loans to banks fast. david cameron negotiates reforms to keep the u.k. in the european union. a new twist in the matter of apple versus the fbi. it appears the government is working on its own backdoor to mobile devices. david: welcome to "bloomberg ." i'm david westin. stephanie ruhle is off, but matt miller is here. winkler, a pleasure to have you with us. first we go to vonnie quinn for the first word news. vonnie: u.s. warplanes have attacked multiple targets in seniorone described as a office coordinating terror attacks.

or than 30 islamic state recruits were killed. it is unknown if suspected terrorists survive. an unusual development in the matter of the government with mobile devices. silicon valley celebrated last year when the white house said it would not seek legislation for tech companies to build a so-called backdoor into their products. what they did not know is that national security officials had sent agencies a single -- a secret memo ordering them to install backdoors on to devices. earlier this week, a federal judge ordered apple to help the fbi get data from terrorists' iphones. david cameron is running into resistance as he tries to reveal on the u.k.'s membership in the european union. he is beginning a second day of negotiations in brussels. he wants an agreement that he can put up for a vote in june.

eastern european leaders do not like cameron's demands on welfare curbs on non-british citizens. globaglobal news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world, vonnie quinn. matt? look at futures this morning, we came off the three days of gains yesterday and are down again today. so two days of losses. doug jones, futures down. nasa futures down half a percent as well. it has been a good week both here in the u.s. and overseas. check out the nikkei, a gain of 6.8%. even with the drop we are seeing today, it has been a strong week in japan, a strong week in europe. despite drops we are seeing today as well. check out the stoxx 600. gain, even though those indexes are dropping today. check out the dax to see today's trade.

the dax i have on my bloomberg graphed in white. you can see oil graphed in yellow. i have read here because that is the european edge mark, not w -- that is the european benchmark, not wti. went up, the dax went up. when oil went down, the dax came down with it. investors are looking for safety in the yen and gold. year to date, you have the red area because as the yen goes lower, it is gaining strength. we can buy fewer with our u.s. dollars. gold on the other hand, green is green, up 16% year to date, so a big gain. check out the chart. 2008d its best month since . investors really looking for safety in the yen. you can see the huge drop at the end of the chart. that is as the yen gains strength against the dollar as investors look for the relative safety of that asset class.

let's stay in asia but go to china. the you want sites biggest gain in almost a year. live for us in hong kong. tell us about this. moreh schwan talked about foreign investment. enda: the central bank governor got to the heart of the issue in china. the government is not ready to fully surrender their grip on the economy. what it is trying to say here is to tell the rest of the world, that is why you will see the government continue to have a role in the markets, continue to have a role in the banking sector, and continue to have a role in industry. from the economy to one that is completely free will take some time. , youou want, -- the yuan

mentioned at the start of the story. on the way we are seeing volatility. that is why they are intervening at the same time to try and keep it stable, to try to offset the volatility associated with freeing up currency. do not expect a free overnight -- a free market overnight in china. the government will continue to play a major rule. david: let's talk about what they were doing. there is news coming out of china overnight about reserves. could you bring us up to speed on that? enda: it is a little bit of a balancing act. we know china's economy is slowing. the central bank does not necessarily want to cut interest rates because it puts downward pressure on a currency at a time they do not want it to happen. looking at other avenues of trying to get cash into the system and get current banks to lend.

at the same time, they do not want banks to go overboard about lending, encouraging the mistakes of 2008 and 2009 when they released a wave of debt to try to keep things going. so they are trying to tell some of those regional banks, do not lend to sectors with overcapacity such as steel mines and coal mines. matt: one of the things the central bank has to control is the u.n. i have charted a picture of the u.n. in red, the shanghai composite and white. -- what are we hearing as far as the pboc's controls on the u.n. and the move to float it a little bit freer, as compared to a backing

of more currencies? enda: i think the near-term message is stability. all of the officials are saying that now. we are heading into china hosting the g-20 meeting next weekend, and they will not want to go into that sending a message to the rest of the world that they are competitively devaluing their currency. they do want to free it up. they do want to judge it against a basket of currencies, but they realized when they do allow it to move a little bit, when they depreciated even by a small amount, it triggers capital outflow. a flowe having to keep on the yuan, even though they are trying to inform the rest of the world, you have to get used to volatility. this currency is no longer a one-way that -- a one-way bet. matt: enda curran in hong kong

giving us that story. simon, let me turn to you. how do these remarks by the chinese central bank matter to investors, especially when you look at the evidence of actual lending going on there? is getting to levels higher than we saw in 2009. simon: they matter to investors enormously. what you had in china in recent months is a huge surge in lending. in january you saw a new loan issuance at a record high. it is a huge number. that is occurring at a time when the chinese economy is slowing. there is a growing concern that what is already one of the most indebted countries in the world becomes increasingly indebted, and that that that kyle is ultimately not repayable. if you look at nonperforming loans, loans being left out where the borrower is no longer paying interest and cannot be

for the principal, the official number for that in china stands at 1.7% at the end of 2007. that is the official number. we have done some extensive analysis of where that number might stand by looking at listed companies and looking at those listed companies which, because of the state of their balance sheet and businesses, are unlikely to be able to repay that debt. underneath that true number in china was not 1.7%. we believe it was closer to 8%. given the way the economy is progressing, given the way lending is progressing in china, our belief is that that number could reach 11% by the end of 2016. that is a big problem. you have significant deleveraging that has to take place in china. how that happens without a deflationary impact on the rest of the world is a question. david: your research comes out

at 8% nonperforming now, quite possibly heading to 11%. simon: heading to 11% by the end of the year. given the lending that we're still seeing banks doing. matt: this is a reason they want to curtail? when they boosted lending in 2009, that helped boost the shanghai comp. to what extent are the reserves that china has? at one point they reached four $4 trillion. that is a cushion, isn't it? but yout is a cushion, are facing a recapitalization risk for the banks. at worst, the banks become a constraint on growth because they cannot lend anymore or maybe they have to cut their dividends. a lot of investors have been

looking at chinese banks as a good source of yield. maybe they are paying 5%, 6% yield. you will see those banks combat those dividends to preserve capital. how do they raise new capital? they can issue equity with the market, but some have specific restraints that they cannot issue new equity if the shares are trading under book now you come which they are. you have to use the foreign exchange reserves to recapitalize the banks. i think it is three and change now. there are a lot of purposes for those because they had been running through at about $100 billion a month in order to support the yuan. so they cannot use it for everything. matt: they cannot use it for everything, but it is a very large security against what comes next. one of the things they can do,

apropos, his focus on the banks. if you go back to 2008 and look at the 10 largest companies by market cap in the world, there were a handful of chinese banks in that group. they are not there anymore. one thing you can do on the bloomberg's look at what is happening to the market value of fore banks as a proxy china, apropos of the discussion we are having right now. if those banks, market cap, deteriorate as they have for the past year, that will be a cause for concern because it will show this crisis is accelerating. david: thank you very much, simon. matt will be staying with us. when we come back, we will check in on brussels and have details from the e.u. summit and why negotiations have extended. that is coming up on "bloomberg ." ♪

vonnie: i am vonnie quinn. the world's biggest maker of farm equipment, john deer, says equipment sales will fall 10%. john deere is facing its third straight year of falling profits. franchisescdonald's in the united states are pessimistic about the company's turnaround efforts, like it's all-day breakfast. only 14% of the owner operators think mcdonald's comeback plan is working. 35% are confident in the company's long-term success.

virgin america will only go so far when it comes to fare wars. ofsaid it will fly out -- outwith empty seats of dallas with empty seats. going to global go. the e.u. leaders are at a summit in brussels and have extended that today and possibly into the weekend. leaders have not been able to reach an agreement on the issue the u.k.the exit of from the e.u. we go to ryan chilcote. as i understand it from your reporting and others, the big issue is the length of time for immigrants coming into the you had that into the u.k. before they get benefits. i understand that cameron is coming in with a different position, asking for more. what happened? originally, what the british prime minister was when ang was that

migrant from the e.u. comes to the u.k., they have to wait for at least water years before they are in -- at least four years before they are entitled to welfare as british citizens, and the possibility of a three-year extension tack on top of that, so we are talking seven years. everybody seems to be on board with that, but last night he brings it up to 14. they suggested a middle ground. they have been talking about it for the last 12 or 13 hours. david: this is what i do not get. i have been through negotiations . to go in and move away from the other team when you are trying to get a deal done, that is not the way normally to get a deal done. did he go back to london and get a message he did not have before? what he told him at the beginning of the meeting yesterday was he took the draft they agreed on at the beginning

of february home and it did not go down well. he had to change the goalpost because at the end of the day, they should understand he has to go home with a deal that will convince the british people to stay in the european union. what he did do was move the goal post. he is either playing hardball, trying to improve his position and get a better deal, or this is just theatrics because there is a lot of that. all of these leaders want to show their constituencies, and the british prime minister is no exception, that they are fighting for their country's interest. matt: i am hearing from your perspective, politics more than anything at this point. and that the british prime minister is playing to his base. he has to look credible at home. one gets the sense that the e.u. ministers that he is conferring with understand that, and that at some point there is a middle ground that will be reached. does that make sense, or am i

