scarlet: good afternoon. : emerging market funds may be having a quarter to forget, but that may be why exactly big names are dipping in. we will look at the big is developing world stock funds. scarlet: james, a comments before congress on the privacy case. he calls it the hardest russian he has seen in government. : what does $30 oil mean for solar demand? the ceo of sunom scarlet: welcome back. power, which is breaking records it may be seller's time to in the industry area scarlet: -- in the industry. decent numbers, shine. solar panels have finest 80% in five years and it is inspected durable goods better than expected. to keep falling. julie: a gain of nearly 5%. forress extended benefits

jobless claims coming in a little worse than five years and that will generate $30 billion in new estimated. solar and power investment. fall,t: but as oil prices right now, all of this is equally mostly higher stocks. will the demand for solar remain the nasdaq is now unchanged. strong? let's ask the man who has a but we have seen stocks bouncing birds eye view of the industry. .om werner between gains and losses in a pretty narrow range. markets, europe he joins us now from our bureau tom, i have tong included, have rough he shrugged that off. ask you first. what is the relationship between oil rices in the demand for solar power? is the cause-and-effect here? as you can see, here is the year to date chart. we are seeing the narrowest range this year, about 14 point. tom: very little electricity is produced from oil. less than 10%. this is true for the dow as so the correlation is pretty much nonexistent. well. it is mostly the energy sector let's take a look at the sectors on the move as well. and mostly an investor reaction. financials have been leaving some of the gains made during we have lloyd's of london pleading in terms of business, it has no impact whatsoever on our gains in european financials. business. alix: let's talk about the market impact. we have seen energy is a sector but aside from financials, a lot struggle. of the more defensive groups are doing well and staples,

utilities, telecom. sun edison has struggled very and we have energy and materials much. how does that impact market once again on the bottom end of that aaron oil prices once again perception? lower today. tom: you get this sort of view they are bouncing off the lowest of the whole sector. to some extent, but still of by trading,et sector one of 5%. which in the big. picture doesn't make a ton of sense. as you point -- which in the bigger sure doesn't make a lot of sense. picture doesn't make a lot of sense. scarlet: in the commodities break out of the space, oil is not the story. it is really about natural gas. julie: natural gas at its lowest pack. , theyms of the yieldco in 17 years. this after we get the weekly inventories report for natural gas. you saw the drop off the cliff are being grouped together. when we got the number. in time, they quality performers will separate. sevenonly be public for it saw a drawdown on inventories. but still 29% above the five-year average. or eight months. scarlet: talk about the growth not coming close to working down the supply glut. year, if you look prospects for you.

a natural gas versus oil prices, natural gas is down a little bit more. tom: growth is fantastic. 41% to the 38% drop we have seen in crude oil prices. let's check in now with opportunitythe mark crumpton. going forward, you've got the mark: thank you. itc extension, the cop 21, the metering in f ai director james, he says apple's this it would -- fbi director james comey says california. the backdrop is rather phenomenal. of course, that attracts apple's dispute is the hardest competition. you have to be an animator. question he has seen. you have to have a long-term advantage that we have being in comey: we just have to the industry for 30 years, so you can be differentiated. but in terms of growth, it is make sure that the bureau phenomenal. explains that folks with the cop 21,u talked about costs are so the able to look at us years from now it's a where were you guys when it happened? bureau be ahat the the deal reached in paris. what are the implications of that? factual input so that we have a tom: it's not going to be that row bust conversation -- a predictable and the timing is it robust conversation that is going to be that predictable.

informed. mark: tim cook says it the risk would be sort of timing. potentially could millions of and of almost 200 countries, who iphones at risk of being half. will be first? but we are already seeing -- government troops backed look at china. it implemented more solar last by russian airstrikes every aleppo. a town from year than america has cumulatively in and that has to do with -- cumulatively. and that has to do with the carbon rising -- that has to do the army took the town south with decarbonizing. weeks -- southeast of aleppo city after heavy battle. as a long-term trend, that is a women in countries hit by the really big deal. zika virus should breast-feed their babies. where are you in rooftop inle zika has been detected breast milk from two mothers, there was no word of the virus being trans added to the babies asset-backed securities? via breast-feeding. un u.s. will send the tom: you sell leases to residential customers. they sign a commitment for 20 years. they have hi-fi co scores. security council it proposal for so that -- they have high fight sanctions to punish pyongyang scores.s -- fico for the launch of a long-range rocket. the u.s. wants china's support you pledge those payment streams

because the chinese are the . since they are such high-quality and you are getting the world's north's biggest trading best to him, -- the world's partners. best solar system, it is a way scarlet: citigroup is out with a of generating cash. done well, it is a virtuous of new call on the economy. cycle. get ready for recession. scarlet: december 2015 was a abraham or hari and his group really good month for solar say that the risk of falling power. into recession is increasing. alix: what fundamentals exactly? your crystal ball for 2017. we will have a new presidential administration. changes do you anticipate? our next guest says the u.s. economy is still showing resilience. spent eight years tom: the trend is unstoppable. i like to say the so -- the at the fed trying to form on a horse has left the barn. teller -- monetary policy. why do you not see sub 2% mobile growth like citi? the idea of solar being mainstream i think is going to happen. it is a question of pace and yourto: first of all, if where.

politics in america have been look at the data for the u.s. economy, they are still pretty resilient. look at the atlanta fed gdp incredibly favorable. model trying to predict what president obama has been great for renewables. it has created tons of jobs. growth will be in the first quarter ahead of time. it is still pointing at 2.5%. if there is a change, i don't think it is abrupt. what we want is a customer base not particularly spectacular, but on trend come on par with and economic energy. the trend for the past few .hank you tom werner years. if you look at the labor markets, look at inflation neighbors -- inflation numbers, still at the core level. hard to say the u.s. economy is headed for recession. but the global economy for sure. what again, premature. scarlet: but some are pricing in a more pessimistic scenario. there is a gap between main street and wall street expectations. the green line shows the citigroup economic line, which indicates that data is coming in were sent expected. the second is the michigan consumer sentiment index.

