scarlet: from bloomberg world headquarters in new york, that afternoon. ims early two. -- i am scarlet fu. moving lowerces yet again. -- investors retching into the safety of u.s. treasuries ahead of the fed meeting this week. scarlet: mcdonald's shares rising to a record high after the easily topped analysts estimate thank you to all-day breakfast. alix: jack dorsey reshape the company and twitter share struggle near all-time lows. first, a snapshot of the market to the. inocencio and we are extending losses. crude oil that alex was just telling us about.

are off the session lows but on streak to break the today to winning streak. take a look at the numbers. the s&p 500 down two thirds of the percent. 33 points.n by this is almost near session lows by teen point. track to the worst monthly loss since november 2008. with all that, people are looking ahead to tomorrow. this start the latest fed policy meeting. i want to show you something interesting. up until december, everyone was rateg when will the next be? we got that as you know, look at what people are pricing in for this month. fat zero.g no one is expecting any fed rate hike to happen.

this only comes in september when it comes in at 57%. an interesting look into this and -- sentiment with the fed well as policy. -- fed fund futures. the yield is down by 1.6. toting closer and closer that 2.0 psychological mark. it is not just about energy, but all other sectors as well. >> exactly. it is ready broad. --pretty broad. the homebuilders index down 1.5%. retail, as the less finance and materials down across the ford. if we transition, we can see that it is because of these major ones. orders slowedhome

more than expected in the first quarter and with american eagle, bb&t cut this to hold. alix: thank you so much. scarlet: checking in on bloomberg first world -- word news. mark: four suicide bombers attacked account -- a town near the border with nigeria. people day at least 28 were killed, 65 others wanted. two attackers detonated a bomb market. its sonic militants have killed thousands in the six-year insurgent the. unusually cold weather in eastern asia has been blamed for 65 that's. temperatures have disrupted transportation and brought the first note to us subtropical city and almost 50 years. plunged 259 degrees

fahrenheit in an area where most people do not have central heating in their homes. normally temperatures hover around 60 degrees. it will take several days for the east coast of the united states to get back to normal after us dorm dumped more than two he gets no. airports are slowly reopening for business. .2,000 flights were canceled federal government offices in washington will remain closed. in detroit, a judge holds a hearing that made force public school teachers to end the sick out. i have been forced to close school repeatedly. teacher it teachers are unhappy about low pay and bad working conditions. president obama is waiting in about candidates fighting to win the net -- democratic nomination for candidate. he says bernie sanders has the luxury of being a complete

longshot in the race to succeed him. with all due respect will be live from des moines, iowa, all this week ahead of the iowa caucuses. the extensive coverage right here on bloomberg television at 5:00 new york time. global news 24 hours a day from the bloomberg first word desk, i am mark crumpton. divergence of her monetary policy and oil outlook has led to different regions on where oil treasuries are headed. said sell it while analysts argued to be here. the two-year treasury is falling, pushing the yield higher to a five-year high. scarlet: care to offer his head ofis james camp, fixed income at eagle asset management with assets over $31 billion. he joins us remote from st. mary's -- st. petersburg, florida. i feel like i have been hearing the treasury market is that for

a really long time. what is your call this year? >> you are right. we started every year with the consensus overwhelmingly bullish. -- overwhelmingly bearish. i think we will bounce around the range. i hate to cop out and make a comment like that but at the end of the day the corporate bonds will be under the pressure. as we have had the first that tradewe are having a big down in inflation expectation. we probably touch a 175 it oil stays here or goes lower. treasury bears are going to lose again in 2016. inflation expectations are at the lowest doubles and 2009. obviously lowers the rate at dictation as well. oil continues to

collapse. to what it meant is the federal reserve act he moved that markets have been plunging and seeing a flight into treasury and this is now starting to increase. decouple the risk asset valuation in fed policy of qe over the back -- past four or five years. they have been extraordinary returns. may have talked itself into a policy mistake. that is the big risk. we thought december would be one and done. the fed had to prove it could move short-term rates. now, the economic tea leaves, is ashley inflation data, as well as the market turbulence not supportive of market tightening, into what is tightening conditions already. alix: into that as well.

an interesting note of the we can set what is investors are repricing asset like equities based on the fact we will have a permanent over wrote scenario where the fed action cannot do anything to help. what do you think about that? x i think it is spot on. the fed has basically told us through internal documents that external gdp is maybe 2%. i would like to point of phrase that we are now calling sc minus raid a. we are grading on the curb, but in my opinion, if you look at internal valuations and equities, you have to assume of both rate. if that number is low work and the trajectory clatter, a lot of them have to come down. i think the economy continues to move along. that candly an area

support risk prices without monetary accommodation. scarlet: i think the technical term is middling. gettings and profit squeezed, which means double be harder for companies to keep hiring or raising wages. seen peakmean we have >>e inflation in the cycle? i think that will be a huge tail -- tell over the next three-six months. we happen to believe this will roll over, specifically because of way down in the energy patch. manufacturing is slowing. buybacks, financial engineering will slow down as the bond market pushes back. if the consumer cannot push us forward, i think it will be sluggish for equity markets and risk assets generally. much fornk you so joining us. scarlet: coming up in the next

underutes, crude falling $31 again. will we see prices back in the 20's again. >> what happens next at twitter gekko scarlet: mcdonald's has strong earnings is of the all day breakfast. the strongest quarter in almost four years.

