december. alix: fed chair jay powell surprises the markets, cracking open the door to four rate hikes this year, triggering a global selloff a surge in volatility, selloff in equities, volatility is rising. inflation in the eurozone stays back at 1%, underpinning the ecb's gradual normalization. david: welcome to "bloomberg daybreak." i am david westin alongside alix steel. michel barnier is talking up a storm. alix: the markets are looking relatively flat, s&p futures. they were up and now they are steady as she goes. 1%.-dollar, down 1/10 of a bad month for the euro, the worst since october. inflation bang in line with estimates, but a weaker town in

europe, and a weaker buying on the margin for the 10 year yield. well,a little softer as looking for its worst month since august. my chart of the month is what we are seeing with the pound, dropping like a stone, having to do with michel barnier and his press conference. he is saying the u.k. is still pushing back on new roles and transition. divergences remain. kind of what we expected, pushing back against theresa may, making her life a lot harder. clearly that is the audience, not barnier. david: the brits are saying, we have to be able to control our rules and the e.u. is saying, it is a year rolls. he said, make it a short transition. alix: let's speed this up. theresa may has to deal with her own conservative party and hardliners, plus the ones that might effect.

you also have what michel barnier is saying, so it is a hard pickle for her to come into on friday. david: liam fox saying yesterday, you get to make the rules and we get to live on the them. we cannot live by that. alix: that is why you are seeing sterling drop like a stone. david: that is michel barnier speaking in brussels. 8:30 this morning eastern time, we get the second raid on gdp and core pce. at 10:30, we find out how many pending home sales there were. and aashkari dissipates roundtable discussion on wages and monetary policy in washington. alix: he might sound dovish. time for our first take. first up is the big powell take away. the market takes it hawkish. eurozone inflation goes nowhere. the month that was.

i bet you those that were short the vix feel better. david: joining us is michael mckee and carolyn gage. what mr.y a little of powell had to say yesterday >>. while many factors shaped the economic outlook, some of the headwinds the u.s. faced in previous years have turned into tailwinds. fiscal policy has become more stimulative, and foreign demand for u.s. exports is on a firmer trajectory. we have seen incoming data that suggest strengthening in the economy. we have seen continued strength in the labor market and data that will add confidence to my view that inflation is moving up to target. david: michael mckee, as he spoke, the markets reacted, and not necessarily in a favorable way. we can put up with the s&p did. is this four hikes rather than

three? michael: this is the fed chair saying the economy has strengthened, which is pretty obvious. there is a feeling in the markets that may be the fed should do four this year, because they are looking at where we are with growth and inflation, and what we might get out of the stimulus package. a move the fed does not want to make yet because they do not have to. why push for four when you don't know where the economy will be going forward? we have the jobs report, retail sales, cpi, pbi, import prices, ism numbers, and we had durable goods yesterday that came out lower. the business spending we were supposed to get has not shown up. why commit to anything? this is a case of the market seeing what they want to see. alix: is it the market coming to terms that free money is over? carolyn: that is part of it, and there is no question he made

clear giving a positive economic message. the market may be reading more into that. it still is a very positive story that he told, and he talked about the volatility in the market. he said that will not dissuade raising rates and does not affect outlook. people were wondering, will the fed be scared of a stock market that is all over the place. david: do you think he will dial it back some or will he adjust his message? michael: he would not expect to move the markets, but the idea the fed goes into these things trying, take hippocratic oath, to do no harm. alix: that is what i said yesterday. michael: you were wrong like i was. hard to say whether he will dial it back. he cannot walk back what he has already said, but maybe he will emphasize the idea that they have not made up their minds yet

i have talked to several bank presidents over the past couple of weeks who said they have not put together their forecasts for march yet. they will wait and get more data before they go into the meeting, and it would take four of them to move their dot plot higher to make any change. i cannot figure out who those four would be. alix: let's take a look at what is happening with inflation in the eurozone. it feels like the rhetoric in the market has mars a hawkish tilt to the ecb -- more of a hawkish tilt to the ecb, but the inflation data is weaker but still holding on. the core inflation reading coming in at 1%, in line with estimates, and 1.2% for the overall headline. it slowed but the trajectory is not down. this is a tricky spot for the market that felt more hawkish a few weeks ago. michael: that expects -- that depends on the time period you are talking about.