we haven't seen a gap like for the cycle. what does this tell you? roberto: that tells me that there are global forces affecting the u.s. economy. pointingbal forces are toward a weaker election. it is not original for the market to price a recession. the u.s. has predicted eight of the past four recessions. a good predictor. earnings would equate recession. scarlet: you know how that gets resolved.

alix: that kind of divergence is also seen in the inflection -- in the inflation picture. basically, your longer-term inflation is nations is the white line. core pce, the yellow line, and core cpi is the game -- the green line. roberto, how does this point and reconciling? roberto: we have to be a little bit careful trying to interpret what the markets are saying, particularly when it comes to breaking even. inflation, at core core cpi, core cd, any have been pointing up the last several months and break evens are going down. that investors are seeking the safety of u.s. tragedies -- u.s. treasuries securities.

you want safe assets, net risky assets. when you seek safe assets, you seek nominal securities. lower break evens are probably more a reflection of the unity issues than they are of a true decline in inflation expectations. scarlet: there has to be another nymex bus, monetary -- and alix: welcome back. abenomics plus. scarlet: let's start with first were news. what do you think about that fbi director james komi trigon bazooka? roberto: i think that would be a says the apple iphone case may great idea to there is no doubt smartphonedent for that certain countries need excess. he was asked by members of the structural reforms, growth house intelligence committee about a judge's order for apple reforms, expansive fiscal policy to help the fbi unlock the area i think -- fiscal policy. iphone one of the san bernadino shooters. he said the agency is not trying i think this will be among summit.on in the g-20 to send a message.

director comey: this is the i wouldn't hold my breath for hardest question i have seen in con first -- in government. concrete action in the near term. we are seven to eight we want to keep the bureau out of the policymaking business. the: tim cook said helping years out of the financial crisis. investors are still lurching from crisis to crisis. fbi break into the phone would oil prices, high-yield reddit, be bad for america and he is prepared to take the fight to that chinese yuan, are the the supreme court. financial markets simply more greece's warning that the refugee crisis could lead to a humanitarian disaster on its fragile than the global economy? territory. criticized als roberto: in a sense, yes. group led by austria which plans to stop refugees at greece's i think market still have to get northern border. over the aftershocks of the greece wants the european union financial crisis. it was a big shock. to go ahead with the plan to relocate refugees across the mark's have to recover from continent. that. bad news for two contenders the financial crisis also left permanent impact on not just seeking to do thrown the front runner. markets, but on the mentality of donald trump leads marco rubio people and households and businesses. in florida 44% to 28%. fragileds to a more market, but this is what we have

to deal with and that does not kasich in leads john imply anything in terms of different or particularly different policy actions from, his home state of ohio by five points, 31% to 26%. say, the fed or other central banks have tell if -- have but senator ted cruz leads in telegraphed so far. coming up in the next home state of texas with 38%. he is followed by trump with 20 minutes, the top five 23%. emerging-market funds have had their worst eight weeks since in kalamazoo, michigan, 2009. will this slump and anytime investigators are still try to determine what caused an uber soon? -- lownd have low prices driver to gun down random strangers. oil prices cast a shadow over the solar industry? it doesn't look like it. depressed in the scarlet: and the number one days before the shooting but the hedge fund manager of 20 18, joe family knows no motive for the link -- for the killings. edelman up deceptive advisors .ill give his outlook dalton is charged with six counts of murder. alix: joseph edelman, ceo of perceptive advisors was on bloomberg earlier today.

scarlet: stephanie ruhle asked him how he was able to achieve a number one ranking in such a volatile year. joseph: with good stock picks. , which is acrane mid-stage biotech company with two drugs that luckily look like they work and are approvable. retrofin?e company we did very well with the private investment with a ertapharma.led ac that company was bought by astrazeneca.

stephanie: in terms of rmb and investing in these kind of companies, it is the opposite model of valiant. joseph: over the life of the stay in have tended to longer. we are more careful obviously in picking these things up front. but unless something changes, and if something changes, we are perfectly willing to talk about that get out. but these really have gone quite well along with their expectations. there was no reason to sell. stephanie: last year. but what did it look like before last year? because waiting is the name of the game in life sciences. joseph: yes. ocrine forn in nar several years. but we have over a hundred positions and there are some

that are smaller that may have a more tendency to trade. so it is a mix. alix: welcome back. our focus is biotech. scarlet: it is time now for the we also have some spec pharma, some services and devices. flash.rg business we have done work with a company called never wrote -- called nevaro. the price tag is $3.3 it is a diversified portfolio. billion, less than the cost of at theie: when you look building new lance -- new plants. market today, does it affect what you do day in and day out? -- gy will control joseph: absolutely. biotech tends to move with the market. but they tend to be recession resistant. to the extent that the market is howard chiller is still predicting a recession, it can be an opportunity to buy these stocks, if that is the reason acting as the intern -- interim the market is down. chief executive. alix: the ceo of hugo boss you look at the annuald after cutting market in the last six weeks as a buying opportunity? joseph: i do. 50% off of its high,

i think. numbers. controls,ng and price particularly with stocks that we scarlet: let's head now to julie invest in, i don't think they are much of an issue. hyman. i don't think they are significant. beer -- yes.nd i don't think they will that dramatically impact the industry. david: but are they regulation resistant? there is a lot of talking that is what we see moving capitol hill. today. there are fundamentals about how estimates witht much gdp is consumed by health care. revenues rising by 24%, especially on more demand for the company's product. shares are up 7%. joseph: drugs, for instance, are a relatively small part of the they are at nearly two-year high-end they are pulling up total health care costs. smith & wesson competitor with and in many cases, they save money. them as well. in particular, when you talk as for beer, we heard from anheuser-busch. about the drug in the biotech sector, a lot of the concerns their fourth-quarter profits are somewhat misplaced. missing estimates. we have seen in improving market investment byn for a beer in the united states. society, too. however, what here is the question. because budweiser and bud light if you want good health care, saw lower demand in the u.s.. there is a lot going on that is very positive.

