>> u.s. stocks closing higher. u.s. equities halted a six-day losing streak. is "what'd youon miss?" >> junk bonds us all the first gains in four days. joe: under 24 hours until a potential rate hike. we discussed what the fed will be watching. let's begin with the markets. stocks rallied, credit markets recovered. oil's helping is the recovery for the second day. joe: they have to be relieved at the fed today. i don't think the market

volatility last week will have influence on the decision tomorrow, but still they don't prefer to hike into volatility. day today will let them sleep more comfortable. >> oil rally, that's ok. i was watching the dow transportation average. correction andn able to bounce back today. as transports go, so goes the dow. could this be a harbinger? >> i am alix steel. >> i was looking at the yeaeuro "what'd you miss?" first word news. versus the dollar. officials in new york say they received the same threat that this is the euro against the led to the closure of the l.a. school system, but concluded it dollar. when the line moves up, the euro was a hoax. the mayor said that he is "absolutely convinced there is is strengthening and the dollar no danger to new york

is falling. schoolchildren." >> i contained the president was you had shorts coming out of the euro markets. informed of the decision made by local authorities in laws based take a look where we are now. on information they had received. the dollar gaining strength in the last day, that crossed think this illustrates something that is important to understand, which is that breaking below the 50 day moving average. ultimately it is local first responders who are responsible the verges between the dollar strengthening, the euro falling. for taking the lead in protecting their communities. alix: meanwhile, an official joe: we also saw a little pop in says the threat was e-mailed to a school board member from an the two year yield. address in franca, germany. >> the judge has instructed we have inflation readings today, cpi, lots of signs that jurors to continue deliberations prices are still going in the after that jury sent a note to direction the fed wants to see. the judge following nine hours ex energy,es cpi, of deliberation. he is charged with manslaughter, assault, and reckless endangering, the first of six rising. headline cpi, rising. ex housing, rising. officers to stand trial in freddie gray's death.

>> republican candidates debate tonight in las vegas. ted cruz has raced into the lead in iowa, the first in the nation's caucuses. so various ways you look at it, there is a clear uptrend. the lead,ed cruz has donald trump may be more aggressive towards him tonight. e, butd looks that core cp debate is hosted by cnn and facebook. >> the biggest winter storm to hit denver made this morning's the inflation trends are going in the direction the fed wants to see. >> how would this translate in commute a big mess, delaying flights. the language in the statement? joe: everybody will be curious about five inches of snow expected at the airport, but some areas could get up to 10 to know what they tell the fed inches. is looking at. schools getting a snow day. we know they will be data dependent, but what data, get more on these and presumably inflation will be a big part. other breaking stories at the >> some people point to the new bloomberg.com. alix: meanwhile it's 85 in new york. relative weakness of small capitalization stocks. on the eve of this potential fed rate hike, were seeing credit if the u.s. grow the story is so good that the fed raises conditions in the u.s. deteriorate, but you're seeing interest rates, small cap's it should be doing better, but

they're not. improvement in china when it comes to emerging markets. as ithe line goes down, the orange line is the moody's has been, it signals small caps index, and that level is rising, are underperforming big caps. you have to go back to 2009 win versus china's aa. parts of the small caps lagged behind like this. >> especially with the dollar chinese corporate sector which are tight, but corporate credit, strength. joe: it speaks to that narrow bond market, wide-open, massive leadership of mega stocks. issuance, 100 basin points, >> you can see all these charts bbbds aa, about the same as and more on twitter. guest,nt to bring in our over here. always a pleasure to see you. there was a secondary benefit >> the sell off and high-yield when their equity market blew up in a lot of money chasing equities discovered that bonds credit today abated today was were an alternative place to put some junk bonds posting gains. money. what does this signal to you? at of the things we looked is this a pause or something in the summer when the equity more? >> i think people got a little market got week was what the response of credit markets were. anecdote over the closing of the it was important that credit 3rd avenue fund, and that caused markets continued the rally after that decline. that great ball of money a lot of money to withdraw.