missing something? ryan: no, i think you are exactly right. i am not a betting man, but if i was, i would say they would get a deal. the british prime ministers said that his wife and children know that he may not be home until sunday. no one wants the u.k. to leave the e.u. the british prime minister does not want the u.k. to leave the e.u., he just wants a deal that makes it look like he did his level best to soften the e.u.'s positions. i think they are all going to work to do that. now there is a lot of moving parts. you had the key there. it is 28 countries, each with its own team of lawyers. that could take some time. maybe the british prime minister decides it is in his best interest to come back later and get a better deal. matt: thanks for much for that, ryan chilcote joining us from

brussels. a bloomberg survey of economists. we will give you the results when we come back on "bloomberg ." ♪

david: welcome back to "bloomberg ." central banks have begun implementing the policy per bloomberg conducted a survey of 63 economists on what they think of negative rates. those surveyed found rates below zero were best in open economies dealing with foreign exchanges rather than bigger economies -- actually smaller open economies rather than bigger open economies that were slow and growth. what it says is that if you are denmark or sweden or switzerland , and you want to affect

currency, negative rates are not such a bad way to go. but if you are the e.u., it is a different matter. matt: that is true, but plenty of people would argue that negative rates are a natural segue from quantitative easing and the extension of it, such as ben bernanke, former chairman of the federal reserve. he has argued that this is not a radical departure. keep in mind, from a historical perspective, the united states had negative rates in the 1930's. that was the best time to buy stocks. so it looks bad. david: not that we want to go back to that period. matt: the point is we have lived through this before. i would also say that there are plenty of countries who are banking regimes where historically capital preservation was the most important thing. take switzerland, for example. for decades, it was in a haven

-- it was a haven for money that was seeking safety, and those deposits, by the way, did not get a lot of interest. if they got any. that is a very similar situation to where we are now with negative interest rates. people are paying switzerland to hold their money. i have a chart of here on the bloomberg. they are paying germany to hold their money, paying denmark to hold their money, paying japan to hold their money. it is actually working. stanley fischer a few weeks ago said he was impressed that it is working better than he thought it word -- thought it would. here is what larry had to say. i think we have negative rates because of some deep issues in our economies, a set of issues and arguments that i have talked about, when i have talked about secular stagnation, having to do with the product access of saving over

investment. so i am more inclined to regard the monetary policies as a response to the problems rather than a cause of the problems. matt: matt miller, yesterday you were talking to at hyman of topicre isi on this very of negative interest-rate, and he told you on this great television station that this is something we can live with for a while. he also thought it was not going to last, that the u.s. economy would continue growing. as it continues to grow and the china situation abates or receipts, we are going to see this negative -- as the china abates or as it recedes, we are going to see this negative situation. a big part of this is government bonds. that is where all of this is going to be focused.

he also thought it was a reflective mood that we are seeing from central banks around the world -- japan, china, mexico -- and that at the upcoming g 20 meeting we may have a need for some coordinated policy action. what do you think? matt: it makes perfect sense. everything points to something like that. david: larry summers in his foreign affairs article says exactly that, that we have to have negotiation between central banks. matt: thank you very much. matt is going to stick with us. apple versus the fbi. the u.s. government is said to be working on a plan b to access personal data. we will talk about that when we come back on "bloomberg ." ♪

matt: take a look at futures. we are lower across the board for a second day. yesterday, we closed out the three-day rally that we had or

rather reversed from it and now we are down today. a week still looks pretty positive for equity markets around the world. winkler, editor in chief, is with us and just in from radio, tom keene. david: welcome. tom: i just came off safari. matt: a pleasure to have you back at the table, but first, vonnie quinn. vonnie: thank you. u.s. warplanes hit multiple islamic state targets in libya overnight. as many as 40 people were killed in one of the attacks on a training camp near tripoli. the u.s. official says the leader was targeted and it is unknown if he survived. the u.s. has projected turkey's demand that a break relations with the kurdish group fighting islamic state in syria. they blame the kurdish group for the bombing that killed 20 people. the u.s. says defeating the islamic state is the overwhelming priority.

one of the largest art deals ever. billionaire ken griffin has paid almost half $1 billion or two paintings. from jackson pollock. global news 24 hours a day powered by a 2400 journalists and more than 150 near spiro's in the world. -- music bureaus in the world. matt: thank you. time for the morning must-read and matt winkler, you have written a piece of head of the african business summit. we have a quote and let's take a look. just about everything is going wrong in south africa, and that is why investors in their bonds are reaping a bonanza. it is hard to find another country with meniscal growth rising in inflation, a quarter of its workforce unemployed and a currency that lost more than 25% of its body when the past 13 months managing to finance the deficit would demand exceeding the supply for newly issued debt.

going wrongs economically, yet, investors cannot get enough of the debt. why is that? matt winkler: there was a wonderful convergence, if you can call it harmonic. they are anticipating a rising inflation in africa and south africa has the perfect investment vehicle for those investors. it is called the linker inflation protector bond. lots of countries have these. matt: they are called linkers. matt winkler: they are called linkers and there was an option earlier today in south africa, and there was 2.5 times cover on the bids for this auction, meaning it was 2.5 times oversubscribed. what is going on is that investors love this investment. they love it so much that it has appreciated in value because they know they are going to be compensated every time. matt: look at the return.

if you are going for yields, this shows africa is blowing away the u.s., obviously. this sounds good for the investor. normally, you anticipate inflation and you don't want bonds. it means you go a lot more to the bondholders. a ticking time bomb. tom: i don't know if it is a ticking time bomb for it it speaks volumes about a changed business climate in south africa, part of a bloomberg will be doing down in cape town. i look at this and the question is, the full faith and credit backstop, it is not the normal backstop at world bank imf and you and i are old enough, david is not old enough, but we can go back to the actors of egypt. idea andler, but the the institutional backdrop matter. matt winkler: here is the wrinkle that justifies why that is happening and it's successful.

when you look at south africa debt as a percentage of the ghost of mustek, south africa is africanow most countries, middle eastern, and it actually has a debt to gdp ratio that is a fraction of developed countries, such as .anada, the u.s., japan when people look at this market, they say, well, when you look at the total debt outstanding as a percentage of gdp, south africa doesn't look like such a big risk compared to other countries. tom: what is interesting with , it almost pulls an automatic currency hedge. if you presume currency depreciation, it can help as a vehicle. matt: if the go back to square one and look at why the economy is having problems in the first place, so much of their trade is with china. if you look at the ecpr function on the bloomberg, which is a great sort of heat map kind of trade function that people look to look at, i have it right now

based in 2008, back when south africa was doing $20 billion of trade with china. if we fast-forward to 2014, you can see this amazing change. $61 billion of trade with china and much less with other nations, germany, the united states, far, far less as far as trade. they have become almost dependent on this economy. matt winkler: this has been a global story, result, for example, also made a big hit with china and is paying the price. when you put all your eggs in one basket, and a basket suddenly becomes a problem, which is what china is, you are going to see it in the currency, in brazil, the gdp growth, your trade, and south africa is going through exactly the same type of thing. tom: what other research did you see on the greater african continent? matt winkler: africa,

sub-saharan africa, is a spectacular story. people fail to realize that in the past 10 years, it is the sub-saharan region that has been the best emerging market in the world. ok? that puts the brakes to shame. that trend is not going away. sub-saharan africa is a very dynamic economy in the world. part of the reason is the demographic. there's is where youth presides. this -- 40% of the population, let's say in nigeria, -- front andy panel is center, the complete underestimation of the demographic economics of africa is being an opportunity for business. some of my panel has gotten heated. david: we talked recently about them a graphics, as much as it is dynamic and growing, it is

not easy to invest. matt winkler: that is true. it is mostly piney markets. having said that an back to south africa, south africa is sub-saharan hub for africa. south africa still has the companies, most of the companies the people want to be in, equity market is still robust in south africa, so when you look at it from the perspective of africa, investing and linkers does not look like such a bad risk compared to what is out there, outside of africa. david: when you talk about south africa, if you can, on the one hand, they have commodity problems with prices going down and they have the mismanagement problem, when it fired the finance minister, they had to find a new one, and how much is because of commodities and how much is in the control? matt winkler: the biggest part is the trade issue, it is like the rising tide floats all

boats. was ase with china robust as it was in 2000 10, the mismanagement and the economy could easily be overlooked. it is when that part goes come up with part goes, that people start looking at what is under the rocks, and that is where we are now. tom: i have to agree with kathleen hepburn and that is how they saw the first terminal -- [laughter] right on the river. david: the fifth element, no.. matt: a lot more investors have become interested in the area. since the financial crisis, people have been going there for yields and returns. obviously, chinese investment is off the charts. matt winkler: that is what is interesting that the south african market. we were talking earlier about negative interest rates. where are you going to get these kind of returns right now?