for instance, in the biotech industry, what i think will have this underscores its need to get a positive economic impact, it seb miller deal done. can keep people out of the that is still in process because hospital. that should help it cap some new pick a keep people healthy for longer. at -- it can keep people healthy areas of growth. retail sales down 1.1%. for longer. the company says the market should improve this year. it did some advertising during the super bowl. if controlling cancer is a company executives hope that million dollars a patient, that will help. is an issue that society will have to face. but we want at least a chance to tobacco in the mix as well. these stocks have been doing get there. alix: that was joseph edelman better today. cofounder and ceo. more defensive up, your daily stocks rise and tobacco falls into that category. so guns, beer and smokes. alix: that says it all. dose of action on the nasdaq. abigail will give us the movers. [laughter] life is not easy for says he hasm hutt emerging-market fund managers these days. and is not likely to get better no intention to sell the stake anytime soon. in t-mobile u.s.. alix: five of the biggest developing world stock funds in the u.s. have lost 35 ilion we will hear more from him coming up. scarlet: breaking news -- dollars of assets under management over the past year microsoft says it will file an

and their holding their multiyear lows. they have had the worst eight aggregate breach to support weeks since 2009, a truly brutal apple. start for the year. scarlet: very ugly. and you can blame it on the index that everyone is wrench mxes. against, mx yes -- when you look at its volatility, the emerging market index, it peaked in august. it has been steadily trending higher. you see higher highs and lower high since december. this is gripping the market and grouping investors. alix: the culprit has to do with china that makes up 20% of the index. it is the top holding for the world em funds. the three-month implied volatility for the chinese yuan, it is unreal. since december 2008, how can you

not see this as a verisign? chinese stocks -- see this as a bearish sign? we are so much higher than that. scarlet: some pretty sharp moves of late. some investors are hoping keller events -- calendar events to give a boost. alix: there are some buyers here . em could be the trade of the decade. citigroup saying overweight emerging markets. part of that is valuation. but valuation has been there for a while. the dollar is now stalling out and that is also giving investors confidence. scarlet: absolutely. still ahead, here comes the sun. we will talk with the ceo of sunflower. tom warner, the ceo, joins us next. alix: sing it. scarlet: i can't sing it. [laughter] ♪

scarlet: you are watching bloomberg. alix: this is your global business report. scarlet: mexico state oil company is selling pipeline than oil terminals. inbevanheuser-busch reported lower quarter earnings but it did not stop it from raising its dividend. sharpt: just hours after agreed to the deal, foxconn slammed on the brakes.

we started mexico with oil prices stuck in 12-year lows. pemix it -- pemex is in need of cash. incould sell stakes pipelines and oil terminals that have been off-limits. the acid sale would represent the latest attempt by mexico to laura private investment and spore growth and latin america's second-biggest economy. alix: anheuser-busch inbev posting fourth-quarter profits that missed estimates. the company is trying to complete its acquisition of sab miller and that would allow it increase earnings in africa. those responding to a

bloomberg survey say that leaving that eu would triple the chance of the u.k. falling into recession. >> we've been quite unambiguous, say that if britain leaves the eu, the sovereign rating would go down. remember, it is aaa with a negative outlook. the u.k. has benefited from eu membership. it has been a magnet for inbound investment, not only from the rest of the crew -- the eu, but globally. it is therefore an interval part of the largest trading area in the world. alix: lloyds banking group barely met earnings estimates but it is still giving investors rewards, tripling its dividend.

the bank also indicated it may have reached the end of charges for wrongly sold payment protection insurance that cost nearly $6 billion last year. scarlet: taiwan foxconn technology may be getting technology. bid, butepted is foxconn but the deal on hold it it says it is reviewing new material from sharp. if it does go through, it will be the largest acquisition of a japanese electronics company. let's go to abigail doolittle over at the nasdaq or she has the latest on tech stocks. inlly not participating as a the rally. in the red today. abigail: you are right about that. we are looking at lots of little wet saws -- whipsaws.

it does seem that the nasdaq is try despite higher. to go higher, it will be interesting where the index closes later today. turning to one of the worst -- is the worst performer today. by aently, this was caused new tripling of costs for the cover these online gaming segment. this has caused of the stock to gap bearish lead. clsa as downgraded shares from an underperform to an outperform. on the other side of the performance spectrum, lending tree shares are soaring today. the company also beat fourth-quarter earnings, by 274%. the company may two dollars $.76

per share. $2.76 per share. stock up more than 70% over the last 12 months, it is outperforming the nasdaq in a huge way. scarlet: thank you so much. alix: deutsche telekom has raised its dividend for the first time since 2007. joined today, the ceo bloomberg surveillance and talked about how they plan to keep momentum going with their u.s. unit. >> we have a great business in the u.s.. the revenue is going up and customers are flowing into our arms. it is 8.3 million customers. we have no urgency to do anything in the u.s.. we are now going into the spread some -- the spectrum for low bank.

that is a great proposition in the market. we have no plans to sell the u.s. in that point in time. but if there is an opportunity to create something beyond what we could do organically, we are open to consider this. but no urgency at this point in time. we have an outstanding, outperforming business in the u.s. these days. scarlet: when you look at europe, europe is falling apart in many ways. it is not as strong as you would like it to be. why not sell some of european assets to gain more strength in the u.s.? i'm not that pessimistic on europe. are into the markets, we stable in a very competitive environment. the same thing is true for the european entities. that, even in the europe environment, where flat.

the reason for that is that people appreciate the huge investment we are putting into on integrated, products. we see good performance here and we are expecting revenue increase over the next year of wanted what -- 01% to 2%. tom: you are in the absolute heart of mergers and acquisitions in telecommunications in continental europe. that is why you have ascended in georgia telecom. in deutsche telekom. how do you foresee mna in your sector in a fractured europe? >> and market of 300 million people, if you go to china, there are three carriers in europe.