theid since the summer that rolling around in china is looking for a home. china using this u.s. credit cycle had week, and nothing has happened since then aggressive monetary easing, keeping borrowing costs cheap, to make me change my mind. using the weakness in junk bonds exporting deflation to the keeping itcapacity, well beyond energy, pretty much across all sectors at this point. to cheap? joe: is the volatility in credit a reason for the fed to be corporate credit is going concerned? or is this what the fed is trying to accomplish, tightening to different sectors now. policy and taking froth out of in china, you have a part with the market? >> we are seeing the high-yield spread in all different sectors, parts of the economy are hanging in there. so the stress all over, not just energy. with the fed be worried about is that the stronger that? >> i think they should be. parts of the chinese economy can maintain normal growth. i think that is in everybody's there's something of the interest. >> does that mean they have diversions between the corporate sector in the u.s. and the broader economy. insulated china from a fed rate the fed has to manage the hike? is dependent on broader economy, two mandates, the level of inflation, and the level of employment. pboc policy. pboc policy is loosening. behind that, it worries about financial markets.

the danger to the fed is that the economy is really ok, but they've made plenty of mistakes along the way. >> when we talk about china and corporate profits have really peaked. if we have excess supply in to a new way to value numerous sectors, you can have its currency against a basket, corporate collapsing even when the economy looks ok. what advantages does that offer i think the fed should have beijing? >> one big benefit is that it is raised a couple of years ago. i think that window has closed, and now it is a risky business. much harder to have a >> corporate profits have speculative run against the yuan . peaked, companies turning to the debt markets to help profit this did not come as a huge surprise to me. i thought the cleanest way to growth, but you look not just of the almost, but deepak at against the dollar is to peg against the basket. junk, the lowest investment-grade, also showing g against the dollar is signs of stress. how can companies do creative engineering to help themselves? >> they can do it, but it is to peg against the basket. complain whent to more expensive. there's something of a quality it is pegged against the basket. -- a window of quality. in summer, when we tried to nudge the peg upwards it if you're below, quite depreciated the yuan by 2%. difficult. is probablylow bb,

that was anat impossible. one of the great drivers of this alternative open to them. profit cycle is not there anymore. called the 2013-2015 i think this is a fairly intelligent move by the chinese. i welcome it. at thee take a look years in credit and altra generous marketplace. was that an anomaly then? spread between the onshore and offshore yuan, many point to that saying the pba see -- pboc synchronous, slow growth, wants the yuan to depreciate. low yield environment, and now you won't get it anymore? >> the chinese do not want the was tooredit market yuan to appreciate on the back generous. we had one in the 2007. there was something particular of a narrow dollar rally. about this environment that forced an enormous amount of -- goes up 10%, they don't want to go up 10% with it. there was no other nominal work?l it interest rates available to people. i think money wants to get i do think this one was more excessive. that's where the excess was. i think you can go back to 2014 to see when credit started out of china for multiple reasons. it's not just that they are worried about the yuan topping out in energy and other commodities, but we are in the depreciating against the dollar. middle of a long deterioration i think there is mother -- money

of corporate credit. tomorrow's fed decision, we that simple he doesn't want to be there. joe: what is the biggest risk for 2016? >> the u.s. economy strengthens, been talking about it forever, picking it apart, slicing and dicing -- is there any higher inflation, better particular aspect of what the employment, profits deteriorate, fed will do tomorrow besides credit spreads widening while hike or not? what would you be watching in interest rates go up. the coming days? >> you have to watch it. that is not pleasant. hawkishere's no way a the thing i'm most interested in is that if we get the 25 basis great cycle is placed in? then anything other bond market than that is a major shock. i don't think we will have a major shock. expectations or anything else. that is your worst-case scenario if you see how they implement ie , the worse i can think of. >> always a pleasure to chat with you. >> how will tomorrow's fed >>een priced in yet? decision impact currencies? is there more to shake out as we move forward? >> i think the equity markets we have a chart that you cannot disruptive? miss next. ♪ hopeful, behaving as if high-yield is an anomaly, ant

investment-grade, they're somewhat of a dislocation between stocks and the underlying bonds, and there could be more to come, so they secrete stocks have to meet its yield, what you think? >> that would be my guess. thele like to point out disparity between credit look ates in valua, think youo sectors aggressive in their use of credit over the last 18 months. i would look at the media sector that has gone through an aggressive credit fueled expansion. technologyrs, leadership, one benefit is that it is not credit dependent. >> thank you very much. you are sticking with us. coming up, is there a credit squeeze in china? will look at the corporate bond sector and the implications of a

gone, but other

scarlet: i am scarlet fu. "what'd you miss?" the world braces for a fed increase. where does that leave the dollar trade? you see a dovish hike, which you identify as the most likely outcome, leading to a weaker dollar. at some point, the fed has to join the collective wisdom of millions of individuals, the market. as the fed becomes more dovish,

