stocks closing lower, oil at $28 a barrel. joe: the question is "what'd you miss?" economist say it is a real possibility. >> want to profit from volatile markets? one thing you should not be doing. >> all eyes on twitter tomorrow. facebook and snapchat making growth harder. market minutes, a third day of losses. the nasdaq, fifth the klein in seven days. -- fifth decline in seven days. nasdaq underperforming. faded andoon rebound lost steam. joe: a lot of anticipation for janet yellen tomorrow.

today, it was the quietest day in some time. energy got slammed with oil. alix: there was no rhyme or reason when the sectors did well. staples,, health care, no macro theme. one stock i wanted to keep my dividend.slicing its lengths you have to go to stay alive. the stock was halted for a while. check this out. $15.7 billion in debt. -$1 billion in free cash flow. that shows how difficult it is for highly leveraged companies. joe: another big thing that defined the markets, japan overnight 10 year yield going negative, extraordinary. the widow maker, the japanese

government bond yields, continuing to decline into negative territory with the boj going into negative rates. , peoplelipside, greece getting nervous there. banks getting crushed. 10 year yield over 10%. the highest since last summer. , a lot of destabilization concern in europe. scarlet: as those yields falter, money rushing into the japanese yen. strengthened against all its major peers. another safe haven is the swiss franc, the dollar weakening before yellen's two-day testimony before congress. now approaching 12%, the highest in more than two years. thing in thee same

commodity markets. a lot of volatility and oil, $28 questions,o a lot of will we break that level. goldman sachs says we could see it spike into the teens if we go below cash positive. it's not all doom and gloom. up on the year. this is significant. these industrial tomato these are starting to move on fundamentals. most analysts expect a supply deficit, rather than market sentiment. that is an interesting factor. scarlet: could there be a bottom then? alix: for these guys, potentially. joe: we were talking yesterday about the selloff in deutsche bank, an interesting spot in the capital structure, converting from yield payment to equities.

it's not just deutsche bank. i want to look at other european banks. barclays,ank surging, all of these be a charlie up and to the right in the last couple weeks. veered sharplye feare up and to the right in the last couple weeks. it's not just bad for the coco bonds. it's bad for the credit default swaps. i'm locking -- looking at deutsche bank credit default swaps. it, goldmanlieve sachs and deutsche bank all trading with higher credit default swaps than caterpillar. that was a staggering thought to me.

this is actually a new phenomenon in the market. as of the beginning of the year, caterpillar by far was the one being hurt the most. it is that redline. ever since we got these issues with the coco bonds, that orange line is boeing, boeing also feeling the strain in this market. joe: anxiety about the -- scarlet: i'm looking at industrial production in europe. are year over year moves. germany is the white line, today reporting a drop of 2.2 percent, the worst performance since 2013. even as the mystic demand remains strong. year over year growth in spain, yellow here, also slowing. ofs shows how the weakening global industrial activity is taking its toll on industrial reduction numbers, even with the benefit of a weaker euro on

competitiveness and production. going forward, there may be more pressure because we have seen the euro stabilize. that might see a negative effect in the second half of this year. joe: pretty grim start to everything we looked at today. alix: you can see these charts and more on twitter. our next guest is j.p. morgan chief u.s. economist. good to see you. whoare one of two economist says negative interest rates could be a possibility in the u.s. map this out. >> were talking about hypotheticals. the economy is growing. expectations for the fed rate hike. you have to think about the worst-case scenario. if things get bad and the fed cuts to zero, they may want to follow the lead of other central banks. at last time the fed look this they felt the cost outweighed the benefits. the experience in europe and japan may show that the costs

are less than feared. we should point out there are a lot of differences between the u.s. and europe, some of them relate to political and legal obstacles, the mining markets, so there are still things here that make it less likely we will someo negative rates, but fed officials have indicated that they are getting more open to the idea. think weething i should be thinking about, even if it is not going to be around the corner. joe: former minneapolis fed president put on his blog today, going negative is daring but an appropriate monetary policy. it is a sign of terrible policy by fiscal policy makers. basically saying that what this means is the government should have spent way more, and that's really what this is a failure of. do you agree? >> there is something to that. it shows the freedom he is feeling now that he's outside