south africa is not going to default anytime soon, so as long as that is the case, this is a pretty good place to be, especially if you are south african or a brand based investor. david: let's turn to silicon valley. fight as we know, to court order to help the fbi a mock the iphone used by san bernardino shooter and some lawmakers are seeking to mandate a backdoor access features on all smartphones. what do you think? this is shaping up to be a titanic ckaslash. matt winkler: it is hard to see how apple can avoid this once the government went public and said, we are determined, and essentially, to get a backdoor into the iphone. that was a point of no return. .or apple if apple put itself in the position where it is saying, we are going to be a vehicle for the government to do whatever it

wants to do, even as we are totally sympathetic and cooperative and trying to figure out a way to get the terrorists. inre is no way apple could, a publicly, not take the position it has. matt: why do you think the this?ment has done i think it would be naive to assume the nsa cannot hack into any iphone that it once, right? they want to have a public backdoor when they surely already have a covert backdoor? matt winkler: i think we're presuming that governments of the most graceful in their endeavors and governments are really graceful in what they attempt to do. clumsy,een awkward and and that is not a surprise. i think that is what -- by the way, frustrated apple -- apple would have preferred some hot to be dealing with the government in a way that could not be considered public. once it gets to the public, apple has to be front and center for its customers and

shareholders. makes a goodatt point of view that it is a difficult case when you have someone who is killed someone and you want to know who they were talking to. having said that, what they are asking apple to do is to write new code. if you can do that, why can't the government go to all kind of tech companies and create a new drone, this to fight terrorists and save the country? tom: that will be part of the debate. the good news is we have met winkler. when i first met him, it had nothing to do with the seriousness of these terrorists, but the idea here at government debate is certainly what we have learned in the last few days -- andhe many institutions constituencies lining up against silicon valley, whether the support process, legislative process, the weight of this and the seriousness of the event has been immediate. matt: we still have a long way to go. david: this is a magistrate and

not a federal district court judge, an assistant judge being asked to do this and you have a lot of steps to go. matt winkler: that is true. as soon as tim cook did what he did, just about everybody who counts in silicon valley, just about every company, big and small, wind up right behind him and said, yes, you are speaking our position. two are very much. matt: absolutely. they have to because they are next. i wonder how serious the concern is that the governments would go after the same thing. that is the real threat, right? matt winkler: if we are thinking of the way around this that enables us to get to the terrorists every way we can, if there was a set of international governmentstween and companies, because we're talking about global companies here, that might be the solution, but until we get to that point, why should an

american company that is a global company put itself in a position where once it makes a concession to the u.s. government, that can be used against it time and time again anywhere else around the world? david: i also wonder if there is not another way out, which is to divide away with a open up this particular phone and give the contents to the fbi but not giving the government the power to use it on other iphones, so every time, it has to go to the court, like a search warrant. that is what we created in the fourth amendment. it covertly, like black ops which surely they can already do. tom, have ever told you how much you look like gene hackman? tom: no, never. you only watch angelina jolie movies. [laughter] are going to lose tom but matt winkler is staying with us. next week, it is africa business and economic summit in cape town. we will have live coverage.

to not miss this incredible event. presidential hopefuls from both parties will be tested this weekend in south carolina and nevada. we are going to break down what is at stake in the saddle ground when we come back. ♪

david: welcome back. i am in the green room. coming up, we will talk about the media startups and retail with susan. vonnie: i have your latest bloomberg business flash. ken griffin is making cuts at

his hedge fund firm. according to people familiar with the mattis, said that -- to develop cut about 15 from one of their units. citadel cut about 15 from one of the units. a $65 billion takeover of time warner cable. they say that merge could control up to 90% of connections to homes in the u.s. and they say that would hurt the ability of video distributors who offer an alternative cable service. it is not the highest inflation rate in the world, venezuela says prices rose 100 81% last year and the economy shrank almost 6%. they released figures today after the president announced that measure aimed at helping the government raise money. they have been hurt by the price and -- by oil prices. david: thank you. turning to the presidential

race, the nevada democratic d the south carolina primary take place tomorrow. clinton and sanders are neck and i can nevada and trump leads in south carolina. let's head to south carolina. mark will be camped out all day. mark, i've have been following what you are doing on "all due respect" avidly, so tell us where it is with donald trump? suggestme public polls it is that donald trump has a big lead and knowing is challenging. the real contest, besides helping donald trump wins, is really a wide-open range for second, third, fourth and fifth. that will tell a lot as a go forward to the big contest on march 1. those specifically on second, third, fourth and fifth finishes, is this a death to the finish between marco rubio and

jeb bush? mark: both of them would like to deny that, but i think the reality is, whichever one of those guys finishes behind, they will have sole searching at a minimum to do. marco rubio, the ability to raise money will be diminishing, and for jeb bush, even though he has money in the bank, people will say politically, if cannot beat marco rubio here, in a state they called bush country in the campaign, he will have a hard time beating him down the line. we could see a different scenario. i do think whoever finishes lower down in the order will look and probably reconsider whether going forward makes sense. matt: donald trump has been so public about his attacks on george bush and george w. bush, how is that affected his standing? doesn't that hurt him in south carolina? president bush is popular. there is no way to do a controlled experiment and see how those remarks play compared to anything else. he also had dust with the pope

yesterday and that has become a bigger deal from anything earlier in the week with president bush. i don't know that it hurt him. i think he finds a lot of people here who love affection for the family, but they said they don't want the third nominee from the bush family as their president. i don't think donald trump's criticism have been the dominant factors for donald trump or jeb bush. david: let's turn to nevada. i believe nevada was part of that firewall for hillary clinton. that shee reports could lose our tie with bernie sanders. could this be a reprise of what happened it years ago? mark: eight years ago, she basically tied with barack obama, lost the delegates but won the popular vote. they touted this state has stronger for her with a more diverse electorate. bernie sanders has done well there. if he does tie or beat her

there, and if he continues momentum, fundraising, and talking point that when the march contest comes, said for the republicans, on march 1, that is one the effects of the momentum, as well as the tea leaves about instability of the field, will come to play. you for joining us. you can watch "with all due respect" on bloomberg this afternoon and this evening. the world of oil has been turned upside down, so we will discuss that next on "bloomberg ." ♪ ♪

david: welcome back to "bloomberg ." that winkler is still with us as we turn to our new segment called "off the charts," andrea

talking about white sheet oil may be bad for the economy. matt: we could say cheap oil is a bad thing? the energy sector seems to have turn things upside down with opec's cartel falling apart. cheap oil is all of a sudden a bad thing and the u.s. is producing a ton of oil and countries are going bankrupt. i thought i would show you a few charts that she was the strange anomalies in the land of energy. let's start with venezuela. talking about inflation getting out of control there, that is the white line at 180% and that at a percentage of gdp, we have a that 51%, the official figure. it seems it would be much higher, but they have both gone out of control and venezuela is not in any position, as many are not, to cut down. that winkler: i would like to take a different view. start with, no pain, no gain. the market is imposing a lot of

pain on regimes that haven't behaved well over the past decade. venezuela is a perfect example. is good orheap oil bad, it is good for the largest economy in the world. here is a little-known story reported by bloomberg earlier .his week the staff coming into the los angeles and long beach ports, the two biggest ports in the united states, was a record in january. that did not happen by accident. what that is about is the demand in the u.s. for all kinds of goods, big stuff and little stuff like, and it is huge and it will not abate. that means the american economy is doing just fine. thank you very much. it is what you have been hearing from your favorite ceos in detroit to run the automotive industry. look, 15 -- 2015 was a

record year, but we expect record auto sales plateau at the higher rate at some point and keep going. they have not changed their message. thedata supports that, so notion that cheap oil is bad, well, it is bad for a lot of places around the world and regions, but it is good for the number one economy in the world. drillingyou are an oil with shaky finances, it is bad. if you look at the amount of distressed debt trading, that is exactly my point. rings are turned upside down. -- we need to thank matt winkler. thank you. ♪

matt: oil in the driver's seat. the week may turn out well if the price stays above $30 a barrel. is inflation starting to close

in on the fed target? we will have the latest consumer price data 30 minutes from now. plus, the bright spot in retail earnings. home improvement chains like, people and we will tell you why. -- home improvement chains like home depot and lowe's. we will tell you why. welcome to the second hour of "bloomberg ." i am matt miller. david: i am david westin. stephanie ruhle is off, but we have christine harper with the sport a whole hour. -- with us for the whole hour. government is trying to come up with a backdoor to mobile devices. last year, silicon valley celebrated when the white house said they would not force tech companies to build the so-called

backdoor to their products. they did not know that national security officials sent a secret memo ordering them to find a way into user data on iphones and other devices. this is according to people familiar with the matter. earlier this week, a federal judge ordered apple to help fbi get data from a terrorist iphone and they said they would fight the rolling. u.s. warplanes appear to have killed a senior islamic state leader. they struck targets in libya overnight. there were reports that as many as 40 people were killed in one of the attacks. one of those probably killed, according to "the associated press," was an islamic state leader. david cameron's negotiations with other european leaders spilled into a second day. their meeting in brussels and they are searching for a deal on the u.k. in the european union. eastern european leaders to not like his demands on non-british citizens.