you realize that the dollar rally is over, that we have priced in -- we had three years to prepare for this. we've had a massive dollar rally. great get a quarter point rise, that is the end of the rally, not the beginning. joe: what is your forecast for next year and the year after that? >> the market is pricing in. we agree with them. somebody is going to be wrong. either the fed or the market, which one? i'm going to bet the collective of the millions of people out there, not a few people sitting in a room deciding for us. chartyou sent us a looking at what the dollar did after tightening cycles, and did

show that the dollar fell after the fed hike, but couldn't you say this is a different time? we're seeing massive central bank diversions, so even if the dollar wants to fall, wouldn't it be supported by the boj, ecb? >> no, not at all. every cycle is different. we always like to hype it up. it is just another one, and it will be great. we've had for cycles, all completely different. the dollar goes down. why? because we have priced it in. we saw hawkish loosening. >> what is that mean? >> we saw the ecb loosen, and the market thought it was hawkish. were getting hiking, and now people think it's dovish.

these central banks are constrained. the ecb and boj are constrained in what they can do in qe. the economy is soggy, and there's no inflation, despite on yourryone said program, exceeding energy. if you live like a normal person, there's no inflation. oil prices are below $40 a barrel. where is the rush to hike rakes? the dollar bull run was in anticipation as markets are forward-looking. >> i don't know how to follow up with that. why does divergence feel like it is capable of causing a lot of pain in the currency markets? is it that were just not used to opposing forces after easing? need a because you

people with gray hair to come on the show and say that we have seen this before. phenomenona new where you see policy divergence. everyone talks about the great policy diversions in september 2015, the time to talk about it was 18 months to one year ago when the ecb was going native and talking about qe. that is when markets moved. -dollar move. euro we've had the dollar party. i'm sorry if you missed it, but don't believe the johnny-come-lately's. it's over. let's look at the new thing. i want to be bearish on oil at 110, not 38. >> make sure to tune into a special report today, coverage

starts at one car p.m. in new york. alix: it's not all about the currency's, will look at the fall of oil. ♪ the only way to get better is to challenge yourself,

and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around.

>> i am scarlet fu. "what'd you miss?" first word news. secretary kerry seeking common ground with russia on syria and ukraine. he met with the russian president and held a news conference with the foreign minister. about the crisis once again in new york on friday.

aesh poses athat d threat to all of us. we talked at great length about the threat of extremism in the region. russia and the united states agree that you can't defeat dae escalating the fight in syria. >> they are at odds about an agreement to in the hostilities -- end hostilities in ukraine. >> a man was question about the deadly attacks in paris. his name has not been released. killed 130 people in multiple locations last month. the luxury hotel and molly attacked by terrorists has reopened. attacked by terrorists

has reopened. it was the bloodiest jihadi attack in the capital. >> high school graduation rates have reached a record high of 82%. the newly released data shows that black and hispanic students made progress, closing the achievement gap with white counterparts. district had the lowest graduation rates, and i'll had the highest. you can get more on these and other breaking stories 24 hours a day on the new bloomberg.com. backe s&p 500 back to gains in more than a month since early november. energy companies led, and the fed began two days of meetings and will conclude with their announcement at 2:00 p.m. joe is so excited. excited. the fed people have to be relieved that we got this nice rally.

at least there is some calm ahead of us. >> we did see stability in the commodities market. gas, metals climbing the way higher. if you look at what forecasters thought oil would be at the end of 2015, 17 percent at $50 oil, another 9% thought we would be at $65 oil. you say forecasting is a waste of time, clearly the charts show that, but you need the forecast to run your business when you are a commodities company, so what do you do? >> you have to go with the flow. we use forecasts to make us feel better, like comfort food. it's great storytelling. is that whenanger

you listen to the story too much, you act badly. there are two things that make it particular he dangerous for commodity companies to make the bet. the last thing you want to do is borrow money and bet. that's what a lot of commodity companies have done. it's not the oil price drop, but the fact that some of them at least have done it with borrowed money. we have seen commodity or material-based company's throwing the talented dividends. in your experience watching these things, is that a good thing in the sense they are shoring up their balance sheet, or a bad thing because they lose the appeal to income investors and appeal to nobody? investors -- if you buy a stock, you have to live with what happens.