500 million inhabitants. have more than 150 players here competing on each other. by the way, the price the customers are paying in germany is one third of the u.s.. this market needs consolidation. but when you want to do consolidation, you have to prove it. you have to show the synergies are coming in this averment. that is why we are saying, before we consider -- in this environment. that is why we are say, before we consider it, we do the infrastructure. we build upon the european network before we consider in the cross-country mergers. tom: i'm fascinated buyer thoughts in what we see in the united states. the arc or over apple, tim cook in the iphone and the federal government.

that the federal government can come in and start looking at cell phones, how does that play across your 12 markets in europe? >> what we see here in europe is that a different situation in legislation than what you see in the u.s. market. privacy is a big issue here in europe, in germany, as you know from our history. i do not know how the debate is going on in the u.s. on the subject. so i cannot speak for these guys. but the key in our brand extends t in our brand stands for trust. laws in thetection local markets are forcing us in to that anyhow. as dr. telecom, we have to defend here as well. up, is the hardest

-- it's the hardest question in government today according to the fbi.

scarlet: welcome back. between applele and the fbi rages on. : this is they hardest question i have seen in government and it will require negotiation and conversation. but i am keen to keep the bureau out of the policymaking business. alix: apple must round of its legal arguments in a case for public safety versus personal privacy.

here with the latest is tim higgins from washington. just how will the company fight the fbi? tim: we expect there will be a number of different arguments. one, apple would say that this kind of order would be burdensome for them. another potential argument is that it is a first amendment issue. that is in the court of law. we also see apple trying to litigate this in the court of public opinion. tim cook, the ceo, had a high-profile interview with abc news. those of the kind of things you do not see handout doing a less he is selling a product. about a new talking iphone, but some kind of policy issue as a major thing for him. scarlet: let's listen to what tim cook exley said yesterday. -- actually said yesterday. tim cook: some things are hard and some things are right and some things are both.

this is one of those things. scarlet: what kind of pressure have we heard from elected officials outside the white house on apple to come out and unlock that iphone? tim: you are hearing two on capitol hill -- two ways on capitol hill. more is legislation being hard, more stringent. the other issue is the campaign trail. we are in a heated presidential cycle and candidates like donald trump are saying that the government should be very hard on apple. and if he was president, he would come down very hard on tim cook. alix: if apple loses, what is next? tim: it will be appealed either way. this is an issue that could go on the way to the supreme court. it is an issue based upon the law as is. argument frome

apple and silicon valley and others is that this should be a broader policy conversation that congress is equipped to handle. scarlet: they are increasingly working on tape lg, -- on behind encryption. perhaps --ds to be the argument would be a policy discussion that come as a nation, we decide how we want to treat the issues of the sea versus security. as you note, the technology is changing so quickly that it is outpacing perhaps the law. scarlet: do you think congress will need to get involved? tech companies like apple and google, unlike verizon or at&t, are not covered by wiretapping laws. tim: that is part of the issue. it would get into the legalese on apple's argument about being burdensome. essentially the government is

asking them to create a software program to help them unlock this iphone. the fact they would have to create something is a new element. so part of the broader issue and really why apple and the valley want this to be a broader policy discussion. alix: what would be the winication of a government in that in the specific instance that the government would want a back door to, not a backdoor in general? what does that do for apple's compliance and legal department? tim: apple is making the case that this would just be a one-time deal. they would open it up to cases across the u.s.. the globally as well, other. countries will want to have the same kind of access. once you create a backdoor, hackers will figure out a way to get into it as well. is that, oncent

you open that we can position, then you open it to a whole host of those that are wanted and not wanted. scarlet: thank you so much. fed rateing up, is a cut in the future? economistlk with an who predicts a 50% cut in december.

scarlet: welcome to bloomberg markets. ♪ ♪ from bloomberg world headquarters in new york, good afternoon. alix: at this hour, will the fed's next move be a rate hike and not a cut? we could see the fed reversing

course come december. scarlet: sales momentum for salesforce overshadowing any global economic slowdown will dig into the quarter that is being called the best. alix: the latest call of from bank of america and went ahead of u.s. equities considers the s&p 500 the best-performing risk asset around. scarlet: first, let's go to the markets desk and check in with julie hyman. the durable goods report is not giving much of a lift to u.s. stocks. we see the major averages ounce around in a very tight range. the nasdaq has been lagging along with big cap text talks as financials -- big cap tech areks and financials stagnant. even as we saw the other averages bounce between gains and losses, it did but it's showing mostly strength into the afternoon.

, if youhe reasons why mov, united technologies the top contributor in terms of number of points, contributed 27 points to the indexes 55 point gain. goldman sachs is in second place in united technologies if you look at the intraday chart, you will see it has climbed. remember, there were recent report that the company had been in talks with honeywell for honeywell to make an offer for it and then some cold water was poured on that by talk that it would not stand up to antitrust scrutiny. cnbc says it talked with a legal advisor who said they are working past some of those issues so it looks like a stock is gaining once again on that speculation. alix: we have the better economic data and the markets climbing but we are seeing the yield continuing to decline and the treasury market to julie: it is a curious phenomenon that you

see this stronger than expected economic data on the capital goods and yet you don't see yield strengthening. you are seeing them down to 1.69%. on the treasury market, there was a seven-year auction that was scheduled to occur right now. apparently, there are technical difficulties. they have postponed the closing of that auction on till ride a. at the currency market, that does not seem to be uniformly reflecting the strength in the durable goods report and the dollar's strengthening against the yen but falling versus the euro and the british pound which is snapping back after recent weakness. if you look at the makers of durable goods, they are not seeing strength either. they are all seeing declines in today's sessions. durable goods tends to be a volatile number. it could be that investors are

