Of 10 Industry Groups rising led by commodities companies. It is worth pointing out msci is close to positive for the year as well. Alix i was looking at what stocks helped the dow go positive for the year. You have verizon, caterpillar and walmart leading the dow higher. There was no theme with the winter with the winners. Losers definitely had a theme goldman sachs, American Express and jpmorgan the continued pummeling of the banks we have seen. Financials do not like low Interest Rates. If there is one thing we have learned is that. Weve got so much more to talk about. We had the fomc meeting yesterday. A little bit mixed, which is interesting. Exposedyear is the most to Interest Rate sensitivities, so its interesting the yield is down on that one. Scarlet it has been a big week for Central Banks. The reaction in the currency market is one of utter confusion. Then itthe leg down and erased its gains and is stronger again. Norway does not want its currency to appreciate too much. Scarlet the brazilian realogy sending its rally because traders are betting theres going to be some kind of regime change soon. Tracy it is the impeachment rally. Have you ever heard of such a thing for . Scarlet perhaps lula and his appointment may be blocked by the court. Alix im taking a look at the commodity rally. Above its 200lme day moving average. Zinc really loved the rally was the metals, but oil story with wti over 40 a barrel. Withtty staggering rally 10 in just two days. That really did help the dow. Part of that is the oil story. We still have the dollar underlying a lot of the strength in the markets and it is feeding into commodities and now its feeding into credit and stocks. Scarlet in terms of what you are looking at for your deep dive, you have been focused on the moves in the how and s p. Tracy i want to do well on this because it is a landmark moment. St. Patricks day, but we found gold at the end of the rainbow. That is terrible but we are back to where we started the year and the s p 500 was briefly flirting earlier today with its beginning level as well. What is notable about that chart is the move since february 11. If you come inside to bloomberg on my terminal, you will see these are the rest performers since that february 11 low. In the past 24 trading days, the dow has ended higher 71 of the time. Ibm at the best former come at caterpillar, a lot of industrial companies. American express did fairly well as well. The worst performer was pfizer, one of your defensive names. Pfizer was little changed since february 11. Alix this plays in to the risk reversal theme. You can get all of these charts on the bottom of your screen. Heavenly check out the bloomberg. The oil rally is not a good thing. This is a chart that tabulates oil prices versus producer short hedges, which is the white line. Reserveon short as a you are selling production forward. The more short you can imply, the more hedging taking place. Quite a significant rally. Right around a record high for producer shorts. At the same time, you have the the more youly for hedge, the more production keeps flowing analysts production is actually shut in. You want to keep your business going but a are saying the mid and Large Cap Companies are hedging, the big guys are trying to stay alive which means production might go longer than estimated. Usually it heads for about 12 months. Hedging, more production, that hurts the longerterm rally. So hard to find that balance. Alix be careful what you which what you wish for. Today is the former president of the minneapolis fed. Hes currently an economics professor at the university of rochester and a columnist for bloomberg view. Scarlet we saw inflation data creeping higher with cpi numbers getting closer and some would say over but the fed has given the forecast record inflation. We are revised down slightly for 2017. What do you see when it comes to inflation . Guest thank you for having me on. A real leisure to join you. Areerceptions on inflation similar to those of the fed. Fairmont o see a a fair amount of slack and i think that slack is going to continue to exert downward pressure on wages. We have seen some wage growth but a low where we were before 2007. The other piece of the puzzle is that corporate profits remain high even as wages go up. What extent will corporations take out profit . I continue to see a lot of slack and some room on the business side to absorb wage increases in the prophet. My outlook is even after the feds announcement, i see inlation remaining below 2 22018. Alix you point out that more than half the purchase of entire comfortable with inflation remaining below that are sent target. This sayingnterpret wing understanding of low inflation . Guest it has been a question that has run through the fomc experience going back really through 2009 and 2010. Why is it when the fomc submits its summary projections, since they have the ability to influence what inflation is going to be, we should think of that as the goal for the committee for inflation. You get out to the second and third year, that is really