basically, we are seeing-based effects fallout and energy price issues, energy and food price issues in the overall numbers. i brought along a chart that shows the u.s. and eurozone inflation compared to the 2% target. they are both underneath it. they have had one more month because they had this release. the u.s. moving up a little bit, but still not hitting 2% and we probably will not until the next month or the next quarter. in march, we should inflation spike up but we will not know until april. david: is that headline or core? michael: headline inflation. david: how different would core look? michael: core would be stronger for the u.s., weaker for the eurozone. what you want to

look at, the trajectory for the moment is weaker but should be going up. at downets are looking the road, we should see inflation firm some. how fast, that is the 25 basis point question. alix: nice. but we are still at 1.22 on euro-dollar. caroline: the day after you have powell speak, this highlights a potential divergence of those regions and the question of whether we will see the dollar and euro reverse course from what the have been doing recently. alix: february is gone. this is february performance for , and thes&p 10 years bloomberg dollar index. the 10 year yield, a 6% increase. down 3% for the s&p. it was a big month. how are investors positioned to wrap up the quarter? what will be the pain trade? caroline: everyone is expecting

volatility to continue. we came into this year, rates are a big part of that you heard powell get questioned about that yesterday that is what everyone has been waiting for. particular who is most excited is the banks. their trading desks suffered in the low volatility environment, and you heard that yesterday with jpmorgan talking about how the start to this year is exciting for their trading desks and they expect revenue to go up. we have heard the steady course from that group that this would improve the outlook even more. david: it was a big month, but was it because it was in the middle of a bunch of little month? question or iss this historically a big month? michael: this is normal. this is going back to what it used to be like before we hit

2017. what we are seeing is much more what you would expect in the tightening cycle of the past, with more volatility, ups and downs in the market, yields rising a little bit, and the yield curve flattening. there is nothing unusual about what we are seeing. it is unusual in the context. alix: it winds up making me think that the people in the trading desks our kids. , to the point they have never seen this kind of volatility. the normal for them is no growth and low vol. caroline: we did a story on millennial traders who have never seen volatility before, and what that withdrawal of stimulus will look like for them. that being said, banks as a whole are pretty happy about hoping that trading doldrums will end. michael: one thing that is happened since the last tightening cycle, the rise of the machines, algorithm trading.

they read the headlines and react. jim vogel was writing about it yesterday in the bond market. headlines came out from jay powell, you saw some interesting trades walked back by human beings. somebody has to come in after that and figure out what it means, which creates more volatility. that is something we had not seen in the past. alix: michael mckee and carolyn gage, thank you very much. coming up, we take a deeper dive into powell's first congressional testimony. what it means for markets. q'sresa may is having her pm in parliament. some of the highlights -- no hard border with ireland, and the customs union is not compatible with taking back control. it seems to be in response to jeremy corbyn speech.

david: this is more internal politics in the u k been responding to barnier. trying a have barney a hard line, saying the u.k. is dragging their feet and the e.u. roles should stay on board even during the transition. sterling at a low during the session. this is bloomberg. ♪

kailey: this is bloomberg daybreak. investors are punishing lows for not growing like home depot. the second largest chain in the u.s. posted estimates that --

results that missed estimates. shares of lows are falling in premarket trading. amazon is trying to extend its reach into customers' homes. the e-commerce giant has agreed to buy the doorbell startup up ring for about $1 billion. they make doorbells and cameras that allow remote monitoring. in china, hna group is planning one of the biggest job guts for single company, roughly one quarter of its workforce. hna has been selling assets to reduce tens of billions of dollars in debt. that is your bloomberg business flash. david: markets certainly reacted during chairman powell's testimony. we can see what the s&p did while he was talking. should investors react? we welcome bill snead and

danielle booth. good to have you. answer the question, you are an investor. do you react to what you heard from chairman powell? bill: know, and when it comes to interest rates we are of the belief that the demand from millennial household formation will drive interest rates, so they should move higher over the next 10 years. we will have an enormous growth in the number of people 35 to 44, and people waiting to get married later. that is going to drive interest rates. it is an irony that this gentleman takes over at the time that the control of interstates will be taken out of his hands by the demand that comes from the largest population group. david: you have already priced in increase in interest rates. how far? bill: normalized rates would maybe be 5%. on a 10 year treasury, eight years or five years from now.

this is like the first leg. it looks kind of like the first leg. the other thing that is funny is the last population driven home was ing 10 year stretch the late 1970's and early 1980's, had mortgage rates at about 13%. people say they will not buy a home when the mortgage rate is 4.5%, which is at the low end. alix: in terms of where we are looking at for hikes, if you come inside the bloomberg you can look at the fed funds spread for 2018. the blue line is one hike, redline is two, green line is three. it looks like the market winds up believing the fed. did powell do the right thing yesterday? danielle: i think he did. i think what he did not do was speaking gibberish. it was hysterical to watch the

parlor games. everyone was trying to parse what he was saying. there is nothing to parse, people. he is speaking in plain english. i do not think the market was expecting that. yesterday was the first time that we crossed the line of over one third of a percentage of a probability of a fourth rate hike in 2018. given his plainspoken this, i think that is what the markets anticipate. alix: in response to a dot plot question, here is what he had to say. >> my personal outlook for the economy has strengthened since december and each member of the fomc will be writing down a new set of projections and estimates of appropriate monetary policy as we go into the march meeting, three weeks from today. i would not want to prejudge that new set of projections, but we will be taken into account everything that is happened ends december.