waiting for more of a trend. scarlet: thank you so much. let's check in on bloomberg first word news. thank you, fbi director james komi says the policy issues raised in the justice department's dispute over a locked iphone represent what he calls the hardest question i have seen in government. he told the house intelligence committee today that the bureaus only trying to the other evidence connected to a crime. >> the san bernadino litigation is not about us trying to send a message or establish some precedent. it's about trying to be competent investigating something that is an active investigation so i don't know how lawyers and judges will inc. about what is the limiting principle on the legal side. i just don't know. mark: the fbi is trying to get apple to hack into an iphone that belonged to one of the san bernadino shooters. the president of microsoft says he will file a friend of the court brief to support apple in

its battle with the government. the german parliament has approved tighter rules on refugees. chancellor angela merkel brokered a deal that settles differences within her three party coalition. the measures would speed up the processing of requests for asylum. those it don't qualify would be expelled faster. germany registered over one million people as asylum-seekers last year. the somalian president says at least 180 kenyan soldiers were killed in his country in january in an extremist attack by l shabab. affiliate al president obama says his first job at baskin-robbins taught him the valuable lesson about responsibility and work. linked inan essay on to promote the administration's new project to help young people get their first job. he is calling on businesses to hire more people for their first jobs this summer.

news, 24 hours a day, powered by air 2400 journalists, in more than 150 news bureaus around the world. scarlet: thank you so much. news, u.s. home prices rose about 6% in the fourth quarter from a year earlier. capital goods orders climbed by the most since june of 2014. alix: not all economists are convinced that the u.s. economy is on the right track. a senior economist at standard chartered think there's a 50% chance we are headed for a recession and he joins us now with more. what do you see? >> i'm worried about three things -- the sharp tightening of financial conditions, the sharp drop in oil prices, and the u.s. big -- business cycle is mature. these forces make me worried about 2016 growth. scarlet: talk more about where we are in the business cycle. many say you cannot compare it to the past because we have in

extra derek conditions. -- we have extraordinary conditions. we are in new territory. of business cycle, let's look at car sales and construction. car sales are at a record high. we don't think our sales have much room to go up. we think they could go down this year especially in the second half of the year. thing is construction which was up 10% last year in the u.s. compared to china, the chinese construction was only up 4% said there was a construction boom in the u.s. and was not just last year, the let -- the year before it was also up 10%. there is room for weakness if financial conditions tighten further. alix: one argument is that banks are still lending. no matter what data you might find, banks are lending until that rolls over, everything is ok. >> i think that's fair.

the job market is doing well. consumption is so-so but still quite resilient. at the same time, i am worried about corporate profits and business surveys. that has been weakening and i think that's something to watch. we could see more weakness in the economy. what worries me the most is probably services survey which are starting to weaken. that's something to monitor closely. scarlet: that's a late cycle phenomenon? we have manufacturing weakness and what you seem to be seeing now is that it's spreading to services. that is worrying me. alix: you mentioned oil prices. we hear that oil prices will not stay low for ever and it's a good thing for the economy. what is your counter to that? pricesink that low oil are mostly bad news for 2016 growth. the u.s. will have to cut reduction. i as muchhave to cut

as one million barrels per day which is a lot. we have not seen that. the latest eta is 2.9 billion barrels. -- million barrels. we have not seen the full negative affect on that in the u.s. economy. we will see the impact of the manufacturing sector and services as well. alix: that means cutting down a shale rig will have a bigger negative impact on the economy than people buying an iphone questio? the growth will be in the first half and the second half, i am more worried about construction and consumption. comes to the it markets and the perception out there, do you think they have overreacted? this is the chart i showed earlier, the tap between wall street and mainstreet expectations. data has indicate the

been coming in weaker than expected well consumers are holding up fairly well. there are still some resilience there. the 10 yearld on below 1.7% and stock indexes prone to gyrations every two weeks that investors are too trigger-happy and too concerned given the fundamentals? you're talking about 50% odds of a recession. >> i am not calling for the end of the world. if there is a recession, it would be quite shallow. it would be more like the one in 2001 but not 2008. there is a potential for more weakness on the economy but there is a risk that inflation stays low. that is why we think the 10 year yield will continue to go down. a year and forecast is 1.6% or the 10 year. alix: you say them next move by the fed is 10% in december.

what happens between now and december question mark >> in the second have of the year, there will be more weakness in the job market on the consumer side as well. we think the fed is quite sensitive to consumption and the job market. it is also quite sensitive to market volatility. should size of a recession emerge, the federal cut rates. scarlet: than the talk of negative interest rates will begin? point, i think that's an option for 2017 but not now. alix: what makes your call rise? >> high-yield bond spreads. in the past, that has been leading recessions. i am worried about that. bond spreads continue to move higher, think the risk of a recession will increase. alix: so it's not just in oil phenomenon. >> conditions are tightening across the economy with oil and non-oil. alix: thank you so much.

up, pessimismg around the s&p 500 is growing but one equity strategist tells us why she considers that to be the best-performing asset around. alix: we will hear from liquid net and the dark pools in the u.s.. scarlet: software company salesforce saw its best sales ever but will it ever make money? ♪

alix: welcome back. scarlet: it is time for the bloomberg business flash. says the germans

financial watchdog is closing certain audits. the banks compliance changes could be suspicious. but co-ceo says the findings are taken seriously. valiant pharmaceutical ceo remains a medical he but his condition is getting better. that's according to a company spokeswoman. the former chief financial officer is acting as interim ceo. scarlet: long-term u.s. mortgage rates declined this week among global among the economy. it slipped to 3.16%. the average 15 year mortgage to klein to 2.93% and was previously 2.95%. that is the bloomberg business flash. the s&p 500 is on pace for a second straight down month to start 2016. this is not happen since 2009. the head of u.s.