under the influence for the committee and its choice of Monetary Policy. The majority of the committee has been comfortable even two years out. Why is that . I think it continues to be a level of discomfort with extraordinary use of policy tools. Byerest rates remain low historical standards. Still very low compared to where we would the historically given where the Unemployment Rate is and i think you will hear from another of participants as they talk about Interest Rates and they feel uncomfortable with how low Interest Rates are. That is the tension you see that if you had Interest Rates that 3 , you might be reaching different decisions about what to do as far as reaching higher levels by being more accommodative than they are with Interest Rates as low as they are. Alix since we are geeking out on inflation, what is your take on market a store surveybased measures of inflation . We saw janet yellen look through one year break even sanded and seem to matter so much to her. What is your take . This is a great question. The one year break evens, i tend to agree with the chair that the committee, theres they they are right to look through those because its difficult to influence inflation over just one year out. What is more of a concern to me is looking at the inflation break evens five or 10 years down. Wheres represents inflation is going to average five or 10 years from now. I think its a real credibility bet about where they think the red is going to be steering the inflation rate. And that not very low. You get into february and i seem to remember the number getting below 1. 5 . You have to remember there are some corrections involved in that. The Consumer Price index tends to run little higher he said we are going to geek out on inflation. Here we go. Seriousness, i think that risk toted a real credibility. Market participants are betting the fed either lacks the will or the tools to keep inflation at 2 in a sustainable way. Weve seen some upward pressure recently, which is a good thing. Back to early december of 2015, we are well below where we were then and if you go back even further, we have seen very market kleins and those numbers. That should be a real area of concern for the committee. Next, we will discuss how the fed can harness the power of negative Interest Rates. Mark im mark crumpton. Lets get to first word news. Senate minority leader Harry Reid Reid is criticizing Republican Leaders over donald trump thomas a cowardice set the stage for the rise of the gop front runner. House Speaker Paul Ryan and Senate Majority leader Mitch Mcconnell to reject trump outright and chastise them for refusing to denounce the more extreme elements of the republican party. Blockedl, a court has the president from nominating the former president to her cabinet. It was seen as an attempt to shield little of from a corruption investigation. Vladimir putin has a warning for extremist groups in syria. Hes withdrawn the bulk of his forces there but says he can redraw the forces within hours. He added military escalation is not his preference. According to u. S. Government climate reach wars resources, last month was the hardest the hottest that you are he and 137 years of recordkeeping. There was unprecedented heat in the art. Global news 24 hours a day powered by our 2400 journalists in 150 news bureaus around the world. Alix still with us is the former president of the minneapolis fed and current economics professor at the diversity of rochester and columnist for bloomberg view. You recently wrote a column saying if the fed can convince people it is willing and able to take rates into negative might be able to raise rates faster and higher. Its a very provocative statement. Explain your reasoning to us. Guest i think its a really important message. Recoverye reasons the has been as slow as a has been is despite the extraordinary monetary accommodation is the level of uncertainty about the future course of the economy. Part of that concern is that Central Banks around the world will not be able to provide appropriate support if there were adverse shocks to the economy. What if the fed or ecb were bank of england going to do if there are shocks that hit their economy . To convinceble Market Participants in the public more broadly that can be effective in providing that kind the level ofhen uncertainty will be diminished. Because they have more confidence in the future course of the economy. We have a function on the bloomberg that allows you to see what fomc policy makers believe the fed fund policymakers should be at. Can go back in time. This is for yesterdays meeting. This is december. There is a. There below zero. Tracy i have a story to tell about that. Plot. I spent months coming up with an interactive graphic on which that terminal function is based and low and behold, the ethel lance see statement came out at 2 00 and someone put negative thoughts and it broke our chart. Professor did you break her chart . Guest you will have to wait 10 years to find out. There is a serious aspect to that story. Willive Interest Rates