global news 24 hours a day powered by our 2400 journalists in more than 100 news bureaus around the world. matt: yahoo! is forming an independent committee to explore strategic options. maynard webb, the chairman of the board said that recently formed an independent committee to evaluate strategic alternatives for the company. we have hired excellent advisors and a working closely to pursue an effective process, so they are working with marissa mayer. they have hired goldman sachs, jpmorgan, as financial advisors, and they have more legal advisors. they say in a statement that engagee reaching out to with potentially this just did and financial partners. david: what you just read is important, but i don't want to read too much in, but in

alignment with management, marissa mayer is not part of the committee. they are outside directors. matt: that is right. david: she is not driving the ship. matt: maybe it is out of politeness to marissa mayer, but they say they are working in alignment with management. very good point, not on the independent committee. interesting to note that they released their advisors, financial and legal, and said they are going to get in touch with interested parties. julie, what you want to read into this? julie: the stock is up, not that it is a surprise. down 34% over the past months. i read in that yahoo! traders are grasping at any hint they will be a change at this company, so you see that positive reaction. it is not a huge positive reaction because this is pretty much in line with the noise of the company and what they have been making about making changes. david: it comes on the heels of reports that there might be a proxy fight launched. julie: exactly, with star board

value, so this is an ongoing story. not the end. let's talk about what is going on in futures. we are seeing declines across the board and this is what has been happening around the globe with pressure from lower oil prices. we saw pressure in europe as well. let's talk about the week. that despite the potential decline today, we could be setting up for a positive week for the major averages, so that is something to keep in mind as he look throughout the session today. i mention what is going on in europe, let's take the dax. the german benchmark their, this is the one day chart. it dipped with oil prices on negative earnings from the giant insurer. as for oil prices, we saw that did as well. down about 1.5% and still a little hangover from yesterday's inventory data, even though oil held up relatively well for much of the session yesterday, even

after we got the inventory numbers coming off pies but holding onto games until late in the day, and that selling continues this morning. it is interesting that we had seen decoupling between stocks and oil, but this morning, they are in alignment. your to date, oil has sold off and gold has risen, a different commodity trade. people have been looking for safety and the japanese yen, which has seen a big increase. this is the dollar falling against the yen, so it is six percent higher versus the u.s. dollar and that has been negative for japanese stocks. stocks selling continuing down 16% at your today. david: thank you. talking about oil, it is closer , that is west texas intermediate. we are joined by jim from chicago. what is the impact on stocks if

oil remains at these levels? jim: stock market has been trading with a high correlation to oil and i think it should because i think at $30, $31, they put up a report that said may be upward to one third of oil companies could go bankrupt and that sounds right to me. use levels are uneconomic for the oil industry. if it stays at these level -- even if it does not go down anymore -- they cannot make money and had to get closer to $45. the market is worried, rightly so, that we will see a rash of defaults and we will see a rash of bankruptcy because of these low levels. it does not look like we are about to correct that soon. david: we keep hearing about defaults coming. the number of people predicted 20% to 30% and this says 50%. what do you think will happen? is there a triggering event that will start the defaults happening? jim: good question. part of the problem is what has been happening in the energy space.

investors have been trying to pick a bottom for 18 months. whether or not they have invested in bonds, turnarounds, funds by energy, these companies are pumping, losing money, but still getting funding to continue to stay alive. i think we are probably getting closer to the point where investors are going to pull the plug on them and say, no more. it is chasing bad money aftergood and that we will start to see the cascade of defaults and bankruptcy coming. i think it is within the next six months to nine months if we stay at these levels. if we get closer to $45, bigoted reprieve. christine: you talk about investors funding the company's come up is your sense of the bank exposure? the keep telling us it is not great but how worried should thank investors be about this? jim: at one extreme, there will not be a 2.0 or capital of that, but it could be an earnings of that. the banks will tell you they don't have big exposure to oil and that is largely true, but the problem is the number of

bankruptcies you could be looking a, the low residual bodies that could be left over after bankruptcy, it will be significant. if it must test the sizes into the larger -- if it metastasizes into the larger areas of oil and mining companies, closely related to energy companies, a make stuffstrials for energy space, they could look at larger losses. no, thanks to go out of business but they have a nice long run or a bad long run a very lousy earnings. that is what has everybody worried. matt: we have started to see over the past five days, the correlation between oil and stocks trading down a little bit. we are below .8. at one point, at .96. is that good news? probably getting away from this extremely high correlation or am i reading too much into .14% drop? think you are reading too

much into it. it is still very high at this point. the reason we saw fraying on the the that this free from saudis, maybe, maybe not, what helped to boost the price of oil, we will have to see as we move forward. if we get the price of around $40, $45, i think the correlation goes away with stocks. when we are down here, low oil becomes a credit event and that becomes a problem to the energy and financial sectors. those two combined or almost one quarter of the stock market in the united states and that will be a problem as we move forward. the correlation should stay as long as we are at the level of your $30 or under $30. david: we will turn to julie, and she has a chart to describe to you. julie: what we are looking at is production. your point about this sort of interesting reaction in the oil markets to the risk of a freeze in production, we are looking at u.s. crude production and the growth versus saudi and russian

production. the u.s. is not part of any freeze agreement, although, we have seen ups and downs in production in the u.s., so we have seen this and norma's increase in u.s. production going back to 2010. -- we have seen this enormous increase in u.s. production going back to 2010. this is supplied globally versus consumption. consumption is just undersupply, so if you freeze production, you still have the supply issue with demand sort of undersupply a little bit and demand is going to go up and it doesn't seem like the price of oil will be fundamentally affected. david: in fairness, you cannot on this chart, but the slope consumption is going up faster and it appears to level off. i am familiar with both of those charts. the first one you are talking about with u.s. production, we were at 8.4 million barrels a

day when the price at $107 and we were producing a .4 million barrels a day and today, 9.1 million barrels. we are producing more now than at the high and the respa no back off and production the bigger scheme of it. as far as global demand, the problem with the global demand measures is that nobody measures global demand directly. it is a derived number from supply and other things, and it has variability into it. i think the biggest problem with oil is we look forward and we see a slowdown in china, a slowdown in europe, we then seek , below 2% economies in the united states, and we perceive that demand is going to slow in the future. we don't see any economies booming right now, and we see, like in the u.s., producing more than we did at the high, we see that the saudis are producing more than they have ever produced on there talking about freezing at those levels, so you add it up in the market is

worried that the glut situation, maybe it is not here today, if the supply and demand that too, but it could be. matt: thank you. christine harper will stay with us. we will focus on the market and financials. coming up, more about that breaking news with yahoo! forming independent committees to explore options, strategic options for the company's future. then use sending shares up. -- then use is sending their shares up. stay with us. ♪

vonnie: here is your latest bloomberg is this flash on "bloomberg ." biggest maker of

farm equipment has forecasted for the third year and a state sales have fallen about 10%. they are facing the third straight year. they are hurt by oversupply of crops. apple has been given more time to fight the court order to unlock a terrorist iphone. the company has until next friday instead of tuesday. a federal magistrate ordered apple to help the fbi get data from the iphone. company developers in hong kong are saying, let's make a deal by offering everything from iphones to counter the slope home sales in the quarter century. they predict hong kong home prices will fall as much as 25% this year. david: thank you. as we reported a few minutes ago, breaking news today. formed anoard has independent committee to explore strategic options and they say

they are separating their alibaba state to maximize values. announcement, there is an independent committee formed by independent board members and it does not include marissa mayer. matt: independent of the ceo. david: and they hired pretty heavy hitters. tsipras they want -- show that they had this desire to find a buyer parried the concern was that marissa mayer in management and the board were on separate pages. if you go back to initial statement when they said they would explore strategic options, at the very same time, marissa mayer announced this big bold plan to revitalize growth, cut jobs, hone in on specific businesses. these are two seemingly separate strategies. for a buyer is that risk that in the management are not behind the idea of the sale. the are committed to working on

yahoo! what the board needed to show is that we really need to make this thing work. david: two days ago, they were shutting down the vertical, they were laying off people, shutting offices in the board might think, we want you to think about selling it. this team: if you are thinking of selling it, the best way is not to say you are desperate but to say you have other options, an alternative to an agreement. isn't that the thing to think about? tom: she also has to think about morale among the staff. you have to retain people to run the business, nevada where marissa goes when the deal goes down, you need people to keep the train running, keep yahoo! as the iconic brand alive. the more you are talking about, close upare going to shop and end up in the hands of private equity or whoever, the more the people alike, what are we doing here? is the great that

point because the buyer wants to buy healthy and thriving company and not one that is dying. this is what marissa mayer told emily chang a couple weeks ago. >> my goal is to make it worth the most it can possibly be worth, and that means maximizing revenue, executing as well as we can the revenue plan, energy and our cost well, something else we pride ourselves on and doing the best we can to return shareholder value. matt: she did not deliver that with a lot of enthusiasm, and she really doesn't seem site at all. david: that is the best part of morrissette's personality. -- of marissa mayer's personality. julie: we are at yahoo! versus other tech stocks. it is actually up under her tenure, particularly when you compare with the s&p 500 technology index. late 2014a peak in and early 2015, both on hopes that she was going to turn the company around, as well as the

unlocked alibaba stake. all of that has pretty much melted away. david: what about the alibaba ipo? julie: november 2014? david: so the problem is insofar that depreciation has increased. there was aally, lot of hope attached to marissa mayer when she came in, that she would be able to turn this company around. tom,curious, if i can ask, is it too early to ask what her next move is? in other words, say she does sell the company, does she have a job somewhere else? does she take time off to spend with her family? tom: there is no evidence that she is looking for jobs elsewhere. she doesn't seem genuinely committed to make things work in some fashion that yahoo! at some stage, she will probably moreto shift stages to be focused on i am dressing this up