-- since december. bill: the fed is -- danielle: the fed is data dependent, and so much could happen in three weeks when there are so many moving pieces. bill: kind of like a teacher that wants to be tough at the beginning of the school year so the kids discipline themselves and are a little afraid of him. david: he is willing to speak for himself. janet yellen, and a lot of responses to those questions it was, we have to get together. he said, i will tell you what i think, which is a big difference. danielle: it is all about the pronouns, and there is nothing to parse. he is speaking for himself about what he observed. there is a great ben affleck on the federal open market committee. there is no vice chair, no second in command. right now for him to speak for others would be a bit presumptuous. alix: you mentioned you did not

expect to change your long-term view because of this, however the bigger that drop is the keynesian world of free money is gone. doesn't that force you to change or longer-term view? bill: it would if you owned a lot of heavily indebted companies dependent on going to the bank, if you do not generate high free cash flow and consistent profitability. it would be a lutz guerrier if your portfolio was not tilted toward the economy -- lot scarier if your portfolio was not tilted toward the economy for the next five to 10 years. it was all predicated on slow economic growth and we will never get out of this funk. we will have ultralow interest rates. that is what changes p/e ratios. you normalize rates, and if you're a e has not grown a lot, people will not be excited. alix: danielle booth and bill snead are sticking with us. the euro-dollar weakening after

the latest rations -- readings of inflation. this is bloomberg. ♪

alix: euro area inflation slowed for a third straight month, helping mario draghi ward off supporters of a faster stimulus exit. still with us is danielle booth and bill smead. hard because you have to look beyond the headline to see what is going on. this is a favorite quote of mine from yesterday. "aggregate numbers are often misleading, made far worse when computing with numbers -- no matter how emmanuel macron spells reform." what is the underlying health of europe? danielle: we are beginning to find out, and we will know a lot more after this week's elections in italy.

the underlying debt situation has yet to be addressed. macron is trying to push through some radical reforms, but the pushback is amazing to watch. we do not read all of the drama that has unfolded. berlusconi came out and said, i am ready to get back in the saddle when the law allows me to go back to being the leader of italy. there is a lot happening in europe, and i think the return of volatility to the markets will be mirrored in the return of volatility to europe. david: we see the strength of europe when it comes to current accounts. we do not necessarily see it in the equity markets. is that a great investment for you? bill: we are domestic only, u.s. large-cap value. we have two dynamics. they were about four years behind the united states with the pit of despair and the bank problems, etc.

you can kind of expect them to be about four years behind in everything. -- onlyally on the last the last year to two years that our economy has strengthened, and the largest factor at the margin is amazon selling things at a loss into economies. therefore, they are deflating in effect at the margin. it is not surprising to see that inflation has not reared its head. alix: i feel like a year ago we were talking about central-bank convergence. taking a look at the peripheral nations plus germany in terms of wage growth and clearly you can see the outperformance of german wage growth is not reflected in the peripheral nations. is the convergence story still appropriate? danielle: i do not think it is. i think we will see greater dissension among the countries moving forward. we are seeing a heck of a lot of drama come out with just the

e.u. and britain. fragility of the ecb and its ability to supervise its own banking scandal. there are so many fishers -- fissures being exposed on a day-to-day basis that this will not be the same year ofcom. -- of calm. as pressure rises on draghi, despite today's inflation ontistics, pressure rises draghi to push through the full taper. alix: thank you very much, great to see you. this is bloomberg. ♪ mom you called?

oh hi sweetie, i just want to show you something. xfinity mobile: find my phone. [ phone rings ] look at you. this tech stuff is easy. [ whirring sound ] you want a cookie?

it's a drone! i know. find your phone easily with the xfinity voice remote. one more way comcast is working to fit into your life, not the other way around. alix: "bloomberg daybreak." this is -- this is "bloomberg daybreak." theresa may saying now u.k. prime minister could agree to

the eu draft brexit deal. she is standing by the commitments made in december. on the flipside you had michelle barnier saying there is no cherry picking when it comes to brexit. that would be an illusion. he also says it is really the u.k. that has been dragging their feet and that a transition period is not a given, vital for businesses and is not a given that the ecj will not play a role in that. may standing firm, barnier standing firm. what does that mean for sterling? down at about .5%. the last day of february, looking at a dow that could have seen the worst month since 2016, the same for the s&p. a little bit of weakness in the futures market. some selloff in asia spread over to europe as well.

