did its Editorial Board for us. They said, at the moment, and this is 10 years ago, china is growing at a sub6 rate. Get used to it. This is the real china number. That was 10 years ago. If you take it forward, its probably substantially lower than that and the numbers were seeing realistically are not that high. You bring up a great point. If you look at the brookings institute, which has done the breakdown of what is that inflation number . What does that look like . Theyre saying the numbers were inflated by about 2 . If you take that forward, assuming on a provincial level youre incentivized to inflate those numbers, to make sure things look ok, they put that number at 2 . I would argue its a little bit higher. Just because we know how china reacts. But to the point on how we close out the year, you had a huge push, you had a triple cut in order to solidify into the lunar new year. You had the protection in terms of how do we spur growth, how do we get that into the market . And you had the special purpose bonds getting reissued. You had a lot of things coming in to try to prop up that market into year end to make things look better. Weve seen a lot of fund flows. Look at the capital in china. Weve seen a lot of interest in chinese bonds and equities. On average from september on it was Something Like 13 billion of fund inflows into china. It averaged 11 billion per month for the eight months prior to that. Were seeing more interest. Has something to do with the yuan trading above 7. Now its on the way at 6. 88. Things are getting dicey here. I was speaking to someone yesterday, he said the equity flows they were seeing on their desk was enormous and they think that the yuan is overvalued. They dont eis appreciating much more. They think its overdone because of all these flows and china obviously massaging the rate to keep washington off their backs and they dont see it going much lower. The other thing you have to look at is weve had a significant rampup in throughput on the oil side. So if you look at refining assets coming on, chemical assets coming online, youre taking in more dollars because youre pushing a lot of exports into the market. People have said, look at oil demand. But also look at gasoline exports. Look at this little export. Theyre taking one thing and everyones saying, oil demand is showing growth, but, no, theyre taking oil demand from other places because theyre going to force other refiners, other chemical facilities to ramp down and have those economic cuts. Alix theyre doing the same thing with copper which destroys the data. Are they really running or buying that much or is it just more their own product . But, ok, fine. I get it. Lets get realistic here. Does it matter . In that, like, theres stabilization and whether its going to be 5 or 6 , clearly the market is going to stabilize here a little bit. Datas data. Dont you want to stay bullish . Bank of america strategist was like, lets say it irrationally bullish . What else are you going snood i was going to say, you do stay bullish until you see the catalyst that comes in and the wheels fall off. I think that catalyst is going to be what you were talking about in the earlier segment. When you have the e. U. s trade negotiator essentially poking the bear and threatening him with tariffs, say, go ahead, bring him on. Put tariffs on the e. U. Ment its going to happen e. U. Its going to happen. There is going to be friction with the European Union and i think thats where, when people say sector rotation, i say country rotation. Or and you look to place your bets in the countries that are going to do better with trade and the European Union isnt going to be one of them in 2020. If you look at the shanghai composite versus the s p 500, if you had this view of, oh, everythings going to be better, all this datas coming out, but you had this big divergence, it just so happened to start happening in september, an increase in october, when did row poe start . Repo start . Is it the data or is it really just quantitative easing thats starting to prop things up . And youre starting to cease that shanghai kind of show that dwermingence. Is the data that good where youre going to get stabilization and theres going to be a catchup rally, or is it something where the s p is now overvalued and youll have a fallback . Alix cut by 5 billion now with the repo markets, doesnt that count . As taking some liquidity . You cant have it both ways. You could say that. But we were talking before about the different cuts, the new fed components and theres a lot of dovishness still in there. The question is, if you pull out the 5ds billion and all of a sudden market 5 billion and all of a sudden the market do you o pull back, react . Its liquidity, stupid. Thats really what it comes down to. The former advisor alix i did not think you were calling me stupid. Do not worry. I would never. [laughter] if you just look at the fact that we announced a 20year, that tells me, forget about curve steeping its telling me the used treasury thinks longterm rates are low and they want to take advantage of that. Were going to run a budget deficit of 1 trillion per year Going Forward. Of course they want to lock in some of these low rates. Its more telling than anything the fact that, we have these repo issues, we have low rates in the u. S. And we have wide rate differentials with china as well. The 10year is 130 bits wide. Thats the widest weve seen. It makes sense that we see influence in china in an environment where we have 11 trillion of negative yielding. Thats a good point. Everyones excited about a 20year. There was no appetite for a 50year or 100year which is where they really wanted to be to push this out as far out as possible. They settled on a 20year because there was nowhere else to go. There was no appetite past 30. Just to follow up on that. In terms of where the rates are. If you factor in negative rates and then inflation, most countries that are technically positive still are yielding something negative once you factor in inflation factor. So you have this component which is why we talk about gold, where everyone has said, why buy gold, theres no yield . When it yields zero, its yielding a positive yield at this point versus the other options in the market. Thats a great point. Real yields have turned negative. We saw three rate cuts yesterday. Egypt, south africa. Thats driving real yields down. Alix its negative now, right . It depends which part of the curve. You have to look to places like south africa, indonesia, mexico, brazil, russia. Those are some of the few markets left where you get these wide real yields and the ability for these economies to stimulate growth via monetary via the central banks. If you look at the russian economy and all of a sudden you have these terrible numbers and now the government disappear, theres going to be a resurgence in terms of how are things being adjusted . But the one thing thats interesting is indonesia in terms of where there is some possible growth. South africa weve spoken about in the past. The issues that are there in terms of scom and where things could go Going Forward but indonesia is an interesting spot in terms of, we still have tariffs. People are going to look to get out of china, where do you go . Vietnam and indonesia are very interesting spots. Alix the other solution, a gold standard. [laughter] thats my way of deprooing judy introducing judy, trump officially nominated her to the Federal Reserve. Youre sighing but youre going to have someone with these relatively extreme views coming in, talking about theres no rules, you have to level the playing field, the way to do that is the classic gold standard. Regardless that you cant do that. Put that aside for one hot second. I cant wait to take it. We have someone who went from the gold standard, as you say, its a finite supply so therefore money supply in theory is limited if you base it on gold. To someone who says, Interest Rates should be at zero, lets go full dove. At the end of the day, when i talk to traders, she just wants the job. Thats it. Shes going to say whatever it takes. Alix shes said that before. Thats her position. She wants the job. Alix lower rates. He wants lower rates, i want lower rates. I dont think she Still Believes in a gold standard. Her sbe view on wednesday with interview on wednesday, she said she doesnt think inflation targeting is working anymore. I dont disagree with a that. What she didnt say which is a little bit alarming is the fact that ioer, the interest on exit reserves, was impled in imple thed in 2008, is giving an unfair advantage to banks to basically hold fed assets. 