for a sale. a little more clearly than right now. getting into marissa mayer's professional life, but she is a brilliant product person with a great track record. marc benioff told stephanie that he would hire her in a second. she does not have to worry. christine: was and she brought in by shareholders? she was part of the solution when she came. david: the biggest problem is not her getting the next job but what do you do with yahoo!? been inside the company, right now, i would guarantee they are doing one thing, they are not thinking about products, customers, revenue, but they are just consuming organization. matt: you mentioned verizon, private equity, for example, what with verizon do with them? tom: you are talking about a billion people coming to yahoo!, and it is still well trafficked, i still use yahoo! e-mail. do not tell anybody. matt: you do? of people are a lot

who do and there is a lot of traffic on that site and there is a wait a buyer could monetize that. see a business where aol and verizon are combined. tim and marissa worked together at google and they go way back and they could try to make these two things work better. david: tim actually wanted to do it you look marissa, but marissa was not interested. tom: they have talked on and off for a long time. david: thank you, tom. we will keep following. coming up, a look at the top stories trending on bloomberg. ♪

that is a nice shot of new york city on a chilly

day. let's take a look at the top trending stories on bloomberg and you can use this by using .he function christine: i am fascinated by the governments around the world to raise taxes or lower taxes on the estate to try to change manned. overnight, we saw china is cutting some taxes on homes and trying to clear the glut of home inventory. we have a nice story out in business week this week. also on the terminal today, about how the top layer of san francisco homes are being, there is a proposal to increase the tax rate for anyone who sells a home worth more than $5 million or at higher levels, or $25 million. this is part of the income inequality gap, part of the fuel. david: is that sales tax or property tax? christine: tax on the sale, so when you sell it, there will be in a minimum if you sell a

home for 25 million dollars or more. the member of the board of supervisors who once this on the ballot in november, she needs more support so it isn't already on there, but they are making the case that there is too much income inequality and growth in homelessness and all these people have these multimillion dollar homes. the story points out that a few years ago, there was an increase in the income tax rate temporarily and it helped overtake the budget gap because they went from a budget cap to a surplus. they have actually seen this help their economy. david: there was a man named bloomberg koran new york in the early days when they had a budget inequality problem and they raised the sales tax. to ourne: going back discussion with tom, tech companies have really been under criticism for increasing the wealth cap and being out of touch and making it more unaffordable in san francisco, so that plays into this argument. we have seen in london, the conservative politican raised

that on property sales and there has been a big decline in luxury home prices sales this year. it will be interesting to see how that plays out. matt: i wish it were concern for me in either city. [laughter] no more time. that was one of the top stories. you can find more stories. we will take a quick break. when we come back, breaking news on the economy. january cpi numbers out. if you take a look at my bloomberg, i have three different inflation expectations graphed. the blue one is the market, five-year, breaking even. the yellow and white are university of michigan consumer sentents. that is behind with the market expects. david: michigan should be a blue. matt: true. [laughter] ♪

matt: you are watching bloomberg us with you are joining christine harper.

a pleasure to have a full table of smiling faces. first, breaking news. julie: the estimate month over month is for a 10th of 1%. those numbers are just coming out. coming in a little better than estimated. cpi, no change. a percent decline was estimated great if you look at the euro -- year-over-year number, you get 2.2%. a bigger increase than had been estimated. obviously, we're seeing pressure from things like energy. again, the court number could be

a positive sign. a 2% gain with the prior number, and that was revised higher. two months in a row of better than estimated inflation on the core level. futures behind me, it looks like we are seeing a little bit of a dip lower than where they were previously. it looks like they have taken a slight touch+++

on these headlines. matt: cpi above 2%. i have it charted on the bloomberg. the slope is good. david: for some of us, rooting for a high cpi is a thing. how much should we read into this? the u.s. consumer drives this economy. >> they are trying to defend deflation from the low side seeing an uptick in the coordination at this point that core inflation at this point. as house prices to continue to affirm, that will put pressure on the cpi in the near term. rescuers say, not prices for buying homes, but the rent. we have a tight supply of raising of their. of people are renting, more so than in 2002. >> and that is certainly true from the 1980's, when inflation was high. >> could this be having an impact on the major urban centers? >> it is possible that airbnb could be having an effect. confirmed. not insight into the

u.s. consumer. what you say about what is going on with the consumer in the united states today? >> still, quite a bit of consumer confidence. the holidays were a lot better than people expected. we had a lousy fall, but that was due to the weird weather. this as aat bellwether, we certainly saw a uptick in sales from september through december, more than you would expect from the fourth quarter. i think people are buying. i do not know what is going to happen with the market, as skittish as it is, and what of the consumers will actually be impacted by that. but that is the part of it -- matt: the perception of it is

that there is no inflation. that consumers are not out there spending. when you talk to investors, what do you hear? investors get very nervous, and that is showing up in the market about oil and gold showing signs of recession. but i'm curious, because the conversation for a long time has in when will the low low price spur more spending like you are seeing, or allow pricing increases in other types of goods and services? i wonder if that is happening. i wonder the wage growth we saw in recent figures is actually showing up in spending patterns. i'm curious for your thoughts on that. doing thing the consumers very well from income perspective, as of january you have income growth of 4.9% anyway. income growth is growing just fine. the issue is the savings rate has been going higher. it is about a percentage point over the past year. there is evidence that consumers

have been spending some of that oil tax cut, but certainly not all of it. it is going to be stashed away in savings. we have elevated savings all around from previous cycles. cash on the balance sheet is significant higher than it was. >> could they are recommending selected by a hall? -- could they be saving while they are renting to buy a home? >> it is possible. david: it is pretty ironic that we are rooting against the savings and more inflation. julie: futures are about where they were before the cpi numbers came out, a third of a percent down across the board. i wanted to talk about individual movers, speaking of commodities and inflammation. cutting the outlook for farmers, feeling the pressure for their

product to the shares are down 3% this morning. have yahoo! back up. we been talking about the story a lot this morning. the fact that there is an independent committee that is being formed to consider yahoo!'s next move, and as we have been talking about, it is unclear exactly what marissa mayer's involvement will be. she is not named in the release, so you can see the shares are higher. in the nordstrom is another when we're watching today. company coming out with holiday results that missed analyst estimates. earnings the low what they have been anticipating. those shares down 8%. another small but important mover this morning is a company called trinity industries. it makes railcars. this is important because what we're talking about earlier, what is going to be the

continuing effect of lower commodity prices on a host of different companies. we have seen a lot lower rail crawler -- real car traffic that is tied to things like coal and other commodities. so trinity coming out with earnings beating estimates, but it is a forecast or 2016 that's below estimates, and that is putting pressure on those shares. matt: walmart reported lower sales growth during the holiday quarter. but not all retail sectors were affected. we discussed further with the partner.uity research what happens with walmart? wire sales they're doing so poorly when gas prices are so low? shouldn't consumers have more money to spend at walmart? >> walmart has been fairly anemic for a while. you're are seeing positive growth, but traffic has fallen the pace in terms of

of games we are seeing from just a few quarters ago. the news yesterday came on two fronts. first, deflation in grocery, and secondly, tax refund delays due to the disruptions in the filing process. notwithstanding, i think there can't store sales would have been around 1%. they are about 60 basis points can still quite anemic. i think walmart specifically has struggled on a novel of fronts, particularly with the customer experience in the store, cannibalization from web competitors, and so they are in the process of trying to turn this business around. it is like turning the battleship around in a pond. it is not easy to do. it will take a couple of years. matt: i was shocked to see how low the margins are at walmart, you can do that at sam's club and costco because of the membership fees, but why does

walmart accept such low margins? is that just an exchange for a bigger piece of the pie? were secret sauce was low-cost operator, low price provider. operate at low margins, and when you make gains in sourcing, reinvested back into price and drive comes store sales. decade,in the last there have been times when the incremental investment in price was not really yielding a criminal sales to justify the investment. there has been slippage through the years. their cost structure has risen, their gross margins have also risen's, their price of damage has narrowed. their stolen low-price leader, but not as much as they were perhaps 15 years ago. we are also ready for home depot and lowe's to come out with earnings reports. i noticed home and he goes through your forecast is for 15% margins. , at least thath

was the 2015 forecast. they are in a must better position. . not just a great management team, but a very healthy industry. a recovering housing environment, and i think frankly that will continue. you had positive wage growth, positive job growth, you have credit extension. we have been pretty impressed with the numbers. i think you'll have another good fourth quarter. my biases to the upside. compe looking for a 7% store sales gain here in the u.s.. a couple points lower than that, but some healthy gains. matt: so using home depot is taking advantage of the situation? >> home depot has a structural competitive advantage. they have greater density in the major markets. the store for more productive,

more profitable. they're very focused on the pro-customer in the last year is really going to distinguish them in the marketplace over the next three to five years. we are excited about the home depot story. not only do you have a healthy industry backdrop, but you have a well managed business. thank you for joining us on retell stories that we are following. david: i want to thank brett ryan of judgment and christina for joining us today. coming up we will talk to the former ceo for martha stewart, and also the top spot at abc and it well. and the maker of north face is down about 4% after fourth quarter's results trail estimates. ♪

matt: i am here in the green room. coming up, our epic battle of the chart. capitalfounder of management is going to be joining us on bloomberg . ♪ we have your latest bloomberg business flash. moments from yahoo! ago. the company is looking at a strategic alternatives. they say they are maximizing shareholder value. marissa mayer has been under pressure from investors to sell yahoo!'s core businesses. report of the regulators departure comes after everything crisis last month.