take a look at other asset classes. euro modestly weaker. a broader stronger dollar story with the exception of dollar-yen. some buying on the long end of the margin. 2.89 on the 2-year yield. nicotine investment in terms of the rise in yields since 2006, so some amazing to take six coming out of a volatile february. let's get a look at first word news with kailey leinz. kailey: jared kushner has lost his top secret security clearance. according to a person familiar with the matter, that means he can no longer attend some meetings or see more related intelligence material. treasury secretary steve mnuchin says president trump is willing to negotiate a u.s. return to the transpacific partnership deal. he says he has become high-level

talks. thepresident attacked agreement while campaigning and pulled the u.s. out of the deal soon after taking office. party'servative rebellion against theresa may's brexit policy is growing. lawmakers have backed an amendment calling for the u.k. to keep close ties to the european union after it leaves. that could threaten her political survival. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm kailey leinz. this is bloomberg. comcast's 31 billion dollars bid yesterday for sky set of a battle between disney and comcast with rupert murdoch on in the middle. said "we thought that was in time to make a serious cash proposal. we think sky is an outstanding business." iger said sky is an amazing

platform, and that is obviously a crown jewel in the assets of 21st century fox. theook forward to having opportunity to have scott be a part of our company. moves, by the stock comcast shareholders may have some more doubt. what this shows, the yellow line is comcast stock. it really went down. somewhat,t down suggesting that shareholders would like the deal to go forward. fox was somewhere in the middle in the blue. with us now is michael wolf, cofounder and ceo of activate. welcome back to the program. let's start with what that chart seems to suggest. why is sky a strategically important decision for comcast? behind both of these

companies bids for assets, there is a strategic rationale. has control of a number of important pieces of programming. premier league until 2022. rights to some of the most important series like game of thrones in europe. they have a service called sky now, and while it is not yet a competitor to netflix, it is a way for both companies to be in the streaming business in europe. david: is sky a distribution or content company? michael: they are a distribution of the but unlike some services, dish, directv, here in the u.s., they have gone farther in terms of their ownership of content, there is ability to exploit it. it is very clear that disney deal is a different one from comcast. 21sty would be buying a --

century would go well beyond being the mother library, everything else to go over the top. comcast does not have much of a presence outside of the united states. why would this fit with their core business? michael: it would take their international operations from about 8% of their revenue to about 25%. part of what is happening is there is uncertainty around this deal. you have some very strong personalities. in case of disney you have bob iger, the head of his business roberts, andbrian then the person who benefits most from this is rupert murdoch. time, thethe same murdochs and the roberts have not always been next to each other, it is fair to say. part of what has trigger the regulatory problems in london is with the murdochs.

does rupert want to be more with bonding with brian? michael: it is hard to make these assumptions based on personalities. the personalities are really about who gets to win in this rapidly consolidating technology and media space, less about their personalities. point of view,'s all things being equal, he may have too bit more in order to get this asset. on thea higher offer table. this is already a much bigger deal than bob has ever made. he has made some great deals with pixar, marble, but those have been in the $5 million range, not this. michael: disney still ends up a winner, even if comcast ends up owning sky. when disney is getting with their foxtail, all the networks, the studio, another third of control in hulu.

there is a great deal more in this for disney. go inf these assets different directions, both sides will end up winning. david: doesn't work for disney if they own 40% of sky? is that going to work? michael: there is nothing going to stop them from doing a deal with somebody else. a strategic partnership with another tradition player in europe will probably make sense. we look at these different chess pieces and in no way are these deals over. david: as you look at the media landscape more broadly, it is clear companies like netflix, amazon are behind the scenes driving disney in this direction. what does it mean for other big media companies like cbs, viacom, discovery, as they see comcast and disney going this way? michael: all companies are trying to create a direct avenue to customers. we see the cbs service

continuing to grow. discovery just merged with scripps, so they get important networks. each of these companies are coming at it in different ways. some are going deep on content, others are trying to build their own ability to get to consumers, get to those valuable viewers. david: how much is tied to valuation? i saw the valuation put right now on the comcast it was 13 times earnings for sky, as opposed to five times for dish. at the same time, netflix is off the charts in valuation. michael: they are not necessarily comparable. let's recognize this is a point in time. netflix has spent a lot of money, this year $7 billion on new content you just because they spent does that mean that they get viewers and ultimately subscribers. dish and sky are fundamentally different businesses. dish is a satellite business,

sky is a multimedia property with tremendous content ownership as well as huge customer base. ford: the one thing we know sure is there is a drama that is yet to be played out. michael: we should stay tuned and should not expect this to end the way that we expect it going in. david: great to have you, michael. still not as is bill smead , who owns comcast and disney. how do you want to see this play out? bill: for the long run you want these companies to have the assets and the employees in the case, setups, in disney's to use those brands. they just keep creating great brands and then sell them again and again and again. everyone has to remember, content is king. since content is king and

platforms come and go -- the vcr was going to ruin disney and then cable was going to ruin the networks and disney. now netflix and amazon are going to ruin disney and comcast. what you have to do is keep your head and recognize they have massive moats. in disney's case, it has to do a lot with the brand. comcast's k's,- they will either get you with cable or high-speed broadband. when you're this far into a growth stock bull market, people say, allroutine and the wildest dreams of these companies like netflix and amazon are going to come true, and they price everything as if everything will work, and they price the people attacking as if nothing that they do will work. that is what yesterday was for