2. 3 . So shes wanting to see a change in the way Monetary Policy works. I dont disagree with that. Alix this is great. Damian, thanks a lot. Mark, sticking with me. A reminder, all the charts were going to use in the next two hours, go on your terminal, browse them and check them out. This is bloomberg. This is bloomberg day break. Your Bloomberg Business flash. Confidence in asia. This year bank plans to add dozens of staff to its wealth business and hong kong and singapore. This week, for 2019, Morgan Stanley reported record profits. And shares of gap rising this morning. The apparel retailer saying it will no longer seek to establish its Old Navy Chain as a standalone company. The premise was old navys fast growth wasnt being reflected in gaps stock price. But in recent quarters, old navys performance has deteriorated. Thats your Bloomberg Business flash. Alix thanks so much. Gaps decision on old navy has an interesting repercussions for Business Diversity stats. Theres going to be one less female running a fortune 500 company. Had this happened had the spinoff happened, the c. E. O. Would have been a part of a small group of women who run publicly traded corporations. Old navy is doing enough to rank it among the nations largest. Women comprise just 5. 8 of the c. E. O. s in the s p 500. Coming up on the program, the ink is drying on that monster trade deal, potential action plan for from china due next month could still pose for some risks and. Morgan stanley, ahead of strategy, hell be joining us next. This is bloomberg. Alix happy friday. The s p falling after closing after a record high yesterday. European stocks also at a record high because of technology. Apple getting a nice upgrade at Morgan Stanley. Google hitting the 1 trillion mark. In other Asset Classes, a similar story. Flat. Aryen is now safe haven traits came off the burner. Eaker u. K. Sales. A 20your issuance coming from the treasury. Earnings are rolling out. Tech this weekend. Revenue and earnings were also a beat after a ginourmous write down. Eight months ago if you told me it was going to be about offshore drilling and they would be one of the leaders, i wouldve called you crazy. When you look at the purchase, it happened a little early. Probably at a price that was a little high. If you look at how the diversification has worked at in their favor on the international front, they beat on the International Side by about 7 with decent guidance Going Forward. The offshore is the one that really has that quality needed. I think you will see that a little bit rampup in the offshore market. Alix the readthrough to the onshore drillers like halliburton in the u. S. And the enps, how bad will get for them . Mark it will keep getting worse in q1 because of the holiday slowdown. Spreads are reactivated. Are they going to look to exit . Halliburton has identify different components they are looking to sell. They are looking to diversify, streamline, and raise capital. The u. S. Trade deal, 52 billion worth of energy. Thed westin joins us now, host of balance of power and wall street week which is really good and you should watch it. David china trade was a big one. We had the u. S. Treasury secretary under president obama. He were talking about the energy purchases. Look past him much they are buying from us. There are larger issues. This is what he said. Agreement judge the about whether it advances the kind of Economic Reforms we want to see in china or not. The big question is, how do we accommodate an economy as important, as large as china that follows quite a different set of rules into the Global Economy . That requires us to have more urgency around a common set of rules convergence around a common set of rules. David phase two, he things you cant do that bilateral. You have to have multilateral. Eu, twto on ana, world capacity. Upll street week coming tonight and plays all we can log on bloomberg television. Lets stay on trade and looking at phase two. Anding us is Michael Zezas mark razzano. David mentioned what do you think . Michael it is fair to say we are intricate temporary lull intentions with china. I think there will be time for this to work out. If you look at the timeline for the resolution mechanism, probably the first time it will be tested is in the Third Quarter of this year. That is more or less for the good news and for the moment. Ends for the moment. China is supposed to deliver within 30 days as set of guidelines to how it will uphold its into the standards on intellectual property. It is possible the u. S. Is not going to be satisfied with that. Lullp of that, a allows for the u. S. To refocus on the eu. That has been a tricky negotiating process. There are plenty of catalysts and shortterm that could cause issues to flareup. The airbus issue, the digital tax issue which is something in the next couple weeks we are supposed to watch around davos. I would characterize trade policy is far from settled, even though the phase i one agreement is quite proper hence of. David one thing he said is a real change. The good arbitration. This time there is an automatic snapback. If we get back into a spat with china on the eu point, its a terribly important point. The digital tax is a real problem right now. Michael if you look at it as a temporarycreated one potential pause with an important trading partner. Now we are focused on trading with another partner. The notion we move past trade risk for the markets generally i dont think makes a lot of sense. Mark you bring up a great point in terms of timing. It will take time to get it into place. You have 30 days to find out what they can do. We will rely on the chinese traditional judicial system which is problematic. If we like the response, the ghost of the trade representatives. You will get this weird slowdown where i still struggle to see what china is really going to deliver. If they do try to meet those numbers, it is at what expense . Will they buy less from europe . Less from latin america . There is a lot of caveats within the trade deal. If the price is right. How do we protect ourselves while saying we tried but the u. S. Did not deliver by making it available . What does make available mean . U. S. Eu, thethe problem is did we skirt debbie to rules . Wto rules . Is there an impediment to the way the eu wants to deal with us because we had side deals with china . And set a bilateral having multiple entities. Taking erday he was im surprised to see how aggressive he was. He called President Trump obsessed over the deficit. They made more conciliatory comments when he spoke to vonnie quinn yesterday. Is that the way to do it . David it was strong leg was for a new diplomat. He is pretty adamant. He has a tough job because you talk about the digital tax. France is driving it. That is not a european issue. Europe says countries do what you want to do. Michael negotiating with china and negotiating with the eu and multiple entities. There is far more likely to be impasses. The eu has said they are willing to negotiate on industrial tariffs. The u. S. Wants to negotiate more broadly on agriculture. Thats an impasse. What has the u. S. Behavior been under this administration and what lesson to did take from the china confrontation . Tariffs are