alix: a come back to bloomberg markets. i am alex deal. -- welcome back. business economists are more pessimists about future sales and profits and they were last

fall. the latest survey also predicts lower economic growth. the survey indicates firms plan to raise wages in the january to march quarter and the largest expectation to raise pay. praising alliburton loss in the first quarter. anchoring a charge of almost $200 million or john cut and the write-down of asset values. china to satisfy antitrust regulators and win approval. the world's largest profit writer will declare a book value of $850 million. prices have fallen 30%. the metals used in automobiles catalytic converters. that is your business flash update. heading out to the market's best. focusing on winners, including

some involved in mergers and acquisition. for every four stocks down, one is a. one of them is tyco. two days up 12 .8%. just today it is up 10%. the reason for this is because of inversion. johnson control is based here. basically merging with tyco based in ireland in order to save on taxes. in ireland the tax rate is 12.5%. project did it will be a $650 million savings once it is all said and done. commercial fire and security company. when as high as 7.7%. -- wynn. at the highest since

january 8. the reason is because the ceo has decided to increase his stake in the company between january 20 and 22 he bought $32 million worth of shares on top of 64 million he did in december. now he owns 11.6% in the company. mattel.ing is up by nearly 3%. since january 13 because they have been upgraded to a conviction by at goldman sachs. at goldmann buy sachs. this is because of increased positivity for core brands like rv. having the best holiday season in years. alix: barbie is making a comeback. you would know because you have a daughter. alix: she is 15 months.

oil prices dropping again after saudi arabia said it will not reduce bending on energy products. cohen andichael professor at the bloomberg -- the booth harvard business school talk about why oil prices have been somewhat muted. our economists believe it is something that will take a couple of orders to pass through. the first thing is we have had all of these changes in foreign exchange so the dollar has continued to strength and. it hurts u.s. exporters and hurts demand for oil. the other thing is we have had a lot of subsidies to be removed over the past couple of months. cap is our changing. pass-through of oil -- lower oil to the computer. it has come through much more in

states.ed when we see this very high correlation between oil and the stock markets, it is important to understand what is causing it. they can mean the same thing. it can be difficult to disentangle what is causation. moving up and down and relation with the stock market because it is a demand side talk driving oil and this market. when it is a supply side issue affect and the market, we can see that correlation start to break down. >> we have seen a lot of economists reversing their decision on the impact. pot is it is a tax cut. the reality is they're back to spending more money on fuel. fracking itself accounted to 3.5% of all gdp rose.

when this grinds its way down to the number of, wells being drilled but not 200 --ed, which is a which is 200 days of not being used, people are's ending $200 million to putting a cap on the whole, the supply is there. reassessedple have of fracking in realizing the u.s. is a domestic producer and realizing it is hurting us. >> supply or demand or both. >> it is both. right now demand side is dominating. even though we are coming into the timeframe during the first -- ter where the you one

yuan is coming back, the market has known about this for quite some time. when you look at what the trend has been over the last eight quarters, we have not divert .ery much for physical demand where we have to verge from is physical supply. then in demand in almost every single quarter. int is expected to continue 2016. cohent: that was michael in the finance sector columbia business school. alix: still ahead, another management shakeup is shaking up twitter. is there a silver lining to the latest shakeup? ♪

scarlet: welcome back to bloomberg markets. i am alix steel. another management shakeup at twitter. continuing to fall after losing half of their value and 12 month. -- in 12 months. is the head of it went -- internet equity head of research. give us a sense of what these departures mean. you did say some are voluntary, some are not. give us a sense of where this is headed? >> it is unfortunate we are seeing that sporadic , onencement of departures after another. i think what we can see from this is this may not have completely all been voluntary. dorsey placingr.

himself into the product chief spot. he is the product founder. two people doing the same job with kevin wilder there. i think him putting himself there could be part of a broader plan. what kind of execution delayed to you and dissipate with the shakeup? -- do you anticipate with the shakeup? >> i do not anticipate too much. alix: he can do it all. >> these are broader, longer-term product plans. you can argue they may not have had the same plans and ideas for twitter, jack dorsey now trying to ask and we getting rid of the minimum characters, so you could potentially see the planned change from what we have seen

recently. i think the longer-term vision is something he can execute against, but i think we will see ,hat the corridor one guidance but i do not think it will be that material. scarlet: there is also a corporate board shakeup that may be in the mix. >> i have been calling for a board shakeups in a one. what we've seen from the previous order is mixed execution, keeping the wrong people in place. shakeupor a full board is a great thing. if you can bring in some type of media personality, because this is a media company macromedia destination. i think you can really shake things up at the company. we have seen the prior board not being able to execute given that

performance. the price continues to fall, we keep seeing the price continues to fall. who would want that kind of not asrate? >> growth attractive as you would like. this is still the company growing 30% plus on the top line. these are real numbers we are talking about. at this inside they have over 300 million users. it is not as much the growth they are fine but the interest graph. yet the interest profiles. that is incredibly difficult to replicate. the question is how do you monetize that? the biggest question, what is the pace and trajectory? i think everyone is looking at the management exit as a doomsday scenario.

what is the trajectory of the monetization? that is what we will have to see. right now, we are sticking with it but we will have to see what the report on february 10. scarlet: thank you for your time today. we have allahead, heard breakfast is the most important meal of the day. it also may be the most important item for menu -- mcdonald's bottom line. more about this when we come back. ♪

alix: from bloomberg world headquarters in new york, welcome back to bloomberg

market. i am alex deal. steel. this extends as 2012 decision that struck down automatic life terms with no chance for parole with -- for teenage killers. those convicted long ago must be for life sentence. the extremists who carried out the paris attacks committing other atrocities. all nine militants seen in the video died in the paris attacks or aftermath. seven were seen on the video were beheading cap to this. iran emerging from isolation. the president arrived today in

rome. searchingg california for three escapees in california. they did 15 hours before the absence was noticed friday night. the prisoners cut steel bars and made ropes with bedsheets to escape out. not clear yet whether they had hoped from the -- help from the inside with their escape. global news 24 hours a day powered by our 2400 journalists in more than 115 or -- news bureaus across the world. back to you. scarlet: earlier today mcdonald feet fourth quarter earnings that beat estimates. -- beat fourth-quarter earnings this. the best number and almost four years. isx: the number behind this the all-day breakfast. joining us is great geo-mona.