comcast and disney. alix: take a look at the chart over two years. the stock has done nothing he if they get all of the assets, does that give them something? late in the bull market, it is in bull market led by greg -- revenue growth stories, stocks like amazon and netflix. the next bear market will be centered in exactly the things that people have the most enthusiasm for. the next year market will be like when a nifty 50 got crushed in 1974, when the dot-com bubble broke in 2000. whoever were the best performers will be the worst performers. when you are in a bear market, having no dividends or earnings is no picnic. out of that will emerge, the best performers will be the companies viewed as the ones that were negatively impacted by , that is howefore value makes us come back. , but the value growth

story should have emerged in february. value did not hold water, it was still about tech and growth. bill: there is nothing should in the stock market. remember that. 20 years, there is should. in six months, there is no such thing. amazon and netflix could easily double again before this bull market tops out. disney was trading at 90 times earnings in 1992. everything you would have wanted the disney corporation to accomplish from 19 92 today has happened. earnings have grown. , 85% in twocrushed years, and your money went nowhere for 15 years. coca-cola was 80 times earnings. i was buying that as a young stockbroker. paying a 5% dividend, because they owned columbia pictures and

it was considered a disaster. i had a lot of stock option that went underwater during that period. there were times where it really went down. but that was because it was so dependent on advertising, cyclicals. it was really consumer discretionary. are they changing these businesses almost over to utilities? this is a substitution that you are paying rather than for eyeballs. bill: the problem with amazon and facebook which is advertising based, and google, is by doing this, getting so much control and power, they will be regulated. their problem is exactly what you are referencing. if you are the people that are not going to be regulated and you are free to do what you want to do because you are the lonely stepchild, you can have a wide moat and make money in what you are doing, especially in

content. alix: a pleasure to catch up, bill smead. , the there and back club has a new member. we will look at gina powell's returned to goldman sachs. david: as you commute in today, you can listen to jonathan ferro and tom keene this morning. live from new york, this is bloomberg. ♪

in the next hour, david rubenstein, carlyle group

cochairman and cofounder. alix: covering three things wall street is looking at this morning. first up, joining that there and back club. dena powell makes the trip from goldman to d.c. to goldman. then boston billionaires soaring profits, putting billions more into the pockets of the johnson family. and finally, the $1300 phone call. investors thinking outside of the box with their pockets. joining us now is jason kelly. gina powell, we all know her. she had a prominent position at goldman before, went to the

trump administration, and not coming back in a different edition. jason: this is not wholly unexpected. the reason there is a joke about the revolving door in government is because it's true. thats interesting here is dean of powell went down to do a pretty important job, seemingly advising the ivanka trump because she is close to the vodka and jerod. david: i think that is how she got into it. she was elevated into a more of a national security role. now coming back to goldman sachs, it is a pretty big job, dealing with sovereign wealth funds, will be on the management committee. there she was in charge of 10 dozen women program, important program, but this puts her right in the heart of the new goldman. was a major philanthropist, and now she will be a banker. alix: i know you said not wholly

unexpected, but this quickly? jason: it probably makes the most sense. you want to take advantage of the fact that she has been in the trenches in the government, went with mike pence in afghanistan, she is egyptian by birth. david: a small child when they emigrated. i think goldman is opportunistic in this regard. david: i think a lot of people think of it almost like a tour of duty. you go in for a year or so, you help the government, and then come back. alix: part of me was asking because of gary cohn. after he passes taxes, he is out. david: the two of them have been close. turning to fidelity, a fascinating story about how much money they are making. jason: first of all, it is not a wall street beat unless we use the trillion dollars. david: nothing against rich

people. are $2.4elity, trillion in assets that they have. so many think about fidelity as this quiet little company in boston, outside the wall street beat. t, is incredibly powerful, one family has controlled it for a long time. abigail johnson came on as the ceo. her personal net worth went from $8.6 billion to $11.2 billion. alix: that is a nice job. i don't want to lose the fact, may i say it, this is a woman running a very successful financial institution. alix: i am sure it helps that it is a family -- jason: absolutely. it is not an easy job that whoever runs fidelity has. one of the ongoing things we have on wall street and the

segment is this active versus passive debate. how do you play in a world where volatility seems to disappear for long stretches of time and then come back? obviously very important. fidelity is doing well under her stewardship. alix: here is how you differentiate yourself in europe. paying $1300 for a phone call. underd of paying research certain rules, they will be paying for all sorts of weird things. i was fascinated by this, one of the most read stories on the bloomberg this morning. file this under unexpected consequences of method to rolling out. people having to pay for research, and they are having to pay a steep price to the banks who used to give it to folks for free. i'm going tong, if be that much, maybe i should go back to the networks.