the fed. he was one of the most dovish guys on the committee. he was for calling for negative rates while still on the fed. there is something to be said for his argument. >> something making the rounds yesterday, the legality of it or it the fed might not legally be able to do it. the law authorizes the fed to pay excess reserves, which means they can't charge interest. what you make of that? >> this debate has been going on for a while. the fed got this power in 2008. some feel they could interpret paying interest on reserves as a negative interest is a form of a payment, so it depends on how clever and creative the lawyers want to be. we have seen in the past that they are pretty clever and creative. presumably if they felt this was an insurmountable obstacle, we

would not have heard the comments from fisher and dudley that there is an option or possibility, so this is going to be an interesting aspect of tomorrow's testimony. the federalte reserve act. they probably have an opinion on what it means. if it comes up -- one of the biggest difficulties for the fed if we have to go to negative rates is not legal, but the political aspect. it would be very unpopular with a lot of constituents among people who have an interest here. -- precedent is the bank of japan. denmark, anden, switzerland, all adopting negative rates. look at these other countries, other central banks, adopting negative rates, one people -- think people point out a structure their markets are different and so it might be easier.

had a global strategist talking about the different structural things. let's listen to that. have a much more market oriented financial system, which makes it much more difficult to have that system function properly with negative interest a muchso in europe it is more bank oriented financial system, and in japan a much more bank oriented financial system. they can handle these things. it is a much more difficult process in the u.s. as: the use of money markets a funding tool makes it more difficult? >> a little more difficult. that fed memo from 2010 discuss this. -- discussed this. the chief economist at the sec talked about the issue, and he felt like it would not be that much of a problem if intermediation from mutual funds the other markets. alix: do they actually work? that's a great question.

i think the jury is still out because it is a relatively recent experience. one of the interesting aspects, it was adopted in which -- switzerland and denmark with the aim to keep the value of the currency down. i don't think the u.s. necessarily -- the federal reserve -- would want to embark on a policy that aims solely at keeping the dollar weaker, so i think there is an aspect here of it may work for other central banks, but does it work globally. that is a bigger problem. a lot of countries -- if they go negative rates -- is there a benefit. that's an open issue. another open issue is whether it is having a depressing effect on inflation expectation. it raises a concern among some. so far the experience isn't a roaring success that it raises

inflation expectations by going to negative rates. alix: thank you very much. j.p. morgan chief u.s. economist. join us at 10:00 a.m. tomorrow to see janet yellen's full testimony live right here on bloomberg television. scarlet: volatile markets, don't chase returns. we will explain what you should do, next. ♪

mark: let's get the first word news. primary day in new hampshire, polls indicate donald trump has a huge lead. tor candidates appear have a shot at second. meantime, bernie sanders is

favored to win the democratic race. he leads national front runner hillary clinton by double digits. programming note, bloomberg television with all due respect, a two-hour special from new hampshire starting at 5:00 p.m. new york time. germany's transport minister says 9 people killed in this morning's head on crash with two commuter trains, another 90 people hurt. the collision took place in the southern state of bavaria. police say the area is not easy to get to, making rescue efforts difficult. overdoses,e, drug traffic best, expanding why americans die younger. for each of the categories, the death rate is higher than in any other wealthy nation. that is according to research published today in the journal of the american medical association. replacing lead contaminated types in flint, michigan will cost 55 million dollars. the city's mayor announced the removal and replacement will start next month. her's priority given to high risk households with pregnant

women and children. global news 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world. i am mark crumpton. scarlet: thank you. "what'd you miss?" don't chase returns. they are not the same as momentum chasing. can you explain to us what is returned chasing and why is it a bad idea? >> let me give you some background. i was at an investment well renowned a investment manager said, let me start off by asking you the question you should be asking me, which is who is losing all of the money that i'm going to make for you? he said it is returned chasers. reasonable.retty i thought about it. a little while later i say to

myself, that sounds a lot like trend following. it sounds like the same thing. what is the difference and how can it be that returned chasing is bad, where his trend following is considered the best systematic investment strategy. we decided to dig into it and found interesting things in reallyf the subtle, but important differences between returned chasing and trend following. have a chart up that shows how you visualize the difference in a stylized way. what it shows is the return chaser is gradually going in and out of things, where as the trend follower goes totally in or totally out. this the difference and describe why trend following pays off, where is returned chasing does not. >> you described it perfectly well right there in terms of what the chart shows. , when thefollower recent return has been positive, he buys and does not do anything