the big question here is a pop in breakfast sales sustainable to drive a turnaround? yes.would argue, keep in mind, they just outperformed the industry by 290 basis points. that is a big number for them. it is a sequential improvement from the last quarter. the last time they turned the business in early 2000 they had almost 10 years of sequential improvement. same-store sales growth every month. i do think this is a material turn for them. it gives them at least another three or four quarters of growth on the breakfast time before they significant -- before the implement a more seven -- significant value growth platform. big: she is a very breakfast skeptic. one thing i have heard

is perhaps this can of alliances sales. this tends to be a little bit cheaper. the guy who came in for a big mac, does he trade down for in a mcmuffin and- egg does that hurt sales? eventually, does this hurt them and bring sales down? that was our initial stance, that it could be a drag on the average check. what they have indicated in the past is more than 15% of the transactions outside the brick this include breakfast all day item and the average check is actually higher. so the consumer is actually adding on breakfast all day items. it is driving the mix up, not the other way. scarlet: of value meal less brown just for fun. eggs are relatively cheap,

so are they making more money in that ends? writes obviously you saw big mac, that is one dollar more expensive. i think on a margin percent .asis, you are doing quite well any time you move your average check higher, it is great for overall profit. scarlet: in the conference call, extendhlight is a will all-day breakfasts to australia. what indication do we have that all-day breakfast will play just as well out by the united states? >> in australia, that is a market they have done pretty well so they must have the research. people in the u.s. demanded this for decades. how could it not exist? it seems like there were they just tackle issues. they figure that out in the u.s. , and now they are saying next

stop australia. upgraded shares before this. where is it now stealing market share from? >> it sounds to us like they are getting it from the initial indications that you are getting it from just about everywhere in quick service. it is a big category. scarlet: steve easterbrook manus to save off pressure from the real estate holdings. will this be back on the table as an issue? >> i do not think it will come back on. the fact that they have names for sales moving in the right direction, i think same-store sales will move on in the right direction. personally, i do not think it was the right decision. if you saw the real estate now, you would be giving it to another landlord. .hey were all under one roof

does not make for great negotiations between mcdonald in their franchisees. after you are reporting of looking at the quarter, where are the worries bots now? >> guest traffic was still down. that quarters that led up to this one. the question is, can they ? all-day breakfast bringing people into the restaurant. they did something that they had a hard time doing, ringing buzz to the brand. the question now, how does it look as we get a couple more quarters out? at they turned it around or a sales bump from in meantime, they will benefit from the lower commodity costs. benefit down one point 2%. we have seen when commodity prices come down in casual dining, the discount to drive traffic. i don't know if commodities coming in is best thing for the

restaurant space. it sounds great on the surface on the margin but you see a lot more discounted, especially when gas prices and commodities are down at the same time. scarlet: i would like to going get some hashbrowns. i like that in concept. alix: thanks guys. scarlet: coming up, good news for workers in london. why they are seeing higher paychecks this year. alix: that's another kind -- moving their company to ireland. we will tell you that the latest move to the emirates i -- emerald isle. scarlet: david golding gives us his take. ♪

scarlet: you are watching bloomberg. i am scarlet fu. -- deliverfor the strong quarterly results, but what are the plane to do when it comes to global x mansion? and -- global expansion. scarlet: we dig into the numbers for a bigger bonus this year than last year for london. the numbers. mcdonald seeing sales forecast in the fourth quarter because of demand all day in the u.s. and planning for rapid expansion in china. the remain confident in

importance of this market and the strategies we have in place to make band the brand further. in fact, we plan to open more than 250 restaurants in china in 2016. alix: russia's economy shrank by the most since two thousand nine blast her. a strength by two point 7%. falling oil prices and economic sanctions of the ukraine art blame. --are to blame. scarlet: italian stocks are turning out to be the big losers of 26 team. worrying about slowing debt is to blame. the chairman of the four italian banks spoke to bloomberg. >> today the italian banking sector are situation is no worse and possibly better than what it was a few months ago. on top of this, i think it will be important to compare an italian banking sector with many other countries after.

potential to a international investors. all options are being considered. the oil reserve will not be put up for sale. scarlet: within a third of financial investors six act of bigger bonus and they got a year ago. senior executives predict average bonuses will be about 100 warty $3000. -- 143, 000. nasdaqow going to the where abigail doolittle is live looking at sandisk. right, the worst percentage performer today. the nasdaq down after shares were downgraded to an underperform from outperform. quite a big move drum and analyst to seize week this in the market and a higher deal risks with western digital.

he said would be difficult for western digital to walk away. due to extremely distance dock prices, complications can arise that would allow for that to happen. western digital and dan discard down severely this year. turning to another chip acre, intel shares are up today. mccoury raised the rating to outperform from neutral. the firm sees potential upside after the firm under shipped in 2014 after it offered disappointing outlook just two weeks ago. the stock down 13% year to date underperforming the nasdaq. a look at one of the best performers, o'reilly automotive. it is up sharply after it was upgraded to a buy from neutral. it is believed the auto market perform should -- the auto market should perform well this year. >> thank you so much. i was noticing when we

look at what is going on today, things have calmed down. come inside the bloomberg terminal for a look at the intraday point swing. this measures how much of a point swing move there is in the dow industrials on a daily basis . last week of peak of 538 points. and spend we have been trending lower. then we have been trending lower. some of stability returning to equities right now, even as oil prices continued to sink lower. part of this is goldman, but also, 17 point two caterpillar. caterpillar is the commodity story. , but nott a relief holding on to that. i will tell you why we saw that rally. you are looking at the short

position. extremely high. they did come off last week. meaning you can attribute this to short recovery and nothing fundamental. it appears like a continuation of the oversupply tory we have been talking about. people trying to figure out the relationship between stocks and oil. now when oil prices are rising comes stocks are getting a lift. everyone saying that is not how it is supposed to work. liquidating funds is all global market. scarlet: earlier we had a professor at columbia business school beating about what is likely ahead for the big hedge fund managers this year. >> these things come in waves. if you go back to 2010, dan druckenmiller, a la greeny