ineffective negotiating tool. Im not saying its right or wrong but its a lesson they learned. The problem is we start negotiating with the eu and keep that risk alive. David and we happen to be an election year. President trump could dial it up or dial it back depending on how his polls are doing. Does he want to get the markets coming back up and we will get volatility throughout the year on trade. Mark in order to get elected in this country you have to be tough on china. When you looking at the conversations with the eu versus china, the eu clearly has some weak data. So 50 on a lot of key metrics down eight contractual basis. A contractual basis. Max stimulus unless we do some thing else. Where china was coming from a different strategy, they have that communist regime in terms of those numbers, but they were stronger. They have the export market. They are the second largest market in the world. The eu does not have the same footing. Alix to not lose sight of the fact there are trade imbalances within the u. S. And eu. That needs to be addressed. What realistically do you think they can come to an agreement on . There are legitimate concerns. Michael i think there is legitimate grievances here. Your point is what is practically possible is actually going to happen as opposed what is right or wrong. The comments from the eu, trying to persuade the u. S. Not to look at this is a good deficit basis but trying to account for services, this administration, for better or worse, thanks it is more important metric to them. Until we hear the president speaking otherwise they will be focused on that. That means negotiation will have to not just be on industrial issues but agricultural issues. There probably has to be a lot more back and forth. There is risk that goes along with that before you can open a negotiation of that scope and scale. Alix how much of this also is a backdrop for impeachment . As that heats up do we get more trade rhetoric . David there is always that. We will see how the future plays out. It looks like it will be done in the next two to three weeks and will be over and done and gone. Unless something really comes up that is a curveball, which is what the democrats are hoping for. Alix mark, trade volatility. How do you trade all of this . Mark you have to be noble. When you are looking at how things are going, you will get a snapback trade. Are,rms of the way things i think the russell is very interesting. The transport sector is a bit over its skis. Rails after csxs weak reporting. Coal tends to weigh on earnings Going Forward. Alix i appreciate the conversation. Michael zezas and david westin, always a pleasure. We have an inclusive interview with dwight scott, blackstones senior managing director. You dont want to miss that. Check out tv. Watch us online. This is bloomberg. Alix if you want to find out what is going on, there is one person went to hear from. That is dwight scott. He joins bloombergs Erik Schatzker for an inclusive interview. The overseas blackstones credit business. Erik it is always great to have dwight scott here with us at bloomberg. Dwight how are you . Erik i am well. Cofounders hass retired from blackstone as of january 1. What changes . Dwight retired is a strong word. Erik i could have put it in air quotes. Dwight hes the chairman and he will help us with our direct lending business. I would jokingly say the main thing that changed as he does not wear a suit anymore. He wears a sweater. We have been at it for six years, this transition. It is a very important transition for us. The transition from founder to fully integrated part of blackstone. I think we have done that quite well. We are a 15yearold business. Billion in assets under management. We have a strong, experienced team. Our management committee, 16 people, 12 of been there since before blackstone bought us. A lot of continuity in the business. Erik how would you describe your credit right now . Dwight cautious but busy. Those things dont seem to go together. Market. Ery confident the consumer drove 2019 with confidence by spending. I would say the Investment Community is confident. It changed when the fed started easing earlier in the year. You see that in returns across the credit and equity last year. The business community, which was losing his confidence, i think with phase one behind us in the trade agreement, that confidence is starting to creep back in. The market is good. Equity markets are good. We are at tight spreads. In credit what we do is we back up a little bit and say, where can we be protected . Erik where is that . Loans, in 2019, leverage capital structure. They are secured. You can trade them so they have liquidity. We had a lot of business there last year. And direct lending, which has similar characteristics but is private. Much of our activity in 2019 and out 2020 will be the same, those protected areas where we feel we can position ourselves in a relatively aggressive market. Erik you are reluctant to buy what . Dwight distress is hard. This kind of market makes distress particularly difficult. Everything that has any kind of distress in it, if it has not been able to refinance itself, fix the company, fix the Balance Sheet with this market, there is real risk. Erik is that why it has been so difficult to make money in distress . Dwight i think it is. It will come again. All these things happening now will set up the next distress cycle which is why its important for us to stay active in that business. Right now its a difficult place to make money. Erik it is not getting easier to make money in distress . Dwight in the first two weeks of this year the world has been on fire. Energy, for example. If you think about upstream Energy Companies will have issued by the end of this week over half of the debt they issued all of last year. The world is a little more aggressive right now. It is great for the companies and gives them more opportunities but it is a place where we want to be cautious. Erik pg e was probably the biggest distressed opportunity in 2019. Why didnt gso participate . Dwight pg e is a fascinating story. Is a utility that has been around since the gold rush. It has been serving a community that is one of the fastestgrowing and wealthiest in the country, which means one of the wealthiest in the world. It cannot serve the community. That is before the recent fires. It has a political aspect to it, and economic aspect to it. All those things ultimately for us, when there is a political peace that comes over the top of an investment it is hard for us to take a big position. Close see now, they are to an economic deal and now they have to go face the state of california. That creates too much risk for us, particularly binary risk. You want to believe any distressed situation when a Company Comes at a restructuring it is strong and can grow. This one we were not comfortable enough that is where it was going to end. Erik is that still the case . Dwight it has made good progress. There are a lot of reasons for the state to want the company to be viable and strong. Erik this Political Risk concerning company like politica pg e. There is the importance of brand. Brandarista blackstones is it a risk to blackstones brand to go long in the pg e restructuring . Dwight i think our two things going on. I think there is Political Risk in a Credit Investment that can create binary outcomes. We hate binary outcomes. We dont want to lose all of our money. Then there is brand. Brand is an important thing. That might keep you out of an investment in a type of company you think would be damaging to the brand. I think thats a good investment decision, unrelated to what you are trying to do more broadly with the firm. Erik when you look at pg e today it appears a couple of your competitors who did choose to purchase of eight, elliott and pimco, will make out like bandits. Does it make you wonder if you made the right decision . Dwight i dont think so. For us this was