equity strategy at bank of america merrill lynch and we spoke to her on market volatility. >> what's happening right now is a big break from the trends we have seen of the last several years. what adding to the confusion is that we are now at a point where all of these sources of liquidity we have enjoyed for the last 10 years or more are going away like the fed staying at zero rates. that is starting to shift in the fed has tightened for the first time in almost a decade. we are seeing lending standards grow tighter rather than easier and credit spreads and the cost of equity capital increase. ipo activity has dried up this year. regime but iof one think we are moving into something that is very different going forward. you point out the number of

companies forecasting losses is on the increase. more and more companies see losses in their future. if you look at this chart, you can see the last time we have seen this kind of surge was in the last two recessions. it could be a recession indicator. could it be different this time? think this is telling us something bigger than energy? it's a risk to growth. it's not just energy companies, it's mostly energy and materials but in the small cap realm, you are seeing more and more companies out either commodity space starting to forecast losses. what i think is happening is that credit sensitivity is starting to emerge. leverage is going from being ok or not a threat to being evil again. leverage is evil today. the reason this is happening is because we have seen the cost of capital has been remarkably low

for many years and now is starting to increase. that's causing a lot of reshuffling of the deck among what will lead and lag over the next cycle. >> you did lower your forecast and have highlighted some risks in the market. what is the tipping point where stocks will enter a bear market question mark >> that's a great question. half the stoxx me s&p 500 are already in bear market territory. the small cap index is in bear market territory. a good chunk of global equity markets are in bear market territories. the fortune of covering the s&p 500 which i think will do better than most other asset classes. i think the s&p 500 might be the best performing risk asset around. u.s.eason is that large-cap companies have the

benefit of under investing over the last six years and not hiring anyone and not spending on is that they are sitting on fairly healthy capital cushions. from a liquidity standpoint, they look better than a lot of their peers. still ahead,iex is an exchange to take on high-frequency traders. ♪

scarlet: welcome back. more the merrier according to institutional trading platform liquid net which is backing iex, the exchange taking on high-frequency traders. scarlet: it is been battling for months to get approval from the sec. will liquid net help in this fight? you are listening to the bloomberg advantage in we will talk about what's going on in

terms of market volatility and the role of dark pools. we want to welcome everybody on bloomberg television. thank you so much. merrin from seth m liquid net holdings. i guess we are trying to figure out what's causing the volatility. we look at the correlation with oil but what about the role of dark pools? were invented and bill to service institutional trading. institutions man's -- manage about $15 trillion in this country and the order sizes are so large that the exchanges cannot handle that volume efficiently. dark pools were created to handle the institutional wholesale market. that's what liquid net was created to do. : they are private extenders? >> they are not really exchanges, they are upstairs markets, broker-dealers.

it's electronic market were institutions can trade large locks of stocks between themselves without showing their hand to everybody. large volume off of the exchanges reduces volatility. the problem with the volatility in the markets today and the reasons that it causes such volatility is a number of things. you have such a massive amount of assets that have flown into etf's. every time the market moves, the etf's either sell in ball or buy in bulk which moves the markets. in addition, there has been a huge surge in high-frequency trading. every time there is a surgeon or evenrom etf volume institutional by them, the high-frequency traders pile on and move the markets further. that exacerbates the volatility. anddark pools themselves there are lots of different ones, a lot of them you have seen in the news recently unfortunately have lots of funds and most of them don't cater to

the institutions and they don't cater to the large transactions that dark pools were created for. contention talks about the use of dark pools and how some of them were basically ghing used as a way for hi frequency traders to gain knowledge before trades happened. what about providing information to the sec guys? >> i cannot goes on inside the dark pools but the problem is real. what we found out when we uncovered -- we pulled off a cover of these dark pools that the number of the execution size is smaller than with being found on the exchanges which is about 200 shares. any time you got 200 shares that you can trade in the dark and 200 shares you can trade in the regulators of the

are concerned about potential manipulation between those two markets where you can move the market and take advantage of that market movement in the dark and that's another reason why these dark pools -- regulators notsaying that if you do provide value above and beyond what can be found in the , ours is 40,000 shares per execution so it's different, but if you don't provide that value, your volume should go back on the exchanges. carol: is that a dangerous move? >> i think that's the right move. no one needs 40 different shadow exchanges. they are the pricing mechanism in this country may have to be protected and they are utility. to have all of these ride it shadow exchanges that are run by the large banks is really not helpful. if they provide differentiation -- we are in support of iex which is a dark will that wants to become exchange. they are differentiating by

focusing on institutional investors. we think the institutional investors should be protected. those are the people that manage our pension funds and mutual funds. we are the institutional market for institutions and iex wants to be the exchange. careol: does all this volatility bring you more volume? does, the institutions are trying to hide out from the volatility. they can go to a protected venue like liquid net and trade in large size without showing their hand to everybody. if people get wind of what they want to do, it increases volatility so they keep it secret in a venue like liquid net. carol: thanks for being with us. i will send it back to you guys. scarlet: thank you so much. ahead, sales force is soaring after reporting strong sales momentum and we

will talk to an analyst to upgrade the company early this month. ♪

alix: from bloomberg world headquarters, welcome back to bloomberg markets. scarlet: let's check out the headlines. thank you, fbi director james komi says the issues raised in the dispute with apple represent the hardest question he has seen in government. he testified before the house intelligence committee a week after a california judge ordered apple to help the fbi hack into the locked iphone used by one of

the san bernadino shooters. according to an e-mailed statement from the house judiciary committee, apple general counsel will testify at a march 1 hearing on encryption. tim cook is not listed as a witness. isense secretary ash carter assuring lawmakers that president obama does not plan to make an announcement about quintana mo bay prison while in cuba next month. secretary carter is urging lawmakers to work with the administration to close the detention facility and transfer detainees accuse of extremist acts to facilities on u.s. soil. a new poll finds 39% of americans like the idea of medicare for all, the government run health system touted by senator bernie sanders. they asked whether they would continue to support the plan if their taxes went up, three in 10 would keep backing it.