started and stopped. ligrino was the right hand man. that weibo card. now you look at someone like rate that leo, lewis vacated, you can see a lot of the movement. i think what the numeric numbers will collapse people playing try -- playing tagalong. profit forof the what in many cases was nothing but profit return. basically all of those guys who said i do not like what i'm getting pain here, i am demand, i will start my own mind. they realize the hedge fund thing, not so easy. necessarily, though yes. button -- hi hedge

fund traders. they're one of the few that can profit. the guys that will really get caught are the activists investor guys. if we look at the correlation -- >> when you say the activist guys are going to get caught. >> the correlation is 0.85. incredibly high. if you go back five years, there has been two months in which the s&p has been down. in which the activist has not gotten caught. the so-called activist because a lot of them are beta. rotating into more market neutral strategy. potentially mortgage-backed rates. potentially the biggest out there have been global macro launches. >> don't you remember last year when the macro was so hard last

year. mike nova grants shut it down. -- mike nova grants shut it down. >> that is right. it is part of the generational shift when a lot more people are doing it. >> where are the global hotshots going to go now. if hedge funds are not the place to go, where are they going to go now gekko >> everyone's hope is private equity. most likely, they will stay at goldman. suddenly there friend who quit and was a big hitter, does not look so much. of hero, started a fund their in africa. now he is launching a macro fund. chat --otten another chance. that does not happen very often. if you are good and doing something non-core related -- look as scott jensen raising

$4.5 million. ask yourself is the demand for non-core related assets going up or day man -- up or down? people will realize a lot of the traits they have seen previously as being hedge fund return was the activists -- >> private equity funds have learned their lesson five years ago. we saw them not do very well under carlisle. some of the private equity firms are saying maybe these are not for us. buy desks and to that is a bad idea. alix: finance professor at columbia business school earlier this morning. scarlet: johnson controls becomes the latest company to move to ireland to lower the tax will. m&a details next. ♪

alix: welcome back to bloomberg markets. i am alix steel. scarlet: another well-known merger is taking another merger to ireland for lower taxes. johnson control is going to ireland. welch.n detroit david that was a little complicated. take us through the specifics of what will the deal look like. --whatll it be gekko >> will it be? >> they have a business technology business. that is what is merging with the old tyco. you will have an industrial conglomerate that has paired itself down. it will reach domicile to ireland or the corporate tax rate is 12% instead of 35% like it is in the u.s. and you get a

lower tax base. for them, they all when. in.they all w scarlet: to what extent will they need to tap the debt market? the pro forma company will be levered somewhere around three times a bloomberg analysis on that. that is typically a little bit higher than that to have a company rated at the johnson controls level. those bonds may be impacted the most. currently a little over $2 billion out the ending. alix: we are seeing the share price drop a little bit. when you look at the deal overall, what i find interesting is it was much more interested in the auto parts part of the business but trying to reduce reliance on the auto parts sector. why is it doing this?

it is focusing on the downside. lot of thinking on wall street got all those are near peak -- are at peak or near peak sales. this might be as good as a get or next year and then things start to go down from there. parts.e selling they're not selling the carts. more than 50% of sales that about a third of profit. the margins are much lower than they were in the building's nest. there has in a diversification business. that is why you have seen a lot of the companies selling off pieces. this everg to do since he took over the company two years ago. johnson controls once to be an industrial company. out?is left to now's been

>> if we're talking about the former tyco subsidiaries, the one we're talking about the most is tyco flow that i merged with pent air. this is mid sector that is very unique in that there are hundreds and hundreds of companies out there. which in equities eight, is looking for a consolidator. it has the ireland tax rate. there is an advantage in terms of cost energies and tax synergies if they become a merger with other companies. business is adt, home securities. there may not be a global market where you can maximize the tax benefits on that business. scarlet: talk about what this deal does for the other businesses. do you see a flooded business opportunity the way we in karma

-- in pharma? >> there could be. there are a fair number of companies in ireland. maybe someone merges with them. there are not as many in pharma. not only domicile companies but you can free domicile patents. you put a patent for whatever drug it is and all the revenue that runs through it can be taxed at that phase. alix: thank you very much, david welch joining us and david levin in this video. up, apple will be reporting earnings tomorrow. will falling iphone sales that were investors? sour investors? ♪

alix: it is 1:00 in new york, 6:00 in london, and 2:00 in hong kong. scarlet: welcome to "bloomberg markets."

from bloomberg world headquarters in new york, good afternoon. i'm scarlet fu. alix: i'm alix steel. there is heightened concern china's economy is headed for a hard landing but not everyone agrees. we will hear from one analyst to says the worst may be over. scarlet: was canada's the business elite able to sell the country in douglas? -- davos? hard apple is having a time this month. is earnings enough to restore confidence? scarlet: ramy inocencio has been tracking the moves in the market. back on the downtrend again. ramy: but we are off of session lows right now. take a look at the s&p 500 intraday.

the dow and nasdaq are doing similar movements. .4%, but really we are largely tracking what's happening in energy and the finance sector as well as materials. let's also look at the s&p for the entire month. your today, we have been following what has been happening with oil. then the middle point of last week, ecb president mario draghi said he could pull the trigger on more stimulus. we saw an uptick thursday to friday, the best rally in about three months. happened with today with saudi arabia saying they thisnot hold back on capex year, and china saying diesel is on a four-month low, we are seeing a downtick now. s&p now down about 7% year to date. health sector the

using the imap function. eight out of 10 sectors are now in the red. earlier it was just telecommunications. really no surprise, energy is the biggest laggard down, down by 2.75%. financials also done 1%. taking a look at energy stocks, the oil majors, crude oil is down near session lows, down by 4.8%. as i mentioned about saudi arabia, when word came out about that maintenance of capex spending, we definitely saw that plunge in the oil price. looking at the oil majors right now, we are seeing they are down or the most part, the most since wednesday, chesapeake energy down the most by 9.5%.