take us into uncharted territory. It he who is the fed to Start Talking openly now about the to allowty now Financial Institution and other members of the public who rely on the idea that interestrate are always going to be positive and prepare for the eventuality that they might turn negative. Someught the chair made comments going the opposite direction, suggesting zero Interest Rates are not really on the table. I think that works against what the fed is trying to accomplish both in terms of the economy. Scarlet if you look at the countries that have adopted make have adopted negative Interest Rates, denmark was the first and in sweden and then japan this year. Tofour years enough time determine whether the danish experiment is ask it is a success . Guest i think the mechanism is basically the same for Interest Rates. Rates, thatsrest going to spill through into other Financial Assets and weve seen that in a number of these countries. Consumers and businesses will those bonds out there in the market look very expensive. On the margin, i should spend more money by buying goods and services. Ist is always Difficult People want to see a clean piece of evidence and say it has worked really well. You are always using it in the context of that things happening. If you are lowering Interest Rates, its because things are happening in your economy that are not that great. How challenging to sort out bad would things be if things had not done had things not gone with negative Interest Rates . I see the same problems of easy money working in all of these companies and the one caveat i would offer is a lot of angel institutions have found it more depositing to lower its rates to her customers than it would with a standard interestrate cut. At that caveat is not enough to override the fundamental force countryps propel the forward when you offer lower Interest Rates. Alix next, we are going to focus on china and they will tell us about the real reasons to worry about that country. Scarlet im scarlet fu. Whatd you miss . The yen and the u. S. Dollar may be headed for a breakup. This is in a recent bloomberg column. The author joins us from upstate new york. There was a note out today saying everybody at 20 table realized Monetary Policy involving a currency devaluation by the europeans and Japanese Monetary policies wondering we did see the fed weaken the dollar yesterday. Does that mean maybe there was an agreement to take some of the pressure off china . These are really important issues to talk through. The fomc does not operate in terms of agreements with other countries in any fashion, but i think the committee does think about global risks and how they can spill back into the u. S. I think continued tight Monetary Policy had the raise rates in march or send a signal it was fourng to continue with rates in 2016 kind of pace. I think that would put upward pressure on the u. S. Dollar and i dont think the chinese with the yuan being tied to the dollar, thats going to push it against other currencies. That is not a place they want to be right now and i think that a to stepressure on china up and maintain this currency. On the flipside, you can imagine they are calling yellen and saying what are you doing the smart weve worked so hard and now you are taking it away. The world is going to be stronger with a stronger u. S. Economy. Those Central Banks want u. S. Economy to bs strong as it possibly can be. Thats good for their economies. No matter whats happening with the currencies. Scarlet how much faith do policymakers have in china being just as mindful of the Global Impact of its decision . When you are operating as a u. S. Policy maker, to use the economists word, you have to treat the decisionmaking as exogenous. It is outside your control. One of many factors out your control and you try to formulate what theyguess about are going to do in those circumstances. Its not always easy to know. What happened in terms of devaluation which was small in some ways was quite a sum rise. Quite a surprise. Alix we have to leave it there. We will be right back. eeeeohmumohweh hush my darling. dont fear my darling. the lion sleeps tonight. hush my darling. man snoring dont fear my darling. the lion sleeps tonight. woman snoring take the roar out of snore. Yet another innovation only at a sleep number store. Mark im mark crumpton. Lets get to first word news. U. S. Court of appeals judge Merrick Garland has had a series of meetings on capitol hill today. He just met with vermont senator Patrick Leahy and is expected to meet in with Senate Minority leader harry reid. Democrats hope to put electionyear pressure on republicans who are refusing to consider any Supreme Court candidate nominated by president obama. Lindseyrolina senator graham is throwing his support behind texas senator ted cruz for the republican president ial nomination. He says he will help ted cruz in every way that he can. A new study says made in china is not much cheaper than made in the usa. China adjusted for productivity are only 4 cheaper than in the u. S. Productivity in china