one of the interesting things, expert networks, people on wall street are thinking -- oh god! it is very fresh in people's memories that less than a decade ago, this led to people going to jail, not from the expert networks themselves, we should be clear, but hedge funds essentially took advantage of these experts. a fine line between an expert and an insider. they stepped over that line. they were experts because they were insiders. jason: what we have seen over the past 10 years or so is these have quietlyks rebuilt their reputations in some ways, became popular in asia, and are now taking advantage of this market dislocation in europe to really become popular there. we will see how this plays out.

there is a lot more compliant big thing here, and there has to be. as you say, the line is very fine between what is an expert and insider. alix: they can charge them as much as $100,000 per company for services. david: if it gets the deal done, it is cheap at that price. paying fors you are legal fees down the road, then it is a wash. thanks so much, jason kelly. up, chinese president xi's top economic advisor begins business trip today. alix: click on our charts and it around directly with us. this is bloomberg. ♪

david: this is what i'm watching now, chinese trade. we are paying attention to europe and brexit there is a big

mission right now. the seniormost economic advisor to president xi is visiting in washington right now, meeting with all the big people. they are trying to patch up a lot of issues. tariffs just came out. the president says he wants to impose them. intellectual property and maybe even tpp again. alix: coming up, david rubenstein, carlyle co-founder. where he finds value in the market. this is bloomberg. ♪ mom, dad, can we talk?

sure. what's up, son? i can't be your it guy anymore. what? you guys have xfinity. you can do this. what's a good wifi password, mom? you still have to visit us. i will. no. make that the password: "you_stillóhave_toóvisit_us." that's a good one. seems a bit long, but okay... set a memorable wifi password with xfinity my account. one more way comcast is working to fit into your life, not the other way around. >> my personal outlook for the

economy has strengthened since december. alix: not your yellen said. jay powell surprises the market cracking open the door to four rate hikes this year. brexit breakdown, the eu presenting the u.k. with a draft that puts a border between ireland and the united kingdom. and believe me now? inflation in the eurozone stays under 1%, underpinning normalization. david: welcome to "bloomberg daybreak." i'm david westin. we got through the month. alix: it was a crazy month. here is where the markets stand. about one hour to the cash open. s&p futures modestly higher by .2%. we are looking at the worst month for the dow jones. 1.22 on the dollar.

bonds are the story, particularly the 2-year, seeing the biggest move since 2006. crude going nowhere but still the worst month since august. david: this is what is coming up today. the second read on gdp and core pce data. for0, pending home sales the month of january. then at 2:00, neel kashkari participates in a roundtable discussion on wages and monetary policy in washington, d.c. alix: let's get an update on business headlines. the european union has come out with its own draft of a brexit agreement. the reason they british prime minister could accept it. she says it would threaten the constitutional integrity of the u.k. and undermine the country's common market. referring to the parts dealing with the irish border. jared kushner has lost his top security clearance.

that means he can no longer attend some meetings of the national security council or see war related intelligence material. it is part of a wider crackdown two axes sensitive materials. paul manafort appears in court today. it will be his first court appearance since rick gates pleaded guilty to reduced charges last week in the rush investigation. manafort raises a variety of charges ranging from tax evasion to working as an unregistered foreign agent. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm kailey leinz. this is bloomberg. powell showed us month thing, and that is he can move the markets. as he testified, stocks went down and bond yields went up, as the markets understood that we may be looking at four rate hikes this year instead of three. we welcome now michelle meyer and our bloomberg colleague.

michelle, you are watching german powell. what did the markets react to that was such a surprise to them? michelle: the big statement was his escutcheon of how this -- conditions have evolved since the december meeting. he said it is own personal view and others within the federal reserve, the data run growth has showed continued momentum and signs inflation is heading toward trend. maybe he a hint that is becoming more comfortable with a faster pace of rate hikes. not explicitly saying yes, i'm going to put in my dot in for four hikes this year, but pointing in the direction that they will be able to get at least three done and maybe more. another change since december, tax cuts and a budget deal, increasing deficit. is there any indication that chairman powell and the fat are taking that into account? michelle: i think they have to. up ourlly, we revised

forecast on the back of these injections. we revised on gdp by three percentage points. we are now up to 2.9% for gdp growth. the high-frequency data we are monitoring around surveys are very supportive of that. the fed's point of view, they are penciling in an economy that is growing in excess of potential, which suggests price pressures in time will build. i don't think they are concerned about inflation scare today. that was clear from the testimony. but they are concerned as the economy continues to heat up, you see more growth, it suggests that can get going with that hiking cycle. alix: this was the response to the dot question that got the markets excited yesterday. >> my personal outlook for the economy has strengthened since december. each member of the fomc will be writing down a new set of projections and estimate of

appropriate monetary policy as we go into the march meeting which begins three weeks from today. and so i would not want to prejudge that new set of projections. we will be taking into account everything that has happened since december. alix: i am not going to prejudge it, but kind of going to agree judge it. alanthough the days of greenspan have shifted to more of a consensusbuilding, the consensus will be probably molded by the fed chair. people keyed off of his views. hishe really just marked views to the market. nothing that we did not know about what happened. from a market standpoint, the moves you get off of something like that shows me maybe the moves are exhausted. u.s. 10-year treasuries continue to move higher on that. they have since paired that advance today but the u.s.