at least in my estimation, they took too long. they should've cut dividends way back and not wait as long. >> which is more important to commodity companies, shareholders or bondholders? >> i can't tell the difference at this stage. ory think dividends something they are entitled to on the equity, so i think commodity companies have to rethink the investors they attract, because over time they've gone after these big dividend liking investors, and that's not a good fit anymore. >> why do you think management was so slow on this? we've been talking about the commodity carnage for well over a year, and now only recently a capitulation, why this long? >> it's human nature, denial, right? it takes a long time to realize that you have a problem. , that's were yout's w

see the most inertia. >> then you have companies cutting dividends, assets, workforce, but shareholders don't seem to care. the stock has not been able to reality -- to rally since the dividend cut. >> it's not a magic bullet that will fix the oil price. ats a question of survival this stage. if they keep paying dividends, they're putting the future at risk. it is either survive and cut dividends or keep paying dividends and run out of cash. konica --chevron, conoco? >> they don't borrow as much. they have some buffer. it's the most levered companies that are in trouble. >> you say some of the oil companies were irresponsible when they brought too much money, but it is all about relative performance, right? they have to keep pace.

by not doing it, they look bad, relatively speaking. that is their defense. we did it because everybody else did it. company,you to run the -- joe: as people try to figure out whether these companies at -- are at the bottom, what are the key metrics? >> how much debt to these companies have? if you buy into companies with a lot of debt and oil prices recover, this company might not be around to benefit. you need a company that can ride through the cycle. i would avoid those companies with a lot of debt. >> at what point would you buy? i have exxon in my portfolio. better.an oil price

it's hubris on my part to say i'm going to wait for the right time to do this. in my commodity companies portfolio, and i have no qualms about buying them now. you think it's better to be a diversified oil giant or small and focused on one side of the business? >> i don't mind either, as long as they don't borrow money. that is the key issue. a diversified company is spread out in terms of where you are, but i think that's only partial protection here. with us.e staying when we come back, we will discuss yahoo! he will walk us to the bad and that marissa mayer was dealt and why the company should become a closed end mutual fund. ♪

>> coming up on bloomberg television, the ceo of sun power joins bloomberg west with emily chang. i am scarlet fu. "what'd you miss?" it is time for the bloomberg business flash. halliburton and baker hughes extend potential merger to april 30. officials are not satisfied with the plan and would like to delay a decision. antitrust officials have always concerns about the merger. from a sitter goes

has eight new distribution deal with walgreens, helping to lower the prices of branded restriction raised products by 10%. it also covers over-the-counter products. the 20 year deal takes effect next year. ends speculation that he will leave satellite radio. financial terms of the deal were not disclosed. that is your bloomberg business flash. we want to focus on yahoo! now. full disclosure, you are an investor, but you say the ceo was dealt a tough hand and it may be too hard to turn around the company. this chart has revenue and operating margins for yahoo!, and you say this is damaged beyond repair. she came in after both had peak.

does that mean her only play was to dismantle it? wasirst, marissa mayer given a business model that was completely broken. the second and bigger problem was that she was given control of 10% of the company. 90% of value came from yahoo! japan and alibaba. ma did had a bigger impact than marissa mayer. you say it was broken, but a gigantic portal with tons of traffic. she was faulted for making acquisitions that have not turned out good. isn't it possible she could have steered this property into something more important? >> i break that question into two parts. they havee best thing

going for them is 250 million male users. forget about search come online , act like you are a social media company and hope that somebody out there will pay for your numbers. on the second aspect of what she much of theone, critique is that she has not done enough. every story says she should have done more. i'm glad she did as little damage as she did. she could've done more damage if she sold alibaba and bought something with the 20 billion. is that shek it didn't try enough. i think it was very tough to fix. >> she also came in as a celebrity ceo. they usually don't make their name by selling off pieces of

the business and running it in an efficient way. they build it up, buy things, create new ideas, so she was doomed from that perspective? needed was a! liquidator. it's a company that has been backing to be broken up and sold off, so she might have done well at a company where being a visionary would have carried her far, but this was not that company. >> you also have a great comparison of tech companies versus dog years, and that tech companies have a shorter lifespan. how doeshat mean and that play into a tech company trying to turn itself around? tech companies to grow fast is that they can enter quickly, scale up, and get customers to switch. the bad news is that those exact same factors work against you.