has doubled since 2003 but the u. S. Remains 90 more product of full global news 24 hours a day powered by our 2400 and more than 150 news euros around the world. U. S. Stocks exchange extended their gains. Lets look ahead to asian markets opening a couple of hours. Paul allen is in sydney. Good morning to you. Paul those gains are weakening the u. S. Dollar and strengthening the body prices. Thereally a Australian Dollar has pushed ahead but declines on the nikkei we will be watching to sheba stocks today which has declined 8 on news the u. S. Department of justice and securities and Exchange Commission will be looking into their accounting practices. A couple of china tech stocks in focus today. Up but it income is was amiss do to higher costs for video content. China mobile plus profit also falling. Truly a passof us Biggest Mining Companies is about to get a new ceo. Paul the rio tinto ceo is on his way. At ame into the job difficult time with rio tinto taking huge right down on its coal and aluminum businesses. By the headreplaced of the Copper Division who has recently overseen a large expansion of a copper project in mongolia. Analysts say this appointment will signal a change in strategy from cost cutting, potentially toward expansion. That is some of what we are watching on the asiapacific today. Some breaking news transcanada is going to buy Columbia Pipeline Group for about 29 a share. It does have a bridge term loan credit for 10 billion that will maybe help it i that company. Transcanada did not get to build the Keystone Pipeline it goes from canada to cushing and the u. S. Gold coast. That got squashed by the obama administration. Now the Company Going to buy Columbia Pipeline Group. Scarlet whatd you miss . The fed will leave rates too low for too long and it will trigger more market volatility. Thats according to our next guest. You love to follow the fed and volatility for how bad is it theg to get mark guest surprising thing about Janet Yellens statement was that she claimed it on global events. She said it was china cause us to pause. But it wasnt in china so much as the markets. My claim is always been the head has overreacted and has been too cautious because it is so concerned about market overreactions. It has allowed markets to be distorted by these lower rates where the we now have market andallocate credit or i think the situation is so precarious that if the fed were to start raising rates, markets would panic and this dynamic feedback loop is very dangerous is one we have to be very cautious about in the that does not into recognize it. Tracy we are going to talk so much more with credit spreads about credit spreads with our next guest. How do they break out of that cycle . Guest back in january, when everybodys motherinlaw was concerned about a global recession, they could have easily come out and said given our view of the data and given our analysis, theres no evidence the week this in the Global Economy has seeped into the domestic economy. That would have done a lot to calm markets and say to everyone rings are not as bad as you think, and if they are, we are on top of it. Instead, they say we cant even come to a conclusion where the balance of risks are. The bond market in terms of volatility had three triple tops over the last year. The stock off volatility but are we going to see the same kind of volatility we saw back in august . Scarlet that is a good point. Is the Federal Reserve more worried about the bond market or the stock market . Head ot only was the it used to be an anchor for sinceial markets but 2008, we find that the fed has become more sensitive to on the market volatility and the bond market volatility has exceeded the levels they were at last number. Everyone expected the fed to pause in march and they didnt. Now the key question is will something trigger the bond markets yet again, maybe in june, that stops us from moving than. That is the dynamic that perpetuates volatility. Tracy what do you think about the fed pause communication strategy . They are now talking about the fed having painted itself into a corner with a dovish statement yesterday. How are they going to move expectations back toward the rate rise . Guest the fed are used to work at where they say we care about fundamentals, our deal mandate is maximum employment. The markets will be able to be called if we are sure about what we are doing. But if we show hesitation of the sort we have been showing, it is clear that during the financial crisis, they have to be more accommodative. It has been eight years and you can talk about the fragility of the economy, but we have been growing above potential since the recession. We have to get back to normal rates. Scarlet janet yellen highlighted wage growth just is not where it should we. Highlighted have that the Fastest Growing wages belong to low skilled workers. Guest their arch and in the recovery and that is the biggest. Jobnature of job growth and creation is that it is biased toward the lowwage side. That is partly because of minimum wages but the stock boy who is