those obviously also leverage natural gas, which is down. gold is back as a safe haven? gold as you would expect, and u.s. treasuries are seeing an uptick. gold up by 1% now. taking a look at the u.s. 10-year, the yield is falling 1.5%, now down to about 2.2%. scarlet: thank you. alix: let's get a check on the first word news with mark crumpton. mark: nearly 30 are dead and another 65 wounded after a suicide attack in cameroon. say for attackers were involved. two detonated explosives at the market and two others move themselves into the town of bodo near the town of nigeria. in greece, prime minister alexis tsipras marks when you're in

office with another crisis. he is heading toward another showdown with creditors over the countries social security reforms. he wants taxpayers to raise contributions while not cutting pensions. ajapanese rocket maker has large piece of explanation for a piece of agreement that washed up on the shore of thailand. they say it is not part of the missing malaysia airliner. at least 30 debts are blamed on thesnow storms that clobber northeast this weekend. government offices are closed in maryland, virginia, and the district of columbia. republican candidate ted cruz has won the endorsement from rick perry. the endorsement from his fellow former governor is one of the most high profile to date. harriet abandoned his second race for the white house after

just 97 days. will bel due respect" live from des moines, iowa all week ahead of the caucuses. they will have extensive coverage beginning at 5:00 p.m. new york time. scarlet: thank you. there are some signs of stabilization for china's of economy. tole manufacturing continues deteriorate, small businesses and the services sector is showing some resilience. got athis morning, we look at this discussion. this is simply not borne out by the data. china is growing at close to 7%, if you discount that for different measures of gdp.

still the fastest growing economy in the world. significant problems in the manufacturing sector because world trade is down your on your by about 12%, and has been at that rate of decline since last summer. for certain sectors in the chinese economy that's a problem, but for consumer, tech, and services, still growing. china is still importing oil at an increasing rate. the trend line still points straight up, where oil imports are stagnating everywhere else in the world. the problem from deflation has come from the central banks, particularly the fed, not from china. i spoke to george soros about this and he says a hard landing is actually inevitable. longe chinese left it too to address the changeover in the growth model they have to adopt

domestic-led.t, a hard landing is practically unavoidable. >> this is something that you refute. i also led a panel discussion on china, gary: saying we need to figure out whether the chinese want a free market or not. obviously, has a long transition to make. the hard landing premise -- i wish i could say it in his accent. china has an enormous credit bubble that will lead to an worse amount of pain. -- an incredible amount of pain. we go over the books of every public traded chinese company, and we estimate the nonperforming loan rate among chinese banks. rumors that it would pop up to double digits, which would not a 2008-style crisis or

european crisis, but our estimation is they will peak at about 4%. what a lot of estimates miss is that china has vast resources of savings. corporate, household, and government. china's default rate for corporations is likely to be considerably lower than the pessimistic estimates. foot youselling at the are just around book, we think, hong kong banks are cheap right now. 4% seems pretty low, and if china tries to rebalance, it needs the consumer. >> we put the balance sheets of about 2500 trading companies through our standard credit model. we looked at their sales growth, we stressed the model, and we came with a range of possibilities. 4.3% npo rate overall, remembering that the consumer is

very strong, vast amounts of home-equity. taking the banks as a whole, double digits, i think, is a fantasy number. this is a soft landing scenario based on our numbercrunching, as opposed to soros -- you can wager arms and say there is a crisis, but the data does not support it. alix: that was david goldman on surveillance. scarlet: coming up, the russell 2000 in its 10th bear market in the last 35 years. the worst may not be over. alix: it is not just a small caps on are in trouble. one analyst gives the biggest dangers for stocks. scarlet: when oil declines, stocks often fall with them. but why?

alix: welcome back to "bloomberg markets." i'm alix steel. scarlet: i'm scarlet fu. it's time to get a look at the biggest business news right now. arees of kimberly-clark falling after posting fourth-quarter sales and profits that missed analyst estimates. alix: twitter is losing for members of its executive team. the departure comes as the company tries to revive growth after it stock lost half of its value in 12 months. meanwhile, a person familiar says twitter will add two new

board members to help it through the turnaround. scarlet: the ceo of valeant pharmaceuticals says he does not know when he will return to work. michael pearson was hospitalized last month with pneumonia and has been on medical leave. his absence comes at a top time when the company is under scrutiny for pricing as well as a relationship with another drug company. that is the bloomberg business flash. go over to the markets where ramy inocencio has a look at some of the movers. netflix had some strength earlier in the day. the management is meeting with oppenheimer funds here in new york, and they are having a luncheon. it will be interesting to see what comes out of that. taking a look at the share price, it is going sideways, about .7%. out,hing i want to point january 20, oppenheimer did

reiterate and outperform on the netflix share price, raising it to $140 from $130. interesting to see what comes out of that luncheon. i want to compare netflix versus the nasdaq 100. netflix shares are underperforming the nasdaq 100 in the past week or so. down by 2.5%, the nasdaq 100 up by 3%. if you look you today as well, something of a similar story. netflix has lost 11%. an interesting turnaround from last year when netflix was the s&p darling, up 135% or so. that said, let's go over to some chipmakers. let's go to sandisk. sandisk is falling, down by 8.9%. has is in part because clsa cut his rating on the stock,

lowering their price target to $70 from $86. the analyst say it will be very difficult for western digital to walk away from its sandisk acquisition due to demand weakness. in the chip sector, let's take a look at what is happening with western digital and seagate. .oth down about 4.5% this is after jefferies cut price target for both companies, $95,rn digital, $82 from $235 fromrom $35 -- $46. scarlet: thank you. on the markets, small caps have not been much harder than a large cap peers. the russell 2000 tell 23% from its high in june, entering a

bear market for the 10th time in the last 35 years. scarlet: more declines are in store, if history is any guide. barclays looked at the previous small cap bear markets, and in the average decline was 36%. majority, the declines exceeded 30%. this is 2011. it was brief, but he did not extend into large caps. alix: overall, it seems like large caps fall on average 16% going into small-cap territory. that is unusual because you would think that small caps would do well with a strong dollar. this looks at the two. russell 2000 in orange, russell 1000 as well. with the exception of 1987, you can see how small caps underperformed. scarlet: it is that flight to