not the kind of investment we wanted to do. I want them to do well. Thats a good thing for the market. The story has not been fully written yet. Erik lets talk about valuations. Investmentgrade and highyield are barometers for what is going on in credit. Both had extraordinary years in 2019. Ig has not been so hot in a decade. Dwight an extraordinary understatement. Erik can it continue . Dwight i dont think the things that drove last year can continue. You have the underlying rates falling and you had tightening spreads. Investment rates might run 100 basis point spreads to treasurys highyield that is 350 basis points. Maybe even higher today. Those are historical tight levels, certainly in highyield. There is a saying that is been around a long time. If the leverage multiple of a highyield company debt is a higher number than the rate it pays on its interest, on its loans, on its debt, thats probably a sell signal and thats happening in the market. Particularly in fixed income be a little more cautious. The reason we like loans is they dont have that spread. It cannot tighten to the same degree. You have your Senior Security capital structures. It turns out the market does turn, there are increasing losses and you should get a much better recovery. Erik when you say it is a sell signal, is also a sell signal for gso because you on the securities, you are selling them and buying things you think are safer. Dwight there is a strategic part of credit. There is also a very tactical part of credit for that specific company. It depends on the company. If you look at the portfolio today, it is heavily weighted towards loans, either private or public and heavily not related towards erik hiring is a key part of tsos futures gsos your success. Where are you staffing up . O places. W we brought on a team late last year to do structured products and sell it to the insurance market. Its another type of product that helps our overall marketing, our origination slate. We are excited by this deal. We are shaping that team and continuing to grow that business. That will push into our broader portfolio and im excited about what we see. I think the Insurance Markets need our kind of originated paper. We will see a lot of demand over the next few years. The other place where we see a change in the market is technology. We need to add to our team there. Technology, we are seeing growing Companies Getting larger, more buyout activity. All that leads to more demand for our capital. But it is very difficult. There was a Deutsche Bank report out that called technology pervasive disruption. I agree with that. In disruption that changes technology can cause are particularly troublesome for credit. You want to stay out of the way of those disruptive events and get involved in some of the growth happening in markets. Erik cap many people do you need in tech . How many people do you need in tech . Dwight not that many. Halfdozen overtime. Erik thank you. That is dwight scott, the president of gso talking to us about credit. Alix really fun interview. Much more coming up. This is bloomberg. Alix happy friday. We made it, congratulations. The equity market has been small caps outpacing large caps for four straight sessions. Optimism within the equity market led by tech. Other Asset Classes a reverberation of that. Cable getting hit with idiosyncratic economic factors. A risk on field in the market continuing to grind its way higher. Coming up, Macro Policy Perspectives founder and president will be joining us. This is bloomberg. Hey. Hey. You must be stevens phone. Now you can take control of your home wifi and get a notification the instant someone new joins your network. Only with xfinity xfi. Download the xfi app today. Beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected. To do the extraordinary. Take your business beyond. Alix welcome to bloomberg daybreak on this friday, january 17. Im alix steel. Heres everything you need to know at the hour. Lets take it from the top. Chinas growth stabilizes in the Fourth Quarter, setting up more green shoots for 2020. If you look at the retail sales number, if you look at industrial numbers, there was a bit of the rebound in december, so the end the year on the high note so they end the year on a high note. If we are working together, the mutual benefits can be significant. Alix phil hogan comes out swinging against President Trumps trade policies. If we fail to do so, the damage will be significant also. It is no secret the relationship between the eu in the United States has been difficult of late, so it was interesting he used that kind of language. He openly said trump is too obsessed about deficits. Americagan says trumps first agenda was a crisis for the international system. I think it would be a little dangerous to want a more activist fed. Alix and judy shelton will be nominated to the Federal Reserve , along with christopher waller. The first line said, lets go back to the gold standard. Its not just the gold standard. She has a very expensive vision. She wants a Global Common currency with full gold conversant see. Alix the impeachment trial of President Trump kicks off next week in the senate. Democrats doubling down, trying to push for what they say is more transparency. They would also like to see some key witnesses. They are looking at Public Comments made by lev parnas, a close associate of rudy giuliani. Alix chief Justice John Roberts will preside over the proceedings. In the markets, it feels like a lot of euphoria within the equity market. Small caps outperforming large caps for four straight sessions. Record highs yesterday within the s p. Record highs in europe. Tech outperforming as well. The 10 year yield pretty much going nowhere, despite the fact we get some issuance on the 20 year from treasury. Joining me for the hour is Julia Coronado of Macropolicy Perspectives. What are you most interested in today . Julia theres an interesting disconnect right now between the way economists like me look at the world and the Way Investors are looking at the world. We are looking at slowing growth in the u. S. , profits that are likely to continue to struggle, a Manufacturing Sector that remains sluggish, and Global Economy that remains sluggish, and yet, the markets are on this relentless risk on rally. Our clients think a lot of that is attributable to fed policy, not just the developments on the chinese trade deal. That is something the fed is going to have to grapple with. Have they done too much . Is this what they want to do to get to their inflation target . I think that is what we are looking at. Alix but maybe theres some green shoots in china, for example. The countrys economy stabilized last quarter after slowing at the weakest based in almost after slowing at the weakest pace in almost three decades. Industrial output and retail sales beat as well. Joining julia and i is john authers, Bloomberg Opinion columnist. Are we in a liquidity driven . Ally or a fundamental rally john its a liquidity driven rally. Talking to people in the markets, it is very difficult to doubt that. , now widely referred to in how itit is qe affects asset prices moved, how markets moved, and in many ways, it is one of the biggest stimulators the fed has ever administered in terms of the speed of which the Balance Sheet has increased. Similarly, you have the ecb moving at the same time, while in china, you really did see for quite a while the pboc being , and the more yes hopes last year that it was going to be genuinely stimulating has largely not come true. People are dealing with macro potential instead of macroeconomic. They were cleaning up Balance Sheets. What has intrigued people at the move onthis year is the reserve requirements, making it easier for banks to lend in china. I think there is a hope now, which i am not sure is all that realistic, that china is going to expand greatly. I think if china is yet again somehow julia doing credit stimulus like