a college grad has found a job more appropriate for a college grad, so they are having trouble finding stock boy. But if you look at the high wage groups, those wages have been rising at a fairly good clip. But has been steady. Alix i always love your passionate explanations here. Scarlet coming up, the canadian Prime Minister speaks exclusively with Bloomberg News and shares why can it why the new stimulus and will a the groundwork for recovery. Alix im alix steel. Whatd you miss . With canadianew Prime MinisterJustin Trudeau, he spoke about how the new stimulus package would ramp up rose for the struggling economy. Prime minister trudeau we had a massive stimulus package following the recession. Talking 80 billion, this is much more modest, much more responsible. What we are looking at is not trying to jewel the economy into life as to lay the groundwork and foundation for better growth, better productivity over the longterm and not just an instant influx. I think the challenge when you are trying to shovel money out the door is that it doesnt always get spent on the right ring. What we have decided on our infrastructure spending, which is going to be a massive investment over the next 10 years, the first two years, we are going to do the fun sexy things recapitalization of infrastructure, maintenance upgrades the things where you dont get to cut a ribbon and announce a shiny building on. Necessaryt are really to keep the pace up in terms of in transit people but that dont get the flash but are desperately needed. At is what we are focusing on the coming couple of years. Then we get into the bigger, longer term things. How are you going to pay for all of that . You will need to raise taxes at some point. Trudeau we are aware the Growth Profile of our company is not giving us the revenues we would like but that has been the case over the past 10 years. The platform i put forward in the Election Campaign was designed around recognizing growth is not great and we need to increase growth. Rates . You improve growth do you cut the economy or do you invest . We think you invest and put money in the pockets of the middle class and create the opportunities to grow. Approachs we are in an that im confident is going to give us the better growth that will create more of government revenue and get us through this phase. That was canada past Prime Minister speaking exclusively on bloomberg television. The deficit, to there are numbers like 32 billion canadian floating around. Is that realistic . Guest if anything, we have learned hes not going to spend like a drunken sailor. That has a high contribution to growth and Government Spending. You might have to think about having to dial the down a little. Most Shovel Ready Projects are maintenance projects. They dont require you to hire as many workers so the Multiplier Effect is lower. Tracy he did suggest that they are thinking of helping bombard ea helping bombardier. What are they thinking . Guest it could be some kind of equity stake or some kind of loan with conditional repayment, but it is interesting Justin Trudeau suggests he will be physically responsible. When people are nervous, they are worried about projects running over time and that dont deliver the promised benefits or have the demand. All three of those things apply. It undermines his case for responsibility by championing those products. He has called it superb, fabulous and always today. Alix many critiques of the fed must plan is to create all these bubbles. Is this going to create a lot of bubbles for canada down the road . Guest potentially. We are seeing the rebalancing the governor has long talked about. We are seeing that happen and we , so the realogress boost to growth from this increased Government Spending 2017 or 2018ng in when the economy is firing on more cylinders. Scarlet what is the government to do about the unequal distribution about where some of the wealth has resided . Places like vancouver and toronto have gone through the roof while there are other challenges for top other challenges. Guest things they are doing might exacerbate some of the inequalities we are seeing, but in terms of income and wally, they are working through the tax code to make it more able by raising taxes on top earners and making a more broadbased tax cut. Thats going to help the economy. Alix thank you for joining us. Current credit cycle is in its final innings. Does that mean we are to bubble western mark our next guest says we are. Scarlet im scarlet fu. Its time for the Bloomberg Business flash. Shares of Adobe Systems moving higher in extended trading, raising its earnings and revenue outlook. Outlooksrter eps beat with adobe shares of 30 over the last 12 months but down 4 since the start of the year. Alix the struggles continue for arrow post all. The teen apparel chain is trying to reverse falling sales and manning to review strategic alternatives, including sales and restructuring. They announced a costcutting plan in january and is working with the New York Stock Exchange being delisted. Of bill ackman bus company being