fifa candidates started across zurich of the final push to secure votes in friday's put -- presidential election. soccer leaders will vote on reforms that include abolishing 17 of the current 26 standing committees. the favorite says he would find ways to avoid cutting the committee which includes expenses paid meetings in zurich. breaking, nevada governor brian sandoval has reportedly taken himself out of consideration for the opening on the u.s. supreme court. he said -- i notified the white house that i do not wish to be considered at this time for possible nomination to the supreme court of the united states. there have been words the past couple of days that he was being considered by the white house as a replacement for the late justice antonin scalia. news, 24 hours a day, powered by air 2400 journalists

in more than 150 news bureaus around the world. alix: thank you so much. let's get to abigail doolittle live from the nasdaq with the latest on biotech. >> it has been a dragoman nasdaq today. the index opened higher only to sell off him a down as much as 7/10 of 1%. it's trying to make a recovery but the sector is mired in a bear market. it will be interesting to see how they close happens. one of the worst performers in the biotech index is relipsa. it missed fourth-quarter earnings estimates modestly. areould be that analyst saying this company likely has to raise cash. an analyst at morgan stanley says he is very saying causing tim tos

maintain an underweight rating and his price target is near the bottom of the trading range in the stock appear to be trading for those levels. enother biotech loser is blu bird bio. they reported a loss per share that was wider than analysts estimated. one analyst at piper jaffray lowered his price target to $1.17, citing the likelihood of a higher spend but he is bullish it knows this is more than a double from where the stock is trading and thinks the company will improve by the end of the year. the shares are down more than 75% from the record heat last year there is a relatively high short interest of 19%. many investors have taken an opposite view. alix: thank you. salesforce.com jumped for the most in almost one year after reporting a strong fourth quarter that topped estimates giving investors confidence that

the cloud computing company will survive. mark benioff was pleased on the earnings call. >> this is the best quarter we have ever seen. we would never expect to see every product route in every jarrell graffiti in every sector of our business exceed our expectations. that's what we saw in the fourth quarter. scarlet: joining us now is the managing director of clsa who upgraded come before the earnings report to a buy. talk about what salesforce is doing correctly. it would appear the company is firing on all cylinders. how can they grow in this environment? >> they are the beneficiaries of real interest among companies in moving to a cloud service provider rather than taking care of technology themselves on premise. complementary product levels that are enabling

them to address different uses. their deals are getting bigger because they are moving away from just being a transition technology. helping moving toward companies rethink their business processes. this has a more sustainable business value in that is driving big deals. alix: when will the company make money? they lost $70 million last year. >> they are losing money on a gap basis. they have been focused on delivering 125-150 basis points of margin expansion every year. their cash flow is actually up 38% last year. the profitability tends to lag the bookings in subscription businesses. in some respects, earnings or i trailing indicator. quarter, then this actual billings and momentum of the business accelerated over the prior quarter.

that eases the concerns. they be an amazon where they could be profitable if they wanted to be but they continue to plow their money back into the company? >> it's a little bit different than that because amazon has been having a race to the bottom in terms of pricing strategies for their infrastructure service. salesforce will be putting forth a price increase across all of its products in the second quarter. these are non-cap operating margins but they are committed to showing expansion. once the business starts to slow probably below 20% range, we will see margins spike up pretty aggressively and they are targeting arty percent operating margin growth. alix: if you look at where they it'setting their money, here in the u.s. but $1.2 billion from europe. the dollarhear about

drag with lots of other companies are blaming their earnings on? >> it helps to have a cisco can only business and helps to be selling services -- it helps to have a subscription only business and helps to be selling services. a lot of their costs are still based in u.s. dollars. they don't get a lot of leverage their but investors have looked past that. we are getting these organic growth numbers. in terms of the macro conditions, they are not seeing any slowdowns. they are firing on all cylinders. they've only got seven countries they do business with. there is a norm for expansion that they have not tapped. scarlet: i wonder if that includes mergers and acquisitions. they have said it is not part of their core strategy. company has the made purchases but they tend to be little startups. iofebruary 19, prediction

and $768 million in january 13. how important is m&a to this company? tended tove typically by companies that operate either in market segment ormat technologies that salesforce does not have or complements their core offering. as they look at the platform business which supports hundreds of applications that are already built using their technologies, a company like steel brake which they are just earlier this year for $300 million, is built on salesforce technology. they almost have a farm team of potential new products they can fold into their company through acquisitions. they are not a mature company were they need to do roll up's and consolidations. it's more about tactical technology. scarlet: and that is a contrast biggerle or sap,

competitors in the same space who rely on acquisitions. >> historically, that's what happens traditionally with the on premise application market. scarlet: thank you so much. alix: we want to check in with julie hyman. we are trading around the highs of the session. he andit looks like our the range has expanded as stocks are picking up some steam heading into the afternoon. all three major averages are at the highs of the session and the dow is leading. as it has been. i was looking at what oil prices. like it is leading stocks. over the past trading session, it is unchanged. it is not rising very much but it looks like it is flat. if you look at the various sectors on the move, energy is

lower and financials are contributing to the gains we are seeing now more substantially than earlier. alix: thank you so much. up, janusoming capital group is getting deeper into etf's and we will explore the two new funds it lodged today. alix: canadian equities are dragging and we will break down the winners and losers. scarlet: best buy continues to be sluggish and what can they do to turn things around? ♪

scarlet: this is bloomberg markets. alix: it is time for the bloomberg business flash. big loss at sears

holdings, the company that operates sears and kmart, they lost $580 billion in the fourth quarter. manager has been spitting up assets and has invested heavily in the sears online and rewards program. scarlet: there is a joint venture happening. is $3.3 billion, less them a cost of building a new plant. of thewill own 60% venture. sea world is acknowledging for the first time that some of its employees pose as animal rights activists. it says it will end the practice which is not consistent with company values. the move was undertaken to maintain safety and security in the face of threats. people for the ethical treatment of animals accused the world of infiltration last summer.