they did in 2016, yeah. John the last chair of the be voc left talking about chair of the pboc left talking about the minsky moment. If you are a central banker talking on the record, you dont even mention that there is such a thing, i. E. A moment that happened in the states with lehman. Thats what they are worried about, and thats what julia and they have had Bank Failures and failures at large firms, so they are dealing with some credit overhang. So green shoots is an interesting term. What comes next . I think china has managed to engineer a stabilization very effectively amid all of this credit overhang. What comes next . I think some investors extrapolate, ok, now the manufacturing cycle is going to swing up. We are going to get another one of these china stimulus moments, and a good sector is going to rally. I dont think that is the intention of chinese policymakers this time around because they do know that they have real, deeply rooted troubles. Thea the greatest john greatest concern of any chinese policymaker is that this will endanger the grip of the communist party in china. If they face their own lehman, it really might. Stability is probably just good enough to manage and stay in control. Alix i have to wonder, if it is a liquidity driven rally, does that continue . When you take a look at the fed and what they are doing in the repo market, if they pare back what they are willing to offer, you cant get one without the other. Money out anding not offering enough, then you should be selling stocks. I dont really get that. Julia well, yes. When not purely mechanical we say liquidity driven. It starts also interact during it starts also interacting with psychology. The put he is a catalyst, and yes, the delta liquidity is a catalyst, and yes, the delta is leveling off. We will hit a plateau in the Balance Sheet. Does that mean that the risk rally just ends on the next day . I dont think so. I think we probably need if in the middle catalyst to refute the eye more optimistic scenarios. When i talk to investors, some of them are more bullish than the average economist. They actually think we are going to see potentially faster growth this year than last year. You would need that to be refuted by the data. John dangerous analogy here. I am going to make a comparison to the year 2000. Before i go any further, i am not saying anything like the scale is going to happen, but something conceptually similar on a small scale could. Bianco,ncker jim friend of this show, put out a showing whatiece the fed extended to the repo market, what happened and what we are now all calling not qe is almost identical to what greenspan did to tie through to tide through y2k. Obviously there were other things going on, but the moment the nasdaq went truly, utterly was the moment the fed started really coming through to make sure the banks could survive whatever was going to happen on new years eve. That they stopped their support altogether was the week the nasdaq fell 25 . [laughter] john no, i am not going to suggest we are going to get the market fall 25 when this ends. The similarities are clear. We have a generally strong stock market anyway, which, if youve been listening to me for year, ive been saying its too expensive for years, and it has continued to go up. [laughter] extremelyent very upwards that does overlap with not qe very clearly. Correlation doesnt prove causation, but it is quite an interesting coincidence, and it is hard to find other reasons for it. I dont think the trade deal is remotely as important. Julia no, although it did take a big Downside Risk in terms of the escalation off the table. The other thing that the fed did in addition to the liquidity, they really raised the bar for raising rates. They basically told us, we really need to see an inflation bogeyman to take this insurance cut back. That is an important piece of this in addition to the liquidity. Alix but you are also not going to get three rate cuts this year. Julia thats right. In terms of deltas, youre not going to get easing, but youre also not going to get tightening, so in terms of putting money to work, what you do . I think part of this is the liquidity and part of it is a reaction function issue. The fed is doing its whole policy review this year, and part of that is to get inflation up, and part of that is to be structurally dovish. I think thats another piece of it, which means it could maybe not stop on a dime if people no longer fear that the fed will respond to an asset bubble by taking some of it back. John one final point into the mix, bear in mind that both the bank of england and the ecb are under new ownership this year, and the ecb is undertaking what appears to be an even more sweeping look at exactly how it behaves and what its targets are upng to be, which could end with all kinds of intriguing dovish configurations, green bonds, excuses to breakeven, governments start spending money. In the u. K. , theyve got brexit coming into existence, which means there are some similarities even to y2k there. There will be various shocks to the system which need to be cushioned. Opportunityts of for further liquidity into the system havent yet been priced in. Alix great conversation. John authers of Bloomberg Opinion and julia carr and otto of Macropolicy Perspectives Julia Coronado of Macropolicy Perspectives are books this new with me are both sticking with me. This is bloomberg. Alix earnings season kicking off with big banks posting record profits. President trump said give me thanks because it was that good, sonali. Sonali thank you so much. Today we have blowout numbers by the begin doesnt banks. Equities weak performance, we had Morgan Stanley shooting through the roof with fixed income performance. By absolute terms, jp morgan is still king with a whopping 3. 5 billion in fixed income revenue. What does that all mean when it comes to profitability . Jp morgan and bank of america, the big consumer banks, leading by a landslide when it comes to profitability. Investment banks further behind. Bank of America Holding strong on profitability, even though they are expecting Net Interest Income to be a little lower. Everyone is expecting the consumer to be strong. Goldman is behind the pack, but they took that big legal charge planning for their 1mdb charges ahead. Where does that leave the two big investment banks, Morgan Stanley and Goldman Sachs . There market caps have been battling the last few months. Morgan stanley surging by the most in 17 years yesterday, beating goldman. We will see where that leaves them walking into the next quarter. Alix thanks, sonali. Still with us on set, john authers of Bloomberg Opinion and Julia Coronado of Macropolicy Perspectives. Did the european banks lunch . John, you had a note out overnight saying, the six months bund yield impulse is the highest in three years, a sharp decrease in yields has followed. Not so good for banks. John stop me if youve heard this one before. [laughter] john weve been worried many times over the last decade the china is not going to be able to engineer a landing this time. The number of times weve expected european banks, this is finally the time they can start. They must have hit bottom at this point. Alix they are just too cheap. The they are now up to psychologically important level of trading for 60 of book. They are trading for more than half their book value. Obviously, people are much more confident about them than they were before. Again, the problem is obviously they had any number of different problems entering the crisis anyway. They came in as very bloated banks. Withdo have this issue incredibly low yields in europe, which makes it very difficult to operate. If we see another move down in yields, which is not what people weve just been talking about , the risk is that the market generates its own response, that we will have a check back in yields for a while, and that will create yet more issues for european