until the trend has gone negative, at which point he sells. where as the return chaser, what he does is that he is gradually buying, so every time he decides what he is going to do, he adds a little bit, and so gradualism, which seems like a smart and prudent thing to do, actually turns out to be the thing that is hurting him, and actually what we have also found that was so exciting about this is this returned chasing behavior done on a large scale is another very good explanation for what is driving the profits of trend followers as well as the value investors as well. joe: get specific. why does the return chaser end up losing money? why doesn't that behavior work? >> what is happening is that as the market is going up, he is on the trend to begin with, but then he keeps adding gradually, and so his average price turns

out to be much higher than the stylized case than the trend follower. whatwe did is we said happens when we look at this behavior historically? waye parameterized it in a 500look at it against s&p data going back 150 years, and what we found was that this very simple modeling of returned investorehavior hurt returns by over 100 basis points on a 50-50 balanced portfolio, equities in cash, over the last 50 years, 100 years, and 150 years, so it seems as though we or verified this sort of conventional wisdom that returned chasing is bad. it is interesting, because it is a simple you're a stick -- the first thing that comes to mind is deciding when you want to buy

something is how it has been doing lately. this gradualism as well as the reliance on that simple heuristic tends to hurt people's performance. scarlet: what happens when trend following, preferable over returned chasing, becomes at -- >> any trade when it comes crowded, not only do we see the return's detriment it, but we also see the risk go up a lot. get crowded, it is hurting the numerator and the denominator of the quality of returns. following, the markets are so huge and the capital required for making this trend following outweigh the behavior of the returned chasers, i think over for too muchking capital to be dedicated to those trend followers. the returned chasing is the

natural behavior that probably is act inc. on an awful lot of capital, and the trend followers -- is acting on an awful lot of capital, and the trend followers, all the investors are saying what is this whole idea of buying high and selling low. capital gets withdrawn from it, so you can go through times when returns a not good. thank you. adjusted earnings for disney, much better than the consensus estimate. the highest estimate we compiled is a big beatthis and much higher than the $1.27 that his knee had booked one year ago. 10%,ue climbing more than $15.2 billion, analysts looking

for $14.7 billion. when it comes to the different parts of the empire, media, television, cable, parks and and studio entertainment, all of that beating estimates. $6.3 billion versus $6.2 billion. the global success of star wars drove record quarterly operating income at the studio and the consumer products and interactive media, so the star wars affect was certainly felt in the most recent quarter. onx: i do want to touch other earnings, solar city falling 23%. is forecasting a wider than expected first-quarter loss, anywhere from $2.55 to $2.65 a share. the estimate was for $2.06, weighing on the stock.

in terms of the fourth quarter, the loss was not as bad as everyone expected, losing $2.37, so it is about the disappointing first quarter outlook taking it down in aftermarket trading. scarlet: walt disney shares up by 1.2% in after-hours trading. up, the fed dilemma, data from small business optimism, next. ♪

scarlet: i am scarlet fu. "what'd you miss?" two charts. the fed dilemma, small business optimism report.

outperformingts developing markets, and what that means. joe: let's start with that small business optimism survey. it perfectly encapsulates the dilemma facing the fed. like howd questions many job openings. the number of businesses with openings continues to rise, 29% of small businesses have job openings that they haven't filled. near the highest level since the crisis. they are having a hard time finding workers, so that is good. the labor market data is good. on the inflation side, they asked small businesses if they are raising prices. look at that yellow line on the decline, not raising prices. this tells the story of what is happening with the fed, all on the labor, not so good on information and pricing survey. the survey neatly encapsulates it. alix: i'm sure we will be hearing from janet yellen about that. you emerging why