dollar hedgen firm citadel is making cuts. that is your bloomberg business flash. david: i'm going to take advantage of the former president of abc entertainment, the woman behind this for houses and lost -- behind desperate housewives and lost. matt: i could not watch that. i was addicted to that. there was a big shakeup, a change of in your old job. i do not know her. she came in as the first african-american woman, which is a milestone, to run this. but i want to talk about this business and how it has changed since we were in it, because of

digital and over the top, and netflix, and amazon. >> one of the things that was block when i was there, was that everybody was looking for the next csi can the lex law the der -- csi, order, something that would repeat well, that you do not have to watch every week. you thought you never would get somebody to stick with a show that had a plot. desperated housewives, it was a huge risk, because it had narrative storytelling. david: the fear was that if you missed the first two or three, you can never get caught up. >> exactly. the statistic that was given to me was that even regular viewers of the show watched 1.4 times a month.

they would always miss a show, so you wanted to watch something that they could pop into the and have satisfying viewing. matt: that was then. >> and this is now. now you have the ability to see things many weeks after aaron, and get caught up comfortably, narrative storytelling is driving this new renaissance of tv, i think. david: and yet we have to ask -- you have to ask yourself, is netflix and entity or a friend? they are eating with you at the same time -- competing with you at the same time. >> i have to be more reseller that a buyer. in terms of five years ago, there were 220 group did shows. now there is over 400 scripted shows, comedies and dramas.

there are some places that are doing contests, netflix, amazon, other cable networks are doing original programming. it is more competitive out there. that does not mean more costly. david: the business is changed. more and more providers. >> yes. think he has done the best job of anybody in creating consistently good tv, and being patient with it. not jumping to replace a show that is not an instant hit. but it is no question it is a very different landscape. that right, it used to be you had concrete creators, and you had distributors. now two of the biggest distributors, netflix, amazon have become some of the largest content producers. they have really hedged whatever price increases could be coming from broadcasters by saying we

have plenty, thanks. david: specifically at netflix. let's talk to bob iger. >> you look at them carefully in the sense that we want to see where things settle down in terms of the competitive nature of the relationship. by short-term, and maybe midterm, they are more friends than faux because they are a great customer of what we make. david: he was talking about netflix. you have to both sell to them and compete with them at the same time. >> absolutely. and they become an easy way for people to catch up with a show. if the show is in the second or third season, and you have not watched it, you can watch it over the summer, get help, and then in september or october, you become a new viewer. matt: i wonder what you expect from the future of apple? hbo, but ih netflix,

watch them on apple tv. more than paying most people do. because you subscribe through apple tv. if you watch them on netflix on apple tv, is that how you view them? matt: yes. >> you're getting a deal. david: is it a better deal than it was five years ago? >> i think it is a more interesting business. it is a more complex business. it is very difficult for broadcasters to know when to move programming on traditional on digital platforms. if too much goes on netflix too fast, that becomes your default you are choice. default viewer choice. everyone is trying to figure out the right mix at this point.

you still allow people to get caught up, get excited about a show, get engaged, and also get that extra revenue stream. matt: we will take a quick break. but you will want to stick around, because you do not want to miss my battle of the charts. i will take on brendan greeley today. to see if you can redeem himself from the horrifying loss from earlier this week. ♪

david: this is bloomberg . we have something special, battle of the charts. susan, you are guest judge. brendan greeley, you get to go first. brendan: the great deleveraging.

household debt service race euros are at their historic lows. the amount of money people have to pay to service their debt is low as a ratio to their total income. i decided to dig into the numbers, and that split up between everything else. we know this story. here is on morganlander, 2008, things slowly come down. people are paying down on their mortgages, they're not going to get burned again. but these have crossed but although total services are flat, that is rising in student debt. simpler take on what is going on in the oil markets. in yellow, i have the uso, the mainstay oil etf. three times long uso. it out here is the three times short, the inverse philosophy oiles, three times bearish

etf. it is almost tripled in the past year as oil has been known to 12 year low. markets do not think much about the future of oil, and you have your spending more on student debt. the think brendan has advantage. [laughter] he will have these catchy titles. david: you have had your say. going to go with brendan as well because he told me something i did not know. matt's chart, while interesting, tells me something i already know. i'm going to go with

matt, partly for sympathy. [laughter] matt: that is even more devastating than a total knockout. >> i might have to go with brendan. [laughter] i did learn something here. it is fascinating. julie: 20 have to say? david: brendan: i am hundred on my win. access these also on our bloomberg terminal. more: coming up next, bloomberg . ♪

david: we are now 30 minutes from the opening bell. byt: we're joined now our colleague or erik schatzker.

good morning. us, chris sentiment, the founder of 400 capital messag management. to see you. we will get a check on financial markets right now. julie: we are looking at stocks moving a little bit lower this morning. stupid either decline as we have gone on this morning. coming in higher than estimated at the core level. we are now seeing year-over-year growth of two 12%. oil prices have been waiting on what is going on in stocks this morning. oil prices took a leg lower after we got that cpi data. inflation is heating up. oil prices go down 8%. i want to talk about the correlation. ? take a look at bloomberg.

oil prices in white. we have been talking a lot this week about the decoupling of this. that we are not seeing as tightly correlation. but to this morning, the correlation appears to be that they look like they are moving in tandem. also looking at other asset classes here. take a look at the 10-year note. meal as we see money move out of stocks this morning. 1.76%. .76% -- the appellant falling as well this morning i let's go to bloomberg first were news. >> the fight against the islamic focuses on libya. warplanes multiple targets, including training camps, and they senior extremist leader.

u.s. officials did not identify the leader, nor the area that was struck. david cameron u.k. prime minister, is running into resistance as he tries to talk britain's participation in the european union. policy plans that would protect london's financial industry. dignitaries and tourists alike will be paying tribute to the late justice antonin scalia. mrs. obamant and will pay their respects this afternoon. his funeral is tomorrow. erik: it is time for the three

stories that matter to markets now. number one, perfect symmetry and asset itself. since hill's main fund was down 6.5% in the first to weeks of 2016, and now the foundries cutting staff to reduce expenses. they have limited about 15 portfolio managers in 200. spent $500self just wollion buying t paintings in one of the biggest private ordeals ever. ,o here's the question what page of the handbook does this fall under? losingour clients are money, and you spend more money than god on art. [laughter] he has been in business for a

very long time. he is a very savvy business dan, he is adapting. erik: to be fair, last year was bad for many investors, but the senate bill clients did well. he is a savvy businessman. is there some sense in which you would want to prove to the world he was not hurting? i'm doing just fine, thank you? >> it is kind of like steve:. david: exactly. matt: yesterday, as i told you -- you want hard assets.

more seriously though, as a hedge fund manager, it may be do these kinds of headlines -- >> but it is news. erik: is there any negative blowback for the industry as a whole? >> if anything, and is positive. it is an industry like any other industry. it shows the realities of asset management. every single day, clients are negotiating lower fees. but you are seeing the ramification of that. the margins of the does this have gotten more volatile. you're seeing a manager attached to it.

he is adapting to changing his business environment. i look at it and i have to look at it very carefully to see what it is a about the changing dynamics of the business. erik: fair enough. matt: china bears are warning that the outflows have only just begun. the unwinding of carry trade is less than halfway done, and goldman sachs sees $100 billion in outflow risk for every 1% loss that we see. what you think about this? everyone predicted to fall further, most people do. does that mean that outflows are still going to be hundreds of billions of dollars a month? >> where are they going? that is the question i would ask. a lack ofte transparency. it is everything a manager and investor hates.

capitals leaving the chinese economy. the question is where is it going and what does it do to other asset values? matt: drives of the asset values of impressionist dangerous. >> but look at the prices of midtown manhattan. host impressionist abstract impressionist. [laughter] david: there are very large transactions, chinese computer buying very big western companies. >> every investor has to pay attention to china. if they do a significant valuation trained -- change. erik: even someone like you? you're not a macro guy, but this is the thing you are paying attention to? >> it is going to volatility to the system in general. everything we do has to be valued. it will affect valuations.

you have to look at both. with the markets that we look at, fundamentally they are very sound and we are very bullish on the underlying credit picture. but valuations are very difficult in this environment. if you have lack of transparency from china, if you have an uncertainty around the current evaluation, will add volatility. erik: do have a macro overlay on your strategy? >> we do. it is like buying insurance on your house for a fire. you have to do it. david: we'll go to your. the pound is weakening against the dollar is anti-grexit talks go into a second tape. david cameron is talking about welfare curves with his number. i do not know how exposed you are in europe, but do you take this threat seriously of england leaving the eu? >> we have to pay attention to it.