banks. Julia how does european banking reform or the lack thereof play into this outlook for you . John i think european banking reform has everything to do with why we got into this trouble in the first place. Many years ago, earlier in my career, in the 1990s i was covering the merger wave here in the states, and i was working for a newspaper where, back in the home market, nobody had more than about four banks, all of them being european countries. Nothing remotely like glass glasssteagall had ever happened. Certainly countries like spain regarded banks as national meant enteringh the crisis julia systemic risk. John they were doing all kinds of dumb things. It was the idea of the north Atlantic Financial crisis, where americans sold lots of really bad loans and dumb european banks bought them. These are the two sides of what created 2008. People in wall street at the time were always joking about dumb german banks that would buy this stuff. Alix oh gosh. John these are the charming, idealistic people i speak to for a living. [laughter] john that very much is part of the problem, that unlike in the states, the european banking bloated,s so big, so that it was arguably not only too big to fail, but too big to rescue, which is why hit has time, and a long gifted us euros in credit crisis, the second leg. Julia several legs. Yes, which is why the european economy has performed so much worse than the american one the last decade. Julia yes. I mean, weve had a lot of mergers ourselves. Our banks are doing very well come up with big doing very well, but they are very big and very consolidated. Alix theres a loan growth thing that is maybe not happening in europe in the same way. John there definitely is. Alix john, thanks a lot. It was lovely to have you on set. Love reading all of his columns. John authers of Bloomberg Opinion. Julia coronado of Macropolicy Perspectives is sticking with me. Next week, we will be live from the Economic Forum in davos. We will bring you the heads of the biggest banks. Thats an allstar lineup for you. Coming up, a bellwether for industrials posting its best sales growth in three years. Results andenals what it means. This is bloomberg. Viviana this is bloomberg daybreak. Bayer is on the verge of settling more than 75,000 cancer claims over its roundup weed killer. Saying heen feinberg is cautiously optimistic a deal will be reached in about a month. He says the number of cases may have doubled in california. They resulted in combined damages of over 101 1 million. Shares of gap are rising. It says it will no longer seek to establish its Old Navy Chain as a standalone company. The original premise was that old navys fast growth wasnt being reflected in gaps stock price, but performance has deteriorated. Alix thanks so much. I am taking a look at fastenal right now, down about 2 in premarket, posting its weakest Quarterly Sales growth since 2016. Brooke sutherland of Bloomberg Opinion joins us. What were some of your biggest takeaways . Brooke certainly the growth is troubling. I think why that is standing out to me is that you have really seen this run in industrial stocks in the past in the 2019. Alf of you have to remember that the slowdown we saw was not actually that deep. It was relatively shallow, particularly at fastenal. You never saw that sales growth number go negative. What that means is you will not necessarily see a rapid spike upwards. You will probably see a slow, sluggish growth environment for 2020. A lot of these companies are talking about a recovery in the back half of the year come about of course, we have a president ial election, and there are a number of uncertainties baked into that. Nobody knows what is going to happen with the tariffs still in place on 360 billion of chinese imports. The latest is that those would not be removed at the earliest until the present to election. There are a lot of Things Holding back capital spending, and the stocks are not price for that. Julia so you see this more as a sector issue and challenges, not a Company Specific story. Brooke they certainly have their own Company Specific issues. That is there margin disappointment. All of the industrial distributors have had to completely change their business to cope with amazon. They have onsite professionals to help you with all of your distribution needs, but that is expensive. That is a hit to margins. What has offset that for investors is that fastenal has been able to maintain their operating margin because they get their leverage from factory floor footprints. That didnt happen this quarter because they saw weaker sales growth. Can they maintain that dynamic if they dont have the growth . The fact that they did not get that is concerning. Alix especially if everyone is expecting something else. Really good analysis. Appreciate it, Brooke Sutherland of Bloomberg Opinion, and Julia Coronado of micro policy perspectives is sticking with me. Coming up, i will speak to mckinseys leader of global practices. This is bloomberg. Alix this is bloomberg daybreak. I am alix steel. A record high yesterday. European stocks near a high. Some of that being led by tech. Google with a 1 trillion market cap. You also have earnings that have been coming out throughout the morning. Other as is set classes Asset Classes, retail sales continuing to fall off a cliff. Continuing within the bond market, a 20 year issuance will be coming on. Holy cow. Alix the number two you have Housing Starts blowing it out of the water. Coming in about 17 . You are Building Permits a little bit weaker, down by 4 . The starts, huge, huge move there. Julia coronado of macropoll is si perspective, do you normally see that . Julia thats a crazy number. Lets be careful. You often want to look at the wedge between starts and Building Permits. There always is a little bit of a wedge. This is permits are coming in at like 1416. Housing starts are at 1600. Thats unusual. There might may be noise. The broader number has been Housing Demand an Construction Activity have been improving on the back of huge drop in Mortgage Rates last year. Alix how much of the starts and permits in the early cycle part of building a house will continue if we dont get three more rate cuts this year, for example . Julia i think the drop in Mortgage Rates usually takes a few quarters to sort of seed through. We have a positive impulse from housing to g. D. P. Growth this year. We had come off three years of housing small declines and with the drop in rates, it turned around midyear last year. Its not like a rocket ship, although this number is a rocket ship. But its sort of a gradual, positive tailwind to growth. Alix what kind of numbers do usually at for housing, signify like what kind of numbers do we need to see . Julia we see sort of the low single digit growth in both existing home sales and Housing Starts. I think thats a good number and a reasonable snm to expect given the demographics. We have millennials, homeownership rate has improved and come off the lows. Credit is still very tight. Its not like that dynamic that we saw last time around is starting to take hold. We havent seen the leppeders and that breakdown lenders and that breakdown. You cant get more momentum than low single digits. Alix really fun to go through here, this means Residential Construction added to Fourth Quarter growth for the First Time Since the end of 2017. So its a positive. Builduppoint about Home Construction of Single Family homes rose the highest since mid 2007. That can be a hige shift for the market. Julia this will add to the current mood in the market. We have seen that. Although there are certainly generational shifts that have proven sticky. Millennials are getting married later, having fewer babies. There is more multigenerational housing. Its more complex. So i dont think the trends are going to turn on a dime. We have seen good labor market, that leads to good formation and good housing dynamics and demand for housing. Alix