markets were holding up better than developed markets over the last few weeks. i charted the correlation between the emerging market -dollar.rsus the euro as of the currency, this white decreases and the dollar get stronger. when that happens, emerging stocks decline. the highest point of the correlation in 2009, you saw the dollar stronger than the euro. what has been going on in the past few weeks? i want to take a look. overall, the euro has gotten somewhat stronger against the dollar, particularly right here. emerging-market stocks, somewhat stabilize, and that correlation so aing less negative, dollar direction very important for emerging markets. scarlet: you wonder what that means for what the federal reserve does. they have to consider much more than the u.s. economy. coming up, more on emerging

market contagion. art next guest says -- our next guest says that china's was maybe going global. ♪

mark: let's get the first word news. south africa's highest court , justices willts decide whether violation of constitution by using government funding to refurbish his home. the court recommended he pay back 20 million dollars used for home improvements in 2014. the justices have to determine whether the recommendation is binding. thew federal report reveals number of uninsured americans has dropped significantly and eight states, arizona, california, florida, kentucky included. first months of

2015, compared to the time before legislation went into affect. detroit schoolteachers ending their strike, teachers reported early, spent the day discussing issues facing the school system. outs forced hundreds of schools to close. celebrations began before sunrise, the last day before lent tomorrow, mardi gras. global news 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world. i am mark crumpton. alix: let's get a quick recap on u.s. markets. major indexes down for a third straight day, but an attempt at an afternoon rebound that fizzled by the end of trading.

this comes after the nasdaq suffered its worst selloff since august. crude plies -- prices declined, dragging energy shares lower, gold prices increase, treasuries rose, investors fled to save havens. alix: an update on stocks moving. 20%, city down by forecasting first-quarter loss to be worse than estimated. losingking to come in at $2.55 -- $2.65 a share, that is the range for the estimate $2.06 a share. they are in the middle of a strategic shift. they want to be cash flow positive by the end of this year and stop pouring money into its businesses, but a rough transition. scarlet: disney trading lower after a big beat, adjusted earnings $1.63, topping analyst our survey.

revenue increasing 10% to 15.2 billion dollars, but did miss the mark with the consumer products and interactive media revenues come only coming in at $1.9 billion, analyst looking for 2.7 billion. even with star wars boosting the studio division, people were not buying enough of the star wars. what did you miss. china can handle a fed rate hike. it won't cause a crisis. that different this time p is what our next guest said in december when the fed raised rates. an emerging markets folio manager at blackrock just came back from asia. back in the day, you said china had enough fx reserves to get through a fed rate hike. you feel like they still have -- do youthe number feel they still have enough?

>> this is the new reality. people want to get their money out of the country and china. a policyreating dilemma of massive proportions for the chinese authorities. they are between a rock and a very hard place. they can do one of two things, let the currency go or keep losing reserves. this is a different reality. outflowut new capital that started in the summer of last year. joe: is this a self-induced wound by china? the devaluation made people nervous and ask if they knew what they were doing, then there is the slow drifting give i wish and that encourage people to get

their money out ahead of it. did they do this to themselves? what are they going to do to arrest this problem? >> that is a very big part of it, the policy. attempt that led to strong capital outflows. looked stable again, and then in january they devalue the currency one more time. the oncegetting into bitten, twice shy phenomenon, where it's difficult to put the toothpaste back in the tube. if you broaden this out to emerging markets, there is a shift from being worried about global growth to balance sheets. what part of the emerging market world is most susceptible to funding difficulties? >> there are three pockets. ,ne pocket has to do with china

so anyone extremely leveraged to china has to adjust to a new reality. a weaker china, and with the currency weakness. story,o have the energy which is dominant in the emerging markets, and the weakness in the developed market , creating its own credit issues. you're having this trifecta right now, china, energy, and the rest of the developing markets. we are morphing into slightly dangerous territory. ofx: the relative holding up emerging markets, where as developed markets have been wiped out. up,ging markets have held which i find to be puzzling and an environment with so many issues. joe: the brazilian currency doing all right. malaysian ringgit, massive political scandal, up against

the dollar. are we starting to see when we say emerging market, people you cannot look at it as a whole and there is a dispersion with an emerging markets, are we starting to see some dispersion ? >> i wish we could point to brazil and say something positive. unfortunately, it's all speculative. anyway andwas so bad everybody was short and have those positions, and then you dollar coming under pressure, and that is good for emerging markets. it's less about the fundamentals , and more what's happening in the developed markets. scarlet: emerging markets are a value trap. are the central banks completely dependent on how effective developed markets central-bank policy is? value will be