dollar, this may be a good sign that the selling pressure has exhausted. powell tells us what we knew, the dollar gets a bid, and that carries through to today. when i look at one thing in the terminal, on the heels of this action, the odds of a hike in brieflyarter of 2018 exceeded 50% for a hike in q1, q2, q3, q4. david: michelle, you have taken gdp growth estimates up. central bankers talk about is the limit for the economy. have beenhanges that made change the speed limit to the economy? michelle: no, we have not changed our view around trend growth. we still think potential growth means an economy growing at 2.9%, you are in

excess of that speed limit. it is ok for a period of time but not sustainable. you start to hit supply constraints, unemployment, issues meeting your labor need. you have to pay more. that feels price pressures, etc. you could see a scenario where the speed limit is increasing, and that is certainly a possibility in this environment where productivity picks up, but we just don't know confidently yet. and i don't think the fed does confidently yet either. something i will be looking for is do they adjust their potential growth estimate. i suspect they don't. that was the hint that we got from powell and other officials. it is a risk factor that we cannot be certain yet. alix: of course the question then is what acids we need to rerate. i want to bring up this chart. this shows the actual performance in february of different asset classes. we saw the vix up 33%, dollar index -- 10-year yield on by 6%.

how much rereading can we expect? it feels like the call for caution are still continuing. luke: i think that goes directly to michelle's answer, to the extent of the neutral rate and how high real rates are expected to get over this cycle, over the long-term. has been a yield linchpin for stocks over the month of february, certainly over the past two weeks. inasmuch as the neutral and long run inch or that is a supply factor, foreign willingness to buy treasury factor, that is the one thing to watch to determine the extent to which these other asset classes rerate. david: my chairman powell said may have changed market expectations or the rate of increases. does it change the terminal number? is it a question of how fast you get there? michelle: that goes back to this idea of potential growth. rate, it either

has to be a function of this conviction of a longer business cycle which means potential growth is higher, or they think they will have an inflation overshoot, which means they will have a need to bring the terminal rate higher. i don't think there is any indication of that just yet. i think the thing that will come throughout the rest of the year. high-frequency data is pointing to stronger economic growth today. as they get more conviction and evidence, they can be convinced about what comes next. alix: 200 when you're talking about, in the bloomberg you can see the neutral rate is the white line, the blue line is where the real that funds rate is. you can see the gap is barely there at all. you cannot hike as much unless the neutral rate winds of increasing. when we talk about inflation

overshoot, is there a tacit agreement in the feather that's already happening? michelle: i think what we are sorry to hear more is symmetry of inflation targets. 2% is not a ceiling for the inflation target. you want to have some sort of range around 2%, deviations below for april 2 of time, deviations above. it is all given what is acceptable given the fence mandate. as we approach 2%, we will your more about that. that is a way for the fed to say we want to continue with a gradual and patient cycle, we will not react if inflation moves higher. that is to be expected. we have been waiting for inflation to move higher. in that respect, there is a high hurdle for them to wrap up the hiking cycle more than what is being suggested. three to four hikes this year seems reasonable. beyond that, it is hard for me to envision conditions that will lead them to trigger that. david: chairman powell address

this, try to address this, saying we are not interested in overshooting. we have heard other fed president's say, we should be over. he is saying that is not my approach. luke: the idea that there should be some price target level janet yellen said that we should maybe consider that. he pushed back against that idea, pushed back against the idea that the fed would push back against overshoot. there is a difference. real question this gets to, and one that we have hit on, will productivity growth pick up along with weight growth? is this the mid-1990's or is this late cycle fiscal stimulus at the wrong time? michelle: that is an important point, the idea of intention. does it happen naturally once they go above, raising their

target to a range that is above? that i don't envision. alix: thank you so much. up, theresa may and michelle barnier boat speaking this morning and the pound reacting on that, weakening to its lowest level since january. we will look at the difficult state of brexit. this is bloomberg. ♪

kailey: this is bloomberg daybreak. investors are punishing lows for

not wrong like home depot. the second-largest home depot chain -- home improvement chain missed estimates. same-store sales rose 4.1%, little more than half of home depot's rate. shares of lowe's are falling in premarket trading. there could be a trade skirmish between mexico and the u.s. according to a person deliver really with the matter, mexico will face retaliatory iteris on u.s. products if it is included on a list of nations that would faced duty steel. more follow-up from the florida school shooting. one of the nation's largest sporting goods chains say they will no longer sell also style rifles. dick's sporting goods also says it will not sell high-capacity magazines either an assortment of so many guns to anyone under 21. that is your bloomberg business flash. alix: the pound dropping after the european union drafted a legal text that will form the