so we want to take this opportunity to look at one structural shift within the market to Pay Attention to. Thats climate. The Mckinsey Global institute released a new report of climate rick and response, which highlights how Climate Change creates new risks and uncertainties. One of the areas they focused on was florida. If you take a look at estimates, losses from flooding could devalue homes exposed by 30 . Joining us now is one of the authors of the report, Dickon Pinner of mckinsey and company. Coauthor of the report. I saw this yesterday. It really stood out to me. Can you walk me through how you ot to the number, the findings of that . The report looks at the physical risks of Climate Change and what by Climate Change, we mean things like increased heat and increased flooding from sea level rise, storm surges. Those chronic effects as well as things like hurricanes which people are more familiar with. We try to look at the socioeconomic impacts to people, to the economy, and to nature. So all those things. Just stepping back, i think what really surprised us is the agnitude in proximity. Hundreds of millions of lives, trillions of dollars of Economic Activity and National Systems are all dependent op to some extent if we do nothing are at risk. We looked at florida as an example of coastal real estate. We looked at nine case studies around the world. Its looking at florida as an example of coastal real estate. What makes florida so interesting is if you look at the vulnerability that it faces even before you put Climate Change on top of it. Economically it is vulnerable because it has 1 5 of g. D. P. Is linked to real estate. 1 3 of taxes come from property taxes. Physically its also very vulnerable because you have sea level rises, which can cause flooding, and you have heat and humidity, etc. And then demographically its quite exposed because you have 1 3 of all properties that are close to coastal areas and i think Something Like 27 of homes are on a 100 year flood plain. When you combine all those things and add Climate Change, flooding, we find that just by looking empirically at what the correlations have been historically between house prices and flooding, you could see as you said for exposed areas Something Like a 15 to 30 devaluation by 2050. This is if we do nothing on those exposed regions, 30 billion to 80 billion but potentially larger impact to the state. Julia are the Insurance Companies on to this yet . Dickon thats a great question. I think one of the findings from the report is what the physical impacts may be in the future. Financial markets will start they will start to bring those impacts forward. In a way, that is a good thing because you want the price signal to be able to turn where future capital should go to protect the assets youve got. It does potentially expose some frailties to the underlying financial market. Alix if i am a Real Estate Developer am i going to want to put money into that area today . When you talk to your clients about insurance, what do they say when you tell them these kind of stats . Dickon i think this example is just i think if you step back whats really interesting is every piece of infrastructure we have built has been built with a certain set of climate conditions in mind. Now the climate is changing faster than anything we have seen for millions of years and therefore it makes you call into question all those assumptions. So i think what it means for Financial Systems like insurers, for example, they need to be thinking through what are the orwardlooking climate impacts versus relying on decisions of the past. There are other interesting areas, like in insurance for example, people expect or think that the Insurance Companies are holding the risk. Actually most of the policies are oneyear policies. So the people the duration mismatch. Its the homeowner and the question is who holds the risk . Is it the insurance, reinsurance, national insurance, federal government . So this notion also of Risk Transfer and who holds the risk, if you are the homeowner, you may be experienced two things at the same time. Your insurance costs could be going up and your house price could be going down. That causes people to think your point on the tax base is interesting, too. Florida is a state that doesnt have an income tax or relies more heavily on property taxes. So it really is sort of a domino effect for support for infrastructure and basic Government Service provisions from these valuations. Alix this would affect the Municipal Bond market, too. The yields will probably be higher than they would have been otherwise. Dickon thats spoton. What we do, we have hooked at the nine case studies across a number of these physical systems, looking at agriculture, real estate, infrastructure, i think what it shows is the direct impacts we try and take a shot at quantifying but its the second, third or fourth knock on effects that may be hard to predict and that may be a lot big than the original. What we are hoping is the way i think about it is the bad news is the change is really quite close which shocked us but the good news is the impacts are quite close, so theyre now in everybodys time horizon. I think what we have now is a set of tools and methodologies that allow you to know where things could go and that creates a road map if you like for decisionmakers, whether theyre investors, regulators and companies to take decisions and deal with the problems. Thats the good news story here that you can do something about the problem. Julia quantify the bad news. Alix good way of phrasing it. Dickon in the future, although the impact of Climate Change is today, because alix theres still time, you are getting at. You have to get on it. Dickon thats right. You have to protect what youve got, and longer term you have to take risk out of the system by not putting more emissions into the atmosphere. Alix really interesting. Thank you so much, Dickon Pinner. Julia coronado. We will be sticking with me. We want to give you an update with viviana. Viviana it was the weakest economic ention pangs in expansion in china in two decades. G. D. P. Rising to 1 . Hat was in line with beijings target. Chinese investment, a sign the stronger economy could be underway. We move to capitol hill. There was a rare show of bipartisanship and a Major Political win for president donald trump. The senate joining the house in passing a new trade agreement with canada and mexico. Last month democrats got behind the deal. This was after a year of wrangling with the trump administration. The biggest roadblocks were on labor, the environment, and enforcement. The pentagon now says americans were hurt in those Iranian Missile attacks on bases in iraq. That contradicts President Trumps statement. The attacks were launched in retaliation for the killing of a enior iranian general. Bloomberg powered by more than 700 journalists. This is bloomberg. Alix thank you so much. I want to point out again, killer Housing Starts really surged. 17 . The highlight was construction of Single Family homes rose to the highest level since mid 2007 of the equity markets, hitting a high. Coming up, it brought you the irishman, Stranger Things and marriage story. Netflix is among the biggest names out with results next week. Mark boidman in todays bottom line. Bloomberg users can interact with us. Check out all the charts. This is bloomberg. Alix you are watching bloomberg daybreak. Viviana k. K. R. Taking a 6. 