you be early and decline fast. it's very difficult to keep it going. you can't manage it like a coca-cola. the life cycle is compressed, so both managers and investors have less to invest. joe: what should she do? >> it's out of her hands. it's only a question of time. the only thing delaying the breakup is the tax issue. if they can get out of those holdings with minimal tax liability, it's only a matter of time. that's why i call it the into game for yahoo!. -- end game for yahoo!. >> ibm and apple have come back from the dead? examples ism as like using warren buffett as the example of a value investor. be emptied tot

keep going back to the same two companies. is true that there have been rebirths and re-carnations come but you can't run a business based on the idea that you are the exception. why do you own yahoo!? >> i wanted to buy alibaba at a 29% discount. thank you so much for joining us. >> coming up, we discussed what the federal reserve will be watching for liftoff. ♪

--: i'm joking wiesenthal

joe weisenthal. "what'd you miss?" washingtonnow from is matt baset. huge day coming up. you say the fed rate hike is clearly being priced in. what you watching? >> this chart shows one week libor. if you are a bank and broad money, you had to price in this rate hike because the new great falls into that one-week window. we've been seeing these rates marching up like clockwork. feeling pretty good from that perspective in terms of having the tools they need to ask a get these rates up , because a lot of people have been wondering if they can do it, can they hike with three train dollars of excess reserves , so far so good.

-- 3 trillion dollars of excess reserves, so far so good. joe: what are some other things the fed will be watching in the days ahead to tell them that the rate hike is going on as planned. thing on thursday is that there will be a first reverse repo operation after the hike. they're becoming a big player in the repo market this time around because that's where they will have to do a lot of the heavy listing -- lifting to raise rates. dealsill have to do repo with money market funds, security dealers to get these rates up, so on thursday afternoon, we will see how that goes, and the big question is how much they have to do. is it going to be on an order of $100 billion like testing? ?r will that number get bigger they don't want to have to do too much. joe: i want to switch gears and zirp cominghe era

to an end. the zero interest rates policy. what do you mean? >> i was talking to someone who works at a bank and does this stuff. beinge the point about able to borrow money at zero. the answer is, no. a metric that traders like to use to gauge the pace of tightening, a year or two ahead. if you look at this now, it's ining that we are between -- 2017, we're expecting the fed to hike only twice, so the pace will be slow. if you look back over the past several years why we have supposedly been at zero, that raid has been going up and down a lot. that shows you the pace of tightening that people are

looking at now has been pretty high in recent years, so that suggests even if the fed was at zero in 2010 or 2011, how does that do one or two years ahead when you're expected to be hiking a lot? it's not about liftoff. it's about the entire path of interest rates. this shows you that it has been a factor we've always had to deal with. low unemployment falls below 6.5%. that's something they could of , and someearlier people like charlie evans argue they should have done. the other thing is that with all the quantitative easing and bond buying they did after they took great's to, people were concerned about runaway inflation. they did not know how it worked for a long time, so that was baked into the market prices. they might have to be hiking rates a year or two from now

because of this inflation they will create. there are a few things going on there, but definitely credit fed communication in hindsight could have served them well. saidi know ben bernanke that for political reasons they had to talk about the idea of executive -- exiting the externally measures from day one. you think that was a costly political concession the fed had to make? >> absolutely. this is been going on since 2013, right? that's when all this started. here we are in december 2015 and they still have not raised rates, so they could have taken their time a little bit longer. joe: thanks, matt. we'll be watching all these things tomorrow and the days ahead. turn into a bloomberg news special report tomorrow, the fed decides, coverage starts at 1:00 p.m. in new york. next, a different kind of fed, fedex come a we go inside the

numbers one day before earnings are reported. ♪

>> i am scarlet fu. "what'd you miss?" fed asked releases earnings wednesday. the focus of this week's "the numbers don't lie." the ground segment, this yellow thanks tohe fastest the acquisition of a third-party logistics provider as well as delivery of online purchases. total e-commerce sales are at double digits. our forecast reached $334 billion. the ground business gives fedex the most bang.

e-commerce boosted demand for less profitable consumer packages. fedex is trying to expand overseas to depend less on the u.s.. fed x earnings-per-share and operating income growing, but off their fastest rates. economy u.s. industrial struggling, share buybacks will be critical in boosting eps. they've repurchased 46 million shares. the report wednesday after the close right here on "what'd you miss?" you can't miss the fed decision, starting at 2:30 p.m. citigroup said this is what janet yellen could do with the press conference to show that there is a dovish rate hike coming. them delivering a dovish

message while hiking is what everyone wants to see. >> >> all eyes will be on center

stage to see the two former allies go after each other. >> i think it is going to be big. >> who will attack first? >> maybe they will have a dance-off. ♪ what happens in vegas definitely doesn't stay in vegas