we do have some exposure in europe. we have been a reluctant to miss that there is opportunity in europe, but there is slow going. every country, every quarter, wants to leave the euro. if it is going to be greece, it is going to be britain. tactic for theng members of the euro to rebalance contingencies locally. a lot of it will be driven by politics. i think basically, cameron is for you to know that if he does something very significant, and puts a referendum out there, it will create some intermediate term volatility, and it not be great for the european economy. i think you will be motivated to get something done. david: you have something from bloomberg? julie: this is pound volatility. a real or not there is chance that any given nation will be exiting the euro, we are

seeing reflected in the markets that there is uncertainty. supply six-month volatility versus the euro, and we hire seeing it at its highest its 2011. this reflects uncertainty, what will happen with that situation, and the volatility that we will see different developments ahead of the vote on that. david: i also wonder about how this affects mario draghi. as you look at what he will do the ecb, this is headwind. this is not good news for the european union, or for england. as he is looking to try to get his inflation rate for 2%, if this makes his life more complicated? >> it makes it more complicated and creates uncertainty investors. it is going to promote and risk off environment for a time. erik: something we will get into with you is the degree to

which adventures take -- investors take advantage of the regulatory environment. but one of the things david cameron is trying to do is create a carveout for british banks in the european financial regulatory system. if he fails, and british banks have to migrate operations to , furthernent disrupting and the stabilizing banking system, is that potentially an advantageous situation? we do not know how it will shake out, but -- matt: british tanks may be under the same dress as swiss banks. david: in order to operate in parts of europe -- erik: european banks may have to move their u.k.-based operations to france, germany, or spain. >> i do not think the operational change is as big a deal -- it is really the

overriding regulatory environment, which captures the u.k. banks of the u.s. banks. those are parameters that are prohibiting flow credit. those are bear issues. erik: we will continue our conversation momentarily. those are the stories that matter to markets right now. much more bloomberg as we break.break -- head to futures down almost 100 points. one stock on the move that we have been following, you heard it already, is yahoo!. --oos board under pressure yahoo!'s board is under pressure to explore stock options independently. you will hear about yahoo! on the other side of this break. ♪

>> this is bloomberg , with your latest bloomberg business flash. apple has been given more time a response toh that court order to unlock a terrorist iphone. inflation rose by the most in four years last month. it climbed 3/10 of a percent. companies are getting some pricing power. falling energy prices were

factored in, then it was unchanged in january. and more than a year after -- after a spaceplane was destroyed in a accident that killed the pilot, virgin atlantic will rollout the next plane. of candies andr joe boxer said it will restate its past financial statement. they did reaffirm their forecast for 2016. all of this is related to a comment letter that was previously disclosed for accounting on joint ventures. cheers arising on that reaffirmation of the forecast.

we're also looking at true car this morning. this company losing more money that has been estimated last quarter. this is a website that provides automotive information and shares are plunging by 21 percent this morning. a couple of companies to mention this morning, and engineering and construction company that services the mining and metals industry, but companies in missing estimates because we have seen we demand from those industries. and trinity industries, a rail car maker, coming out with a forecast that missed estimates. demand fromlower the commodities industry. next, are concerns about the credit market actually overblown? talking to chris about his thoughts. ♪

u.s. crude futures back under $30. a drop of almost 4%. nymex crude trading at $9.61 a barrel. -- $29.61 aeen barrel. been above 30 in several days. the fourth quarter, credit has been a healthy place to invest in you had been able to make money for your investors by finding unusual opportunities we have talked about them extensively. given the shakeout that is happening in credit, is a getting easier or harder for you to do what you do? >> the shakeout always creates opportunity. what it is doing right now is it

is repricing the sector. source really good credit opportunities, especially if you're looking at sectors that are really independent from one's going on in energy, or going on a macro. volatility is difficult to manage, but it repricing things to a level where they are attractive. consumers, we love the consumer, they are in a much stronger position today than ever after the crisis. that is being challenged right now, because how is the consumer going to be effective in a significant downturn in china? for the things going on with currencies? to be objective about what these changes need to the consumer. but we will get 1990 him look at how strong mainstream was. even though we had a significant revaluation in the late 90 90's, main street held a really felt -- mainstream held of really

well. matt: they will become cheaper to buy them with some retail tailwind.retail >> the consumer purchasing power is getting stronger globally. not great for the equity markets. erik: if you add it, lower gas , lower depreciation unemployment, wage growth of 2.5%, how do you express that you? iew? -- >> we like residential real estate a lot. we work with the evolution of what is happening in fannie mae and freddie mac. you cannot ignore fannie mae and freddie mac. about 85% of mortgages that

originated, they had something to do with it. to congress has told them move risk away from taxpayers and into the sophisticated investor. that is us. we love that situation. the banks and the lending environment has gotten so conservative, that basically the underlying credit is good. and likemer is paying, we just spoke about, is likely to continue to pay. the fundamentals are really good. the challenge is the market volatility creating a much for different pricing dynamic -- a much different pricing dynamic. things have much more attractive prices, but it is the right time to step in in the short term. right now the short term is a challenging picture to interpret. but in the long-term, we love it. erik: are you talking about the quoted price on security, or are you talking the middle of the did ask, or the widening

spreads? >> all of the above. one of the most difficult technical situations we have seen since the crisis, steadily since 2011. there are fewer broker-dealers participating, and that is a function of regulation or overregulation. the analogy, it is like taking away the george washington bridge. everyone has to get to work, but if you overrate a sector, everyone thinks about how hard it is for me to get in and do my job. if you take away brokers and capacity for us to do this in the market, ms. harder for us to put money to work efficiently. it is creating a lot of volatility and pricing. david: is regulation your friend or your file in that there are in that there are fewer competitors? it has fundamentally created

opportunities were base are getting regulated from certain types of credit investing on their balance sheet. but we can step in and do that. the opportunities have gotten really good for us. we be secreted liquidity for investors, would be to go over the bridge, the capacity of the markets has also come down. changed quites substantially we need to look at our investment model attached to the -- to adapt to that. matt: high-yield trading has become much more expensive because of these regulations. does that mean smaller players get an advantage? >> i think smaller players, if you're more nimble, you'll be able to manage a little bit better. -- youue is you have to have to worry about if the

changes will knock you out of the market. in one sense, you can be more nimble in terms of being able to operate, but at the same time, do you have capital to sustain high volatile? david: jeffrey is a real-life experiment. chris will stay with us. much more ahead on bloomberg . losersheck the biggest in the premarket trading. 20% car, losses of about heading towards the opening bell. ♪

erik: just moments away from the opening bell. fewave a check for you on a things happening. the japanese yen game against

the dollar. it adds up to the biggest gain against the dollar, but the qb is getting smoked. under $30 agetting barrel for the first time in days. we will continue our conversation with chris capital. there are a lot of people familiar with your business as a hedge fund manager, but your business is different than that. , a not here to tell us dissimilar storage what we're hearing from chris about credit moments ago. things are repricing and getting cheaper and like that. >> the private equity investors, that is what you always look for.

back, the step question every mind is how high is too high? acquisitions traded about where they were in 2007. we are back in those times of eight years ago. the multiple was about 10 times, and that is trailing evebita. if you look at what is happening in general of the world, there is a trifecta of events that are happening. one of which is the public markets, which you're discussing before. the turmoil in the public markets has some effect on the private markets. , many relative metrics times to value our companies. as a benchmark, it is one of the more important benchmarks. the second point is, i think in general, private equity investors are underwriting to lower expectations of growth. i think there is also an

undercurrent there which is a sense of overcapacity in the industry. low interest rates has led many companies to make investments that may have been justified and lower interest rate environment, but in these current markets the maybe some -- there may be some cities which have lower expectations of growth which leased the lower earnings. issues in the private markets are 19% where they were less you're on a year-to-year basis. have a, you will compression of multiples. erik: which industry's gc this trifecta playing out in? >> definitely the manufacturing sector. we have seen things in europe where the play is taking capacity out of the market, consolidating operations, whether it is in europe, or asia

operations. generally speaking, it will be in places where you have a hasly dynamic that overgrown its demand capabilities. david: you say this because of overcapacity, and the opportunity is for consolidation. that gives you pricing power. regulatory entities do not like this so much. do you run up against regulatory pressure? >> that is true of larger companies. in our sector of the world we are talking about pretty small markets overall, or even if you consolidate a small industry, you're not really affecting overall pricing in the industry. it will happen as we get bigger. as companies get bigger. but i think in the little market , anything that has to do with trust busting is less prevalent than in the bigger marquee deals

you see in the markets. d.c. those valuations lead or trailing the public markets? in the private markets, does it take time for that to manifest? it does take a significant amount of time to close in the system, which presents a challenge for us what is the real metric we should be using? bethis point we should thinking about forward multiples as opposed to trailing multiples, because we are, everybody talks about the new normal, but we going into a different type of market environment. mind, a lotoint in of public companies were able to push out maturities at relatively low interest rates over the past several years. while there may be a turn in the credit cycle, while fundamentals may be deteriorating, if your outside energy, or retail, a