your bloomberg business flash. janus capital group got back into etf's in 2014 when it ought velocity shares and now it's launching two new products. andjanice small-cap another. alix: julie hyman has more. julie: thank you, i want to start with a description of what these new etf do. they are on the actively managed side of the etf universe. that has been a growth area versus the index type of etf. how exactly do they work? what is the strategy? >> we took our time. it's been 14 months since we to think carefully about the right product offering for our clients. janus has a lot of business lines but our core has been fundamental stockpicking. we set down with the folks who run our small-cap products and

that management team and asked if there was something in what they are doing. it has been successful over 20 years with five-star on. is there something we can replicate from that that might not give you the full active products set but we think of as enhanced beta? can we give investors products we believe can outperform market cap weighted benchmark on a risk-adjusted raises and do it at a lower cost? small what led us to jay and j smith which are the two etf's. it's about running companies in the small-cap arena that exhibit what we call smart growth. has is something the cio been very focused on for the last three or four years. it's about avoiding the companies in the small caps that should not be public. think about companies that have

sustainable models, durable growth prospect, high capital efficiency. those characteristics are companies that can weather the storm and provide better risk-adjusted returns. julie: because there has been so much market turmoil, is at a harder sell to convince people that an actively managed etf is a good idea? the smartest fund managers out there are having a tough time beating the market. >> we have high conviction and what we do. i think that has been demonstrated in the results in the firm has been through a number of evolutions. has brought diversification to the firm. if you look at the small-cap space in particular, we are looking at extremely low valuation relative to large cap. we have an almost 25% divide. -pointomething like a 5 differential. our focus on high-quality

companies, looking at their balance sheets and business models is what will do well. is the view among the small-cap managers that we are in for more turmoil and that's why they are looking for more steadiness as opposed to growth? janushink the approach takes to the small-cap space has been consistent. the idea is that we know these market conditions like we are in now will come along. about can be thoughtful selecting and identifying companies that are well-positioned to whether those times, over the long-term, you will have better risk-adjusted returns so this is not a reaction to the current market conditions. we like that we are launching these when prices are lower and is a good entry point for investors but this is a long-term process that has been in place for our 45 year history. what is the fee structure

like on these etf? >> this is what matters to clients. there are feed pressures and we believe that we provide great value to our actively manage products and they get a level of care and diligence that requires a huge amount of resources. these etf's are systematic and rules-based and we believe they can outperform benchmark but we can offer them at a lower price point. the 50 basis points is competitively priced in the small-cap space as well as in the broader etf universe. julie: when you look at the broader universe, you have three companies that control 80% market share. ishares, vanguard, and state street. they have the scale to offer very low fee products. when you are coming in here, how

do you compete or differentiate your product particularly in a market that is dominated by a few players? >> i think it's simple, clients want superior risk-adjusted returns after fees and taxes. if you can deliver that, i don't than people are overly hung up on going to the lowest fee product you there are instances were that's appropriate but most help -- but most advisors the client manage money. they have a blended approach. they see their place for active managers are adding value in the use those products and is other places where they are not adding value. caps, i think most advisors recognize there is an opportunity to outperform the market cap weighted benchmarks than simply going for the lowest cost solution. julie: thank you very much. scarlet: thank you so much.

we want to take a quick check on the commodity markets because is surging, up 1.4% but turning around from the earlier trade. if you look at the intraday chart, you can see the spike right there in the last couple of minutes. the headline cross that venezuela says russia, saudi arabia and qatar have agreed on a march meeting. this is on the heels of them agreeing to a freeze about two weeks ago. we had rhetoric out of a houston conference of energy executives saying that production cut is off the table. the iranian oil minister said we will not freeze production. it looks like they will move ahead with some kind of conversation. even if you don't get a cut or of nothing dramatic happens, this might be enough to take off the oil shorts and a market and

more of the negativity. it means that saudi arabia is participating and they see a problem in the market they feel needs to be fixed and they are talking about it. whether that leads to an actual cut is beside the point. you can see the results right there. scarlet: then as well a says there is an agreement on a march meeting. canadianing up, bankshares are struggling as energy companies weigh on returns and we will take a look at how the financial industry is looking for our neighbors up north. ♪

alix: welcome back. scarlet: weaker than expected bank earnings in canada are dragging down shares their. their indexes down for a third straight day at its lowest in about a week and a half. our canada bring in

tv anchor. is it just oil prices that are dragging banks down? butt's not just oil prices it's a low growth environment. thank surround the work world have to grapple with this. what we saw in the set of thank earnings which is not quite over yet is we are seeing more losses on the energy side of things. the banking reporter here is often quick to point out that the tanks across the board, the loan look related to the energy sector is only 3%. in that area, we are seeing more impaired loans, concerns about that and provisions being set aside. cibc came out with earnings but td bank only mr. earnings by one penny. looking at personal commercial banking, lots of volume growth.

a 5% growth on the canadian side in that unit. on the american side, they have vast u.s. operations, 20% growth. that theyor them is have these huge operations in the united states making american dollars and reporting in canadian. that is a nice boost for the banks. cibc is more domestically focused. and had a huge beat today their shares are up 3.2%. banks do not have huge capital markets operations. is an area markets that is being squeezed because of the trading environment. for these two banks, it's not a large part of their business. neither of them are seeing anything to substantial there. alix: thank you very much. next hour,ming up more bad news for the retailer

best buy that is pledging to keep a lid on cost as a coast with another year of sluggish demand for electronics. more on that just ahead. ♪ . .

scarlet: is 2 p.m. in new york. alix: welcome to bloomberg markets. -- carol: welcome to bloomberg markets. tracy: fed official john williams is sticking to his

guns. he sees the economy improving despite some headwinds. what does that mean for stocks? carol: problems are mounting for best buy, coming off a disappointing holiday season and now they say this year may not be any better. tracy: we learned apple will testify in a congressional hearing, but yesterday i director says unlocking the controversial iphone will not be easy. he calls it one of the hardest issues he has faced in government. let's head to the markets de