cut over the last five and. It was accelerated by the plunge of valeant, whose shares are down once again today. That is your Bloomberg Business flash. Whatd you miss . The benign credit cycle is over and now we are in a bubble according to our next guest. Why is this credit cycle different . Guest it has been lasting over six years and ive addicted for the last seven or eight months that we are in the seventh inning of a nine inning game. Now i think we are in the ninth inning except the fed is anxious about things and as you know, this week, they did not raise Interest Rates, so they may try to keep that cycle going a little longer, but it is just about over. Tracy timing seems to be the tricky things. People have talked about the credit market being frothy but we see stimulus from the fed that keeps it going. To flip intorigger the definitive down cycle . Guest i define a benign cycle of having or characteristics above average rates, low Interest Rates and above and above liquidity. Three of those four are over. Recovery rates are high, therest rates are 200 over historic average and liquidity has dried up for marginal companies. Default rates are still below the historic average. Ring and i think everyone in the industry is predict thing default rates will go above the historic average this year, maybe above 5 on historic bonds. Default rates get to 5 or above, it tends to correspond to recessionary times. Tracy there is continual argument on the street that this time might be different because Interest Rates will go up but will be very low. How well do you think investors are prepared for not take in the default rate . Guest i think they are prepared for not pick above historic average but will its like to 8 or 10 . Personally, i dont think we will go to 10 unless we have a recession. Then the question is what do you all think about a recession . Most people think thats not likely to happen. Earlyience tends to save percent probability of a recession and that is a high probability compared to what it was six months ago full scarlet the credit market is more than what happens in the u. S. Tracy im glad you brought that up because the other things we have seen is the massive Corporate BondPurchase Program announced by the ecb last week. Now we have u. S. Companies issuing into the euro market. Will that keep the credit cycle going longer . Guest the european cycle is behind the u. S. They did not get as frothy or crazy as we did that i believe the game is over. The fundamentals are pointing toward higher default rates and lower recovery rates. The fed and ecb action will definitely keep it going longer. That was always the wild card in my forecast and it looks like they are going to try to do that. If they have robust growth in the u. S. And europe to credit market goods a lot longer in the benign cycle, but i dont think its going to last that long. Alix its hard not to talk about credit without talking about the oil market. Givingll have investors money to Oil Companies. Whats going to wind up closing that window for them . Know what the default rate is . It is upwards of 10 . Alix it still hasnt scared investors eschewed mark guest i havent seen many investors going into triple cs. Some Oil Companies are going to survive. 12 ,u can get yields at 14 or 15 , that is golden. There are investors willing to put money into oil, gas and mining companies. I like that idea of a quality junk strategy. Do you think we are going to see a bifurcation in the credit market between riskier credit and Investment Grade stock or is the default rate going to spread . Guest i think youll see a bifurcation in the highyield market self. The real risky stuff versus the stuff thats going to survive and what is going to happen and not going to happen immediately is many of them will default and so prices will go prices of defaulted oil and gas prices now are the lowest ive ever seen in the history of the market. You are talking about . 10 or . 12 on the dollar average recoveries. That is way below the historic average. But the companies that survive will provide incredible opportunities for those that have a good default prediction model. Of finance atssor the allman school of business. Coming up, what you need to know to europe or tomorrows trading day. Up gear up for tomorrows trading day. Scarlet im scarlet fu. Whatd you miss . Pricinginas february coming out tonight. They have been trying to use the Housing Market without creating overs why. Prices will be a good indicator of that. Scarlet tiffany reports tomorrow. A good reading on the japanese and chinese consumer. Tracy and we have the university of Michigan Sentiment survey out. We will get a read on whether the u. S. Consumer continues to be a powerhouse of the economy. Scarlet we will see you back here tomorrow. Tracy mark with all due respect to my i totally had webb vs. Gilmore in the finals. Tonight, garland seeks the green light. First, what is blackandwhite and read all over . This New York Times story. Springrties heading into , the lacking candidates are getting more pressure to it