long those companies can hang on for a while. is that not the case in markets for private companies? >> it is fairly similar. fundamentallyay, as an underwriter of a transaction, what i'm looking forward is forward fundamentals in industries, and specifically in companies. i think the debt markets are just to those expectations. when i was a is a generally do would see some companies begun to hang on. in the energy market that is not going to be the case. see, a starting to market that we are quite active extend see a lot of this and pretend situation. erik: i want to get back to the point on energy. a bit of breaking news. you heard about this, you read about it on bloomberg. in his official. barclays says that tom keene

ing will retire. it is official. the breaking news to share with you. let's go back to our conversation. energy, a fascinating topic. it has been the falling knife that has sliced open everybody's p are you buying assets or just aalm. -- everybody's palm. are you buying assets or just a window shopper? what midlands for us is that the markets have adjusted, and we think they are trading up distressed valuations. matt: the markets outside of the

u.s. already adjusted to the lower oil price? >> yes. the debt outside the u.s. is center. >> and they can reprice faster. can you actually do a forward price of oil transaction at $30? >> this is a underwriting case, but it was below $30. the entry point allows two things. thes the entry points and cost of services. today you can get a reagan asked to present where you can a year ago. if you add up all things, effectively, your full cycle economics on this project will be below $30. david: so the price of production is coming down as well as the price of oil. , in my view, it is a good entry point. erik: how many management did

you encounter with the same point of view? or crude at brent $30 a barrel for years to come? is easy,ot saying this and i'm not saying this is an easy discussion with my colleagues in the investment committee. but i also think it is an inflection point where in my view, energy investment makes more sense. history, thet the best deals have been done at this point. but therenot many, are a few. with the way that i would describe as what we've done in europe is a management restart. we bought assets from a distressed seller. erik: they are distressed, there should be many. they may be willing to talk. david: but they know they are in distress. >> it was more than a management

team, it was an asset in the management between behind asset pool ofe a larger assets that can become a real company. >> reminds me of what we saw the real estate crisis. property fell so fast you had to define the bottom, and you had to do asset based lending. that is where it starts, when you can value the assets at such a deep discount that you can get comfortable, that is where you start to dry recovery. you very much for joining us today. a good conversation. julie, we have been trading for nine minutes and 30 seconds now. where are we? julie: let's take a look at the major averages. a decline this morning because oil prices pulling back, and after that cpi number, inflation rising more than people had

anticipated. a little reassessment of interest rate expectations, not as a result. stocks moving lower to the end of the week. oil prices part of the story. we are seeing oil down 3.7%. yesterday we got that inventory, and supplies in the united states the highest and 82 years. look at bloomberg with interest rate expectations changing. we regulate the implied of ability of interest rate increases of the following meeting. this looks at the expectation for the meeting on november 2. we see them fall off a cliff in mid-february on the chart below. now they are seeing a bounce up around 36%.

movers, of individual the shares have. the earlier games, after the ampany said it was forming committee of independent advisers to counsel it on the future direction of the company and strategic options. this admits underperformance on the part of the stock and some of its other numbers we have been watching. we have been watching a deer this morning. the company coming out with numbers that missed estimates. areer pressure from farmers lower commodity prices for their crops. nordstrom speaking about not spending as much. sales rose by a less than analysts had anticipated. earnings come in lower than estimated, adding to the retailers who suffered in the fourth order from a number of different factors, including the stronger dollar. let's could abigail doolittle

live from the nasdaq. ied's looking at appl materials. >> shares of the largest equipment company higher after the revenue rate for the current quarter in our estimates by as much as 9%. the ceo says the street had been driven by demand for new technology from the customers. in fact, applied materials, as a maker of machinery, is often seen as an early tell for the chipmakers themselves. itself is nowals largely recovered from much of the losses made this year on this revenue forecast. david: thank you very much. appointed a committee from its independent directors, and they hired advisers top and sort out what will happen with the company. we will talk about the future of yahoo!, next.

antonin scalia is lying in repose at the supreme court in washington dc. the house and senate are not in session to show respect. president obama and the first respects this afternoon. this is the scene in the main hall. ♪

matt: this is bloomberg . i am in our green room. alan krueger, the foreman chairman of the council economic advisers, with me at 2:00 p.m. ♪ this is bloomberg , i have your latest bloomberg

business flash. the head of norway central bank has stepped up his warning. he predicts the norwegian government may have to withdraw $10 million from their sovereign fund this year. prices rose 181% larger, the highest inflation rate in the world right now. this comes a day after the of a package of measures aimed at helping the government raise money. mark zuckerberg may have some explaining to do when he goes to barcelona next week. those free voice calls and messaging apps are eating into their bottom line. telephoneon infrastructure without sending any money to support it.

that is our latest bloomberg business flash. ink: we have some activity yahoo! shares this morning. toy are up about $.66 on $30 make it $30.09. they formed an independent committee on the board to explore strategic options. just yesterday, they reported that starboard value was in the initial steps toward a proxy fight against yahoo!. much has yet to happen. we will talk with cory johnson ove. we also talked to david kirkpatrick, and also a credit investor at 400 capital management. will go to you first on the phone. how significant is that the board would form an independent committee now, ahead of the proxy? to finally consider the strategic options? >> i think it is significant,

and i think it shows that marissa mayer and the board have accepted the reality that for better or for worse, will reconsider understands nor accepts a company that combines the alibaba assets, classic yahoo!. earlyembers of the board believe in it, but cannot get the numbers. david: how significant is it that she is not part of that committee? >> the fact is, she is much more excited about classic yahoo! that she is about any process that involves focusing entirely on what happens with alibaba or splitting it off. i think she believes that shareholders deserve to get full value, and she is excited by reviving the company. she thinks it is happening, and possible, and if you look at all

the cutbacks they have made recently in their cost, and the various structures, she feels a lot of energy to remake and revise what we think of as classic yahoo!. i think that is legitimate. these cutbacks and changes are just mandoline a lot of what her plan is. cory: so many people have worked yahoo!, and it is more than a decade old. e fundamental rot at the core of the company. place formportant advertising, but revenues are slightly declining. if you look at the euro numbers, they start to look worse. but when you look at the adjusted profitability, operating costs have gone

up. when you look at the profitability, the adjusted numbers, taking out the one-time charges, you see a rapid decline of profitability in and it is getting worse, and the pace of the slowdown is getting worse. on desktop, not on mobile, where it is going. erik: i'm curious to know what your gut feeling is on this? david out of perfectly, yahoos lord has awoken to the idea that wall street does not yet this fixture of the core business plus alibaba, yahoo! japan. the question is whether it is too late? taking steps now to a sale at some point may not be enough. they want to forestall what appears to be the inevitable. other activists will start as early as next month. >> no matter what time it

happens, the board has to take responsibility for the direction of the firm. they are doing it now. good argued that it might be late. it mightuld argue that be laced. when i see this chart from icy destruction of shareholder value. there is something wrong with this strategy. the board is trying to get on top of that, trying to be objective. yahoo!'s dominant desktop, they are very powerful and search. yahoo! mail, yahoos search, those were dominant products 10 years ago. ift has gone to mobile, their weather app has been very successful. matt: $40 billion business, it is not important. david, what you think about cory's point that they have not focused enough on mobile? marissa's plan, leave the strategic alternatives aside, what do you think about

her plan to revive the company, and how can you say this is energetic? when you saw our interview with her a couple of weeks ago, she was the least excited person in the world. >> i give more people the benefit of the doubt. she is the mother of two new twins. i do believe, unfortunately, the company is almost certainly going to be sold. there is clear evidence that verizon is interested. tim armstrong, leading a team to examine it. he is probably chomping at the bit to try to do that. nonetheless, she is trying to do what she can. this committee has been declining for a very long time. -- and istheir fault not her fault they do not have anything global. they have not succeeded in

mobile, but when i been saying that people find surprising is that yahoos still has one billion users. that is an astonishing and very powerful fact for any owner, whether it is the current shareholders, or verizon, or whoever. matt: you have to monetize it. thank you for joining us. always a pleasure to have with you with us here. when we come back, the best from bloomberg this week. ♪

david: welcome back to bloomberg. there is a lot of talk of hedge funds struggling. how bad will this be? challenging,o be like everything we said. it is a risk off environment,

and they are risk fund managers. we are in a challenge sector right now. until you see the ink that are in the neck or environment settle down, people get transparency to where the banks and china will go,, they will get more comfortable. the silver lining to it is being prepared for when the clouds part. it lookse actually -- so attractive, you have to time it right. right now, it is still a challenging time to jump in. you have to give it a measure, and you have to have a sustainability to get there. that does it for bloomberg . have an outstanding weekend. ♪

>> welcome to bloomberg markets. ♪

>> bloomberg world headquarters in new york, i am brendan greeley. argue thative, some this may be the best deal for the fed to deal with long-term economic downturn. there is a new twist in the matter of apple versus the fbi. the government is working on its own backdoor to mobile devices. republican presidential candidates square off in south carolina and democrats face the test in nevada. world to the markets desk julie hyman has the latest. julie: there is a selloff to end the week. we are now seeing stocks decline today. the nasdaq is typically the biggest liger on down days, that is not the case today. we're sin