6 stake in dave and busters. K. K. R. Saying it had discussions with the companys management about business and strategy. The buyout firm also may have talked with dave and busters shareholders. It may take certain actions ncluding changes to the board. Theyll shrink their north american business. Demand from shale producers is dropping off. Schlumberger says its confident it can keep improving cash flow and Fourth Quarter earnings beating estimates. Its a marriage made in marketing heavens. Netflix and ben and jerrys teaming up for a new ice cream flavor. Peanut butter ice cream with lted pretzels swird in fudge brownies. The two companies hope youll grab a point or two the next time you stretch out on the couch to binge watch netflix. Thats your news flash. Alix thanks, viviana. We will loo look at Companies Worth watching. We will focus on netflix. Joining us now, mark boidman, p. J. Solomon, and Julia Coronado is still with me. You know youve made it big if you get an ice cream named after you from ben and jerrys. Mark bold move by netflix. Alix where do you feel like there are pockets of strength and pockets of weaknesses . Mark strength, they spend on content. They spend more than anybody else on content. Netflix is spending 20 billion on content in 2020, more than every other streaming company put together. Alix why is that good . You take a look at the cash burn and that might be bad. Mark if you think about the subscribers, this is the opportunity. Others are taking a bet on their libraries of content. Julia like disney. Mark peacock which will launch this summer. They can rely on historical content, but Consumers Want fresh content and differentiated content. Netflix continues to be bold. Julia i have been wondering how the breaking off of new streaming services is going to how the consumer will react to this. Everybody is not going to shell out 10 a month for every dr for 20 streaming services. You will have to have a differentiator. Mark if you think of the consumer, the consumer is having to adapt, do i want just streaming services . Do i want cable . We think the consumer will be willing to spend more. Yes, there are studies that say the consumer is not willing to spend more than 20 on streaming. Alix in terms of what theyre buying, walk me through what theyre buying, why and what difference does that make . Mark we advise netflix. They acquired billboards. You think about billboards and streaming, netflix is bold. Trying to reach consumers and directors and producers to get the best content on television. Its a reason why they stepped out of just their content streaming and said lets buy billboards. Alix if they win oscars, what does that do for them . Mark its big. If you think about content, it is the differentiating factor but its also what will attract people to streaming. Its also, when you think about advertising, the consumer is willing to accept advertising. So peacock unveiled yesterday, a streaming service that will be focused on advertising. You have Something Like netflix, just streaming without advertising. Julia hulu is the example of the one that has advertising already, right . Mark thats right. You have options. There are consumers who are willing to spend money on streaming and others who say i dont want to spend money but let me try it. We think this is good. Peacock coming in is going to be helpful to someone like netflix because its going to julia we dont have any more of that. Mark it brings consumers from cable and pay tv. If you look at the last 24 months, 40 Million People cut the cord. The opportunity for more consumers to migrate to streaming, disney plus, same thing. Its helpful to netflix. Alix i cut the cord like two years ago. I dont even realize its gone. My husband freaked out. I said no, its time, easy. When you look at the stalling user base growth, content is huge, expansion an all of that. But at what point do we reach the numbers, what is the Adoption Rate where we stall out . Mark we are far from there. I think netflix realizes this. 165 million subscribers already. International, huge opportunity. This is the point. Netflix continues to spend on content. You think of cash burn. They reach certain subscribers, content becomes a fixed cost. You reach that threshold. Frankly netflix has such a lead. Julia are they developing content in those markets, local content in, say, asia, latin america . Mark they are. International is their strength and theyre bringing that content back to, for example, north america to the United States. We are watching content thats been created all over the world. Alix i want all the british shows to come. Mark boidman, thanks a lot. Really appreciate it. I want to point out what happened with the housing market. Thats propelling equities higher here. Housing starts up 17 . Julia, you are emailing clients right now as we are talking. What is the question everyone is is asking . Julia this is unusual, looking at the chart there, the magnitude and the disconnect between the starts and permits. Sometimes you get seasonality issues. Sometimes with housing you get regulatory issues that come into play. 17 ss would be that the month on month pop is not representative of the trend. If you look at Building Permits, theyre trending up nicely. I need to dig into the details. Alix good perspective. Julia, always a pleasure to have you on the set with me. Julia coronado. Coming up on the program, all about transports in this mornings technically speaking, a closer look at the stocks. If you are jumping into your car, turn on bloomberg radio, channel 119 and the bloom beg business app. Alix time for technically speaking. Set you up with trades of the morning. He joins me now. Listen to bill, transports all day long. Start with the rails and c. Is s. X. Bill c. S. X. , revenue did miss estimates. Shares down 3 . Trend is is higher since august. Its in this july gap, though. Ook for potential today 74 74 probably your first important c. S. X. Alix we go to rail and other modes of transportation like trucks. J. B. Hunt beat some estimates. Bill missed the lowest estimates. That stock is down 5 in the premarket. Potential support around 113. Thats february 2019 high. Probably good support around this 113, 114 zone. If that fails look for around 111. Alix looking at international, what do you see . They have preliminary estimates missing lowest estimates. That stock is down 7 in the premarket. Business trading range since april. Failing at the top of the range. Its not up today. Down 7 . Support probably around 72, down here, the october lows. But First Support probably 75. Alix is it still a thing . Are we done or have we moved on . It still holds an effect. Maybe its a red flag. Bad numbers today. Alix all right. Thank you very much. Hat does it for me here. The global head of strategy. We are seeing equity buying after the killer Housing Starts number for december. This is bloomberg. Here, it all starts with a simple. Hello hi how can i help . A data plan for everyone. Everyone . Everyone. Lets send to everyone wifi up there . Uhh. Sure, why not . Howd he get out . a camera might figure it out. That was easy glad i could help. At xfinity, were here to make life simple. Easy. Awesome. So come ask, shop, discover at your local xfinity store today. And with the sXfinity Stream app, screen is your big screen. Which is free with your service, you can take a spin through on demand shows, or stream live tv. Download your dvrd shows and movies on the fly. Even record from right where you are. Whether youre travelling around the country or around the house, keep what you watch with you. Download the Xfinity Stream app and watch all the shows you love. Jonathan im jonathan ferro. The countdown to the open starts now. Jonathan coming up, another series of alltime highs and big tech rallies alphabet. With Global Economic data stabilizing, china is showing some strength. With 30 minutes until the opening bell this morning, good morning, good morning. Here is your friday morning price action. 500. Advanced on the s p treasury a 20 year issue coming up this year. We will talk about that a little later. Later. Another round of record highs. The economy is at a steady pace. Seeing more stability. Bottoming out. We are derisking the system. A more constructive environment. The consumer is strong. Incremental escalation. Could lift inflation expectations. No inflationary pressure. More likely a cut than a hike. A lot of