monetized, but that's what i do for a living. i think you're right. at this point, we are hostages to two things, the success of the developed markets central bankers. boj, and the fed will be helpful in stabilizing the markets, but were also hostage to the cycle. e.m. has to start growing. where does it offer value? joe: the most important question. >> the extremely beaten up, the ones extreme a cheap relative to history, brazil, where you need a perfect storm of positive factors, but if they do occur, the returns will be outsized and very positive, or conversely the way the koreasve

, and mexico's of the world, but they will also be better off. alix: you have to do both. thank you for joining us. scarlet: deutsche bank is not crazy for cocoa bonds. we explain what these bonds are and how they are weighing on the german bank. ♪

scarlet: i am scarlet fu. time for the bloomberg business flash. anadarko petroleum cutting its dividend. the independent producer looks to whether the price route.

cutting to five cents a share, and abandoning drilling projects and cutting spending. turmoil leading to belt-tightening at ubs. that's according to people familiar with the matter. ubs bankers and traders promoted won't get pay hikes read it employs more than 5000 people. scarlet: disney first quarter profit rose, topping estimates, thanks to the global success of star wars. the company says it delivered the highest quarterly earnings in history. the movie has grossed more than $2 billion globally. revenue increased 14% to $15.2 billion. the media giant was boosted by earnings from its consumer products division and theme parks. that is your bloomberg business flash. "what'd you miss?" deutsche bank considering a

bond buyback.euro here is what is critical. it will not include contingent convertible bonds, bonds under site saidfter credit they may struggle to pay the coupon on the securities. georgeining us now is perks from bespoke investment. ,, soote his thesis on coco following the security since their inception. why are they in the spotlight and why have people been selling them crazy -- like crazy in the last few weeks? >> they are bonds designed to take losses in a situation where a bank gets under stress. they were brought about in the wake of the financial crisis as a way to provide a extra layer , that is provide

institutions with the ability to recapitalize themselves instead of having to get bailed out. thatwere a policy response were starting to see play out now as bank earnings, especially firms like deutsche bank, come under pressure. sees really interesting to it play out in the real world having thought about it while i was still in college. alix: the? for investors will deutsche bank be able to pay their coupon, and what is the trigger point for them converting a bond equity? >> that's where a lot of nuance comes in. it to be clear, i don't trade cocos. seems the markets are confused. with contingent convertibles, there are a few things that could happen, especially in the form that deutsche bank issued. there is the ability for the bank to trigger a conversion equity if their tier one capital

falls below a certain ratio. capitaly there to one ratio is double the trigger, so it is very, very, very unlikely that it will fall to the point where they would have to trigger the bond. is a are looking at scenario where they can't pay a coupon, can't call the bond at a callable date in the future, or if regulators come in and say that deutsche bank is not capitalized enough and we will coco -- introduce the coco, all with different scenarios and pricing implications, but that is very different from the bond triggering because of -- the hard trigger built into it. scarlet: are there any security similar to these ions -- bonds? were there any precedents that people cited? issuing theseeen

things since 2010 or 2011, the first real issuance, and the reason a lot of european banks have issued them is because european banks did not get the force recapitalization that a lot of u.s. banks did and they still sort of needed, and your pain bank regulators have been more creative with encouraging these things, so right now tier s, additional tier one s, that is atal coco small amount relative to the senior bond market for european financials, but there is a pretty large chunk of these things out there, and it is more of a question of uncertainty than driving price action than investors being concerned that the hard trigger is built into these bonds are going to be hit. down to thatil

uncertainty. it seems like there are a couple of different avenues. aroundey have not been that long, and people don't have experience with them. there is the issue if regulators were to force the trigger when people don't really know when the regulators are doing that are what would prompt them to do that. do see each of these factors contributing to the uncertainty around cocos? >> it is hard to say. it depends on who you ask, which specific bond you're talking about. these things are very diverse and have a lot of different coupons, a lot of different credit profiles, a lot of different triggers or it a have a lot of different source banks in terms of nationality, so i think it is really hard to look at it and say that this is the one thing the market is looking at. in talking to a lot of people who deal in the sings regularly and looking at some of the spreads and yields now being priced in, it is hard to see what exactly the market is looking at because the prices