perceived quality in the larger caps. also, not the canary in the coal mine that you might expect. we have only seen small-cap bear markets lead to significant losses in large caps two times, 2000 and 2007. fairly recent when you go on way back to 1980, but on average, large caps fall about 13% after a small-cap bear market starts. two longck out those lines, the average is about 7%. alix: not too bad. the question becomes, how long does this bear market continue? barclays crunched the numbers as well and said it takes about three months or a small-cap to bottom when they enter a bear market, 12 months for those stocks who reached their prior highs in a typical recovery. the month from bottom to recovery are the blue lines. it takes a while, but about a year. scarlet: nevertheless, when you

look at how things are unfolding in the small-cap space, it is a bit concerning. this is another way of looking at it, the ratio of the russell 2002 the s&p 500. what we see is the ratio at its lowest since late 2009. a lot of people pointing to this as a duration of fundamentals. but when you look at how things shake out, a lot of it is tied to sovereign wealth funds or perhaps mutual funds trying to get rid of things quickly. alix: not the end of the world at the end of the day. ripple effects from china and the u.s. markets suffering their worst start to the year ever. economic slowdown eventually catalyze the recession? ♪

welcome back to

"bloomberg markets." i'm scarlet fu. alix: i'm alix steel. this year's volatility can be attributed to many fact yours. scarlet: he uses the acronym court to look at the headmans we are facing. with joins carol massar more on his analysis of the issues. i want to thank everyone in bloomberg tv, thank you. this is the bloomberg advantage in our studio in new york. david bahnsen is with hightower. he is talking about headwinds that clients are facing, and you call it core. c stands for china. probably the other easy one, oil prices. r is recession concerns, fears about recession pending. e is earnings slow down. highlythose elements are correlated to one another, but we think it's a helpful breakdown of the major

headwinds. are they insurmountable headwinds? >> probably not. maybe in a short-term volatility that is created, but some are much more fundamental than others. the earnings slowdown is the one that we see the most genuine concern. slowdown becomes significant enough, even minus energy, that could make it last longer. the others are transitory. carol: when you look at the market trends, we have -- so many people were calling for a correction last year. to some extent, it's good to see some of this happen. when does it become more problematic? fears would ben real problematic because that is not priced in. ongoing volatility from china has come in the last three weeks, become priced in. certainly, oil prices will need to recover, but the u.s. recession -- which we don't

think will happen in the next year -- but is priced in, if it were two. carol: we had david leavy on earlier who has been pessimistic for some time, but is talking about a global recession because of what's happening in the emerging economies, whether it is china or elsewhere. can the u.s. withstand a recession in those emerging economies? >> it's interesting because we have essentially been in recession in russia and brazil for some time. i think certain sectors will not it a lot better than others, but as far as going to actual negative gdp on a global basis, if china stays north of 5% growth, it's unlikely to happen. the u.s. can withstand it, but it will not be a robust v-shaped recovery. carol: let's talk about some of the names. you came in with some particular names, a bunch of the energy space, which i find fascinating.

magellan midstream partners. down about 11%. they also pay a nice dividend. example of a stock that has come down because the whole space has, butis --is in al fundamentally different place than stocks. they have more dividend distribution than any other midstream mlp out there. healthy debt ratios. but the whole space has come down. name that weype of always think a value investor wants to buy. carol: you also like enterprise products for similar reasons. >> even more opportunistic, even with his downturn. is 7.5 right now, very attractive. carol: talking about the energy space, anticipating more consolidation. you like a couple of the

big-name integrated oil companies. >> i do now. they have clearly shown that stability. exxon, chevron, to a lesser extent, conoco. we are buying chevron for that reason, higher yield, balance sheet that will withstand. the other side of it, they will benefit from this, swallow up some of the enp people that cannot make it. carol: outside of energy, what else do you like, financials? we do. a lot of it is that the idea of net interest margin have been priced in. the fed raises rates allow all -- i think that story was overdone. if you look at j.p. morgan, incredible balance sheets strength, and all of a sudden drops 15%. a great entry point but definitely a longer-term play. we think they are in a

healthier place. carol: earnings from at&t in about a week. >> they have a lot of ability to make some accretive acquisitions. at&t, j.p. morgan, these are names that you want to own if things struggle a bit because we think they will be more defensive. carol: thank you so much, david bahnsen. back to you in tb. -- tv. scarlet: thank you. alix: still ahead, oils and equities usually move in tandem. we will explore the impact on the price of oil for the stock market. ♪ 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. alix: from bloomberg world headquarters in new york, welcome back to "bloomberg markets." i'm alix steel. scarlet: i'm scarlet fu.

let's begin with the first word news with mark crumpton. mark: michigan's attorney general has named a special counsel to investigate why residents of flint had to use water.inted governor rick snyder has apologized for regulatory failures and other incidents that led to the crisis. federal investigations are also underway. the u.s. supreme court is rejecting a pennsylvania inmates appeal to consider banning the death penalty. the justices did not comment in turning away a challenge from death row inmate shawnda walter. justice stephen breyer called for a review of the penalty because of the way it is imposed. reportsciated press that the failure forced a husband and wife behind the attack to drive around after the shootings that killed 14 people. they were allegedly trying to

set up the remote-controlled bomb. investigators say the couple planned to use the device to kill first responders. state john kerry says the u.s. may send more money to help clear minefields in laos. he is visiting the country today. until recently, about 300 people were killed every year by vietnam-era unexploded bombs. third u.s.ly the secretary of state to visit laos. thank you so much. falling oil prices have been a major drag on the stock can this year, so why have stocks dropped in tandem with oil? scarlet: ubs equity strategists others talked about this this morning. >> there is no doubt the correlation between stocks and oil have been tight in the last

couple of months. investors viewing oil as a proxy for economic weakness. you can argue that there is certainly an element of demand saudi'st clearly, the and others are keeping pressure on the supply. so it's not entirely as clear a message as the markets are interpreting it. was saw that sandridge filing to potentially set the stage for a bankruptcy, a u.s. shale and gas producer, probably going to be the next one to go. their bonds have been going down dramatically in price. the real effect of oil prices at least a will have negative effect on these economies with these companies going out of business. there is the detrimental effect that does directly affect growth in the u.s. big effect on a the consumer.

with,eek, we were leading think of the negative impact, and it is an impact for producers, but for the rest of the economy -- really, it is a cognitive timing issue. we have looked in past instances where you have oil price declines in the 1980's, 1990's, and the consumer did not spend right away with that savings, similarly as they have not gone into spending this time. but what happened was there was a lag. met with a wall of china uncertainty, political uncertainty, and i don't think we can discount the importance of political uncertainty, and an escalation of violence at the end of the year. wondert of ways, it's a that the consumer is as confident as they are. david: you make a good point, said, is what david cohen that we are using oil as a

signal for the economy. a lot of services do not require oil, so maybe it is not a good signal for global growth at all. a certain extent, but it is not just china that is transforming the economy. part of the frustration that economists have had is, how do you measure consumption? it is very difficult to measure things that are being bought off of the internet, small sites, ridesharing, room sharing. all of these things we don't have a way to measure accurately. putin is having a pretty rough time of it, and it is presently oil for him. yes, a very oil-dependent economy, but in a way, he seems to have exercised a lot of his distracting means when it comes to the public, in terms of what he has done over the last year. it could be that there could be

sufficient pressure that there could be some rapprochement at some point with the u.s. david: what are his options as a practical matter? pretty good inflation going on in russia, the cost of oil keeps down and a lot of the economy is dependent on it. does he have to cut back fiscally, on the benefits that people are getting? >> it is a difficult situation. it is probably going to be some sort of structural reform, but things like that take time. oil, how discussion on it is not a good proxy for the economy, how there could be the problemects, that has comege into the system based on oil, in a country like russia, which has a whole lot of debt outstanding, like other highly indebted countries that depend on oil prices going back up, that will have a substantial dampening effect on the economy for a

longer put two of time before the shakeout happens and oil prices can be a positive. tophanie: last week we spoke the president and ceo of roosa. the name of the game across commodities is simply to be the company with the most cash on a balance sheet. entirethem in a in the sector could end up being a long-term positive. if you are a small or midsized guy and you are getting choked out. but if you have the staying power and have the cash on your balance sheet long-term, you could end of being a real winner. >> absolutely. we saw this throughout the early and mid-1990's, when commodities were in a depressed state. the strong hands survived. i would argue most of the operatives running the major companies are a function of that environment. they remember that environment and know what to do to survive. that was earlier on

bloomberg . for more commentary, type gad on the terminal. i talked about this correlation with the head of commodities at goldman sachs last week, and he says when you have oil and stocks moving in tandem, it tends to be a demand story. using a is you are not lot of oil, demand is weak, so that says something about global growth. but this is not it. you're inen oversupply, you have stocks and oil moving in opposition. scarlet: we are so jumpy right now, anything that could potentially spell a decline in demand is prompting people to selloff. it just goes to have distorted markets can be in certain arenas. scarlet: coming up, inc. canadian dollars for a head of cauliflower. the loonie has declined to its lowest since 2003. taking a bite out of

apple's core business. will iphone sales slow, as analysts are expecting? the fed meets for the first time tomorrow since ending a nearly decade-long zero interest rate policy. will they hold off on another increase? ♪

scarlet: welcome back to "bloomberg markets." i'm scarlet fu. alix: i'm alix steel. look at theo get a

biggest stories in the news right now. morgan stanley says it has name on hundred 56 employees to the title of managing director, five more than last year. more than half of those selected work in the investment banking and trading division. the total includes 33 women, 21% of the class, roughly unchanged from 2015. scarlet: apple is planning to introduce a smaller version of its desktop in march. it will reportedly retail for less than most of their other phones. former pharmaceutical executive martin shkreli is getting more time to appeal his case before congress. the major snowstorm delayed his hearing. he was supposed to appear tomorrow but now the house committee and oversight on government reform plan to hear from him february 4.

let's go over to the markets desk ramy inocencio has the latest. looking at some of the stocks most talked about on social media. ramy: i am looking at a function looking at the bloomberg social velocity monitor. this is what it looks like if you had your own terminal at your home. basically, when you can see is how popular something is based on what is happening in social media. these are the most popular things right now. right at the top, talking about mcdonald's. theth is surging after all-day breakfast, 5% same-store sales. johnson controls also with that in version with tyco. caterpillar, twitter, d.r. horton. twitter's share price, of course we know not doing well, if you are in the long, down by 3.5%.

see song within a newer range right now, trading at $17 and some change. the reason for this is because three analyst downgrades. stifel is downgrading to a hold from a buy. city has a neutral rating. for this, as we have been reporting, twitter has lost four of its top executives over the weekend, including its product had, engineering, and vice president of marketing. also, caterpillar, down 4%, downgraded to a sell from a neutral. price target down to $51 from $67 at goldman sachs. about 4.5%. down by it turns out the growth in new home orders were slower than

expected in q1, only rising about 9%, the estimate was 12.5%. 35% this time last year. scarlet: thank you for that context. elitecanada's business talked about the country's potential as a high-tech hub last week in dominoes, but high oil prices and a plunging currency is not helping. consumers are now starting to feel the sting of higher prices. a head of cauliflower is now eight canadian dollars. scarlet: so did the leaders managed to win over the political and business elite at the world economic forum? ritchie is with us now. were you one of the people tweeting out about the eight dollar cauliflower? i was not. i don't know anybody other than what who likes cauliflower.