don't make a lot of sense from how cocos have been looked at in the last 4-5 years. that does not mean the market is wrong, but we are seeing a huge dislocation in europe and the u.s. simultaneously in financials, and that's true across all credit and equity as well as cocos. >> thank you so much for joining us. writing his senior thesis on cocos. alix: jack dorsey has a lot on his hands to turn around twitter. the task in front of the cofounder as everyone turns negative on the social media company. ♪

scarlet: i am scarlet fu. "what'd you miss?" twitter facing an existential crisis, and now analyst are saying the product has never fully developed into a sustainable company. the critical number for investors is monthly active users. is the second-most prominent social networking site with more than 300 million users. orange line, should be growing faster than facebook come at a white line, but it is not. oftop of that, only 44% twitter users are active daily users. bloomberg intelligence says user engagement is critical for the company going forward. userss because daily generate the content that drives the traffic critical to boost new users.

twitter's average revenue per user has tripled in the last three years. its ad volume has also been increasing, but it is still one third of twitter's target. continued growth is driving sales, even though user and engagement numbers have fallen. analysts are also worried a brain drain in upper management will affect execution. we will be following monthly active users and twitter result after reports earnings on wednesday. alix: let's get more on twitter and tesla, also reporting earnings tomorrow. johnson,e with cory joining us from san francisco. anything twitter can say tomorrow that would help its stock? >> may be some true things they scarlet did a great job of showing you the conundrum of twitter.

they can't cut costs and heads fast enough. when you look at twitter, and what we have seen from them over the course of the last few quarters, we've seen user growth grow slightly, but when you dig into that -- i put up a chart of most.s. user growth, and growth is happening overseas, 4.5% last quarter. a slowing growth rate, but a little bit of growth nonetheless. if you look at u.s. growth, and three out of the last four quarters, no user growth whatsoever. when you are not growing users, you have problems. joe: the chart shows facebook versus twitter, and everyone knows that facebook is knocking the cover off the ball. youof the arguments is that must acknowledged the fact that

twitter has hundreds of millions of users, and it is an extraordinarily influential thing, so why doesn't that argument work? isi think you make a -- this the argument that twitter is making, who do you want to be on twitter who is not there already? the positive story and the number interesting to watch is not just the user growth or lack thereof, but it is the revenue they get for every single user. the revenue per user has steadily been increasing. that suggests that twitter can sell that better, but the market is looking at twitter and saying we are getting close to the people we want. the real challenge is to take the data they have garnered from the users of twitter and get understand them better so they can target advertising better. successsee some

scarlet: in those numbers. also reporting tomorrow is tesla. alix: corey, you have been skeptical on tesla. we just heard from solar city. it seems like free cash flow is the issue. >> same story both companies, free cash flow. if you look at the free cash flow for tesla, the more they operate the business, the worse the cash flow gets. the more cars they make, the more money they lose. the same thing is true for solar city. just one quarter, 13 weeks ago, they said we will focus on cash flow and being positive in 2016, and then they report this dog of a quarter today showing cash flow numbers have gotten worse in the last quarter. that's a problem. alix: good stuff. cory johnson joining us from san francisco. scarlet: coming up, which you

need to know to gear up for the trading day. that is next. ♪

scarlet: i am scarlet fu. "what'd you miss?" chinese money supply data tonight. earningstime-warner out before the bell tomorrow. alix: tesla earnings after the bell. it's all about that free cash flow. joe: janet yellen testifying in front of congress tomorrow. everybody wants to know what she will stay -- say about the data. you have to watch closely, starting at 10:00 a.m.

alix: that is all for "what'd you miss?" . thank you for watching. joe: have a great evening. ♪

john: i am john heilemann. mark: with mark halperin. with all due respect to donald trump, trying to be a cooler cat next time. ♪ mark: greetings from the very beautiful radisson hotel. hours ofre with two special coverage. tonight is the night it will be all right for some of the candidates in the new hampshire primary. candidates did a final sprint across the state. meeting voters to polling place,