certainly popular on social media. justin trudeau making the pitch to rebrand canada, and innovative workforce with innovative inclinations. that canada does not need to be so relying on natural resources. most people think, yes, diversification will take hold, it will get traction eventually, but the truth is it will take time. even this rebranding effort is up against a low loonie and all the rest that we know. alix: a tech company would be a tough sell. you have nortel and then blackberry, which is also struggling. not a lot to sell here. >> not at the moment. that said, lots of discussion about innovations in canada. lots of small company that ultimately get bought out by bigger american companies. there is a push by the new government to hold on to the medium-sized companies, keep them in canada, help to develop

them. lots of ongoing discussions about that. one part of the market that is getting hit, canadian bonds. ,fter the 2008 financial crisis provincial bonds across the country were actually a safe haven. lots of foreign money was put into them. in the last little while, bond yields widening against the canadian bond peers. of course, this is when provinces need access to markets, trying to stimulate and spend, at least looking toward those avenues. the oil-producing provinces, newfoundland, saskatchewan, alberta, the ones being hit the hardest. scarlet: good perspective, thank you, pamela ritchie. alix: speaking of dominoes -- some of theoke to heavyweights on their thoughts about the fomc this week. >> if they cut rates, i would be

stunned. i would be very surprised if there was an increase. >> potentially they tighten once more this year but i'm not a believer that they tighten for more times. >> march is off the table. even april is shaky. >> i will say one or two. the forward market was way too worried about fed actions. >> growth has been disappointing. now you have this turmoil in energy prices. the fed's credibility was on the line. if they did not do and then, then when? i think they should wait and watch. >> does she have to hold off? think, clearly, on employment continues to maintain these levels. handle one a 4

unemployment. that is extraordinary. also an inflation path to get to 2%. >> one of the things we should do is get the fed out. i think they have caused some of the overreach and the bubble in assets that we are unwinding. i believe the sumer they get out of -- sooner they get out of the management of the economy, the better we will be. >> i believe monetary stimulus has served its course. once you are in this situation, how do you get out of it without creating an abrupt change in asset prices? >> no doubt, the federal reserve can be effective in tightening monetary policy. if they are a little late and then tighten monetary policy, no problem. but they are not as effective at easing monetary policy -- pushing on the string is a real issue. what they have to do is waiting for inflation. alix: it is the eve of apple's

earnings. they will release their numbers tomorrow after the bell. some analysts are betting that iphone sales will fall for the first time ever this year. we will have a preview. ♪

scarlet: the shine may be off apple. shares have been pared down 12% from its last earnings report. overtors are anxious possible weakness in sales of the iphone. of course, the product mix up two thirds of their revenue. just we will apply that how well it is selling tomorrow when apple opens the books on its fiscal year. we want to ask adam satariano

who joins us from san francisco. what is the iphone number that will freak out investors? >> investors are looking for something in the ballpark of 75 million, which is an extorting your number when you think about , they arer apple getting into the law of large numbers, where they are heading the limits of what is possible to sell. when you look at a company, a technology company where investors are looking for apple is growth, clearly showing signs of slowing down, and that is why you are seeing some pressure on the stock. scarlet: what of other gross margins part of the equation? we have the s cycle of the iphone 6, and those usually carry higher margins. >> that is something that investors will be looking to, have been buying back shares, which can push up the earnings-per-share. but the bigger picture here is really what the situation is in

the global smartphone market. years,as benefited, for of a rapidly expanding market, where people were adopting this form of technology, making it a central part of their lives. now that market is more mature, so apple is having to do with a different situation. it is something that samsung and other companies are grappling with. alix: it seems like the market has really been parading apple in the last two months, the players coming out saying sales could be down by 10%. how much has already been priced in? apple had its worst december since 1997. >> that is why tomorrow will be interesting. apple could conceivably report one of the best quarters in corporate history in terms of the holiday quarter, and the reward for it could be a shrug. so many analysts are looking ahead to the march quarter in and because there

is so much anxiety about whether or not the business is slowing because of these reports that you are talking about out of the supply chain. tim cook has said not to read too much into these one-off reports about what is going on in the supply chain, but there has been so many here, some are questioning, where there is smoke there is fire. scarlet: the question is how well they are doing in china. tougher comparisons that will be kicking in, where apple cannot maintain the 99% year on year revenue growth that it saw last quarter. how prepared is apple to deliver a new product or service that will keep china interested? >> china is a fascinating market for apple right now, particularly when you look at the economic headwinds. the company has said repeatedly that the spark it has not seen any consequences related to some there.economic slowdowns but every quarter, tim cook has been peppered about that, and so

everything he says will be carefully parsed, i'm sure. targethe average price is $141.21, trading now at around $100. what do you feel investors need to see to be more convinced that we can meet the average price target? it is not a particularly sexy thing to say, but one analyst i was talking to earlier said, as long as it is not horrible tomorrow. there has been so much pessimism around the company lately that i think getting some more clarity around how the company is performing and where things are -- willll present present some stability for the stock. in terms of what the product catalyst will be, they have a new phone coming out later in the year. but that will not necessarily be a big game changer, like it was last year -- two years ago, when

they put out the bigger screen model for the first time. there seems to be fewer levers to pull on. looking ahead, investors are winning to see what the next big thing will be. scarlet: thank you so much, adam satariano. a quick check on the markets, come inside the terminal. stocks have deteriorated in the last few minutes. this is looking at oil and s&p minis. right there you can see another wer in oil and stocks. tomorrow, mohamed el-erian, the former pimco ceo, now bloomberg columnist, will join us. ♪

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♪ >> from bloomberg's world headquarters in new york, good afternoon and here's what we're watching at this hour. extendings failing at that rally. setting the tone for global markets yet again. and treasury.ld walmart came in concord and it is now packing up and leaving. walmart shuts down hundreds of stores. super bowl 15 is set. taking on cam newton in the parent -- the carolina panthers big game. was this the best matchup? first, let's head to the markets desk ramy has the latest. >> it has been a bit of a seesaw day in the early afternoon right now. our markets are basically heading a little lower. the s&p 500 is down. the dow jones by about .5%.