basis for the brexit divorce treaty. earlier, theresa may pushback on the proposal. text would, legal if implemented, undermine the u.k. common market and threaten constitutional integrity of the u.k. by creating a customs and regulatory border down the irish sea and no u.k. prime minister could ever agree to it. time, michelsame barnier, the top eu negotiator said it should not come as a surprise. joining us now is richard jones from berlin. what did you learn over the last 90 minutes on brexit? things that of the has been underpinning everything in a forward-looking sort of wages the desirability for a transition period, and the necessity for it. the bank of england's forecast is based on the fact that this transition period will be put in place between 18 months and two years after brexit occurs next

march. i think what barney said today puts in down the specifics on that transition agreement. farink both sides are still apart on what the specifics of that will be. result, we have seen the pound dropping u.k. yields have also fallen that some of the tightening that is priced into the curve of the bank of england is. back because of this transition agreement is in jeopardy. is that because the markets are saying they were not be a transition at all? who sets the rules during the transition period? richard: there are a lot of moving parts. the fact that barnier got very specific today from the pushback from not only theresa may but from her supporters in the northern ireland party, that pushback was intense. that has market participants not asg maybe we are close to this transition agreement as we thought we were before. as a result, i think that is

what the market reaction has been driven by. who isunfair question, the bigger difficulty right now for theresa may, jeremy corbyn or michelle barnier? at the same time we saw barnier laying out his plan, we saw theresa may reacting to jeremy corbyn in the parliament. domestic politics has been a big problem for theresa may all along. not only do she have a problem with the opposition but within her own party. there is a group of splinter mp's who are looking to side with the idea of a customs union which jeremy corbyn has put forward. inre are harder brexiters her party that are pushing against her. add that the michelle barnier problem, eu transition period, and theresa may has no short of issues right now. it leads to a cloudy picture, and as a result, we could see even more downside. euro-pound, look at

having a nice increase on that news. what is the upside potential considering the euro is also weighed down by inflation and other factors? richard: if you look at the headline that we got today, the german and french headlines over the past couple of days, it actually shows inflation was slow. if you drill down into the data, there was a lot of noise coming from food prices, specifically from vegetables. we had a big spike in those prices last year. i think it was down 24% in an area of germany. that has weighed on the headline reading. the core reading in germany and the euro area has actually edged higher. that will be good news for the ecb. from that standpoint, details matter, and the details are not as discouraging as the headline suggested. alix: so the market narrative that it was getting more hawkish

versus mario draghi, who seemed to want to temper expectations, that area will continue? richard: i think the data is baby steps in the right direction. the ecb normalization plan will still be a long time to unwind itself over the next year or two. the caution that the ecb has will remain but there is a growing optimism among all parts of the governing council that this data is heading in the right direction. they will need to see how it unfolds in the coming months but the data we have seen has given us baby steps in the right direction. alix: short-term we have an election coming up in italy, the social democratic party will hold their referendum. the one-weekk at and one-year implied vol for the dollar. really picking up, presumably covering the elections. what do you expect in the next seven days?

i think the italian election is driving up that short-term volatility. i think longer-term what might be more important is the spd vote here in germany. they need to get a government together, get this grand coalition to work. membership does not approve that, longer-term volatility could pick up. some of the market things we have seen in 2017 in the euro area, the positivity we have seen could unwind itself if we don't come to an agreement in germany. alix: what is the probability of that? richard: pretty low. the spd leadership has been optimistic about the possibility they will actually approve the grand coalition. but the actual vote at the first stage at this time last month was 55% in favor. butill still be a close run

the market base case and the spd base case is that it will be approved. alix: also trying to look at what is happening with bunds. looking at italian 10-year yields versus the germans. not blown out like we thought. look into monday, getting past the potential elections, coalition, what happens after that? richard: richard: there is a risk for the euro currency to be asymmetric. if we get a wonderful result from the italian election, or more importantly, if the spd does not approve the grand coalition, we could see the euro come on some downward pressure. i think that bund spread could widen considerably. that narrative is based on political stability in europe. if we get anything outside of what the markets are expecting, we could see a severe pushback. up seeing thend yields rise in germany, you don't get that widening you are

expecting. you cansomething the speak to with equities. s&pare looking at the moving average greater than what is in europe. iso the yield in the dax much lower when it comes to the s&p versus 10-year yield. the dax earnings yield could have more room to rerate, meaning it could be a better. are you hearing that on the ground as well? something in is the back of investor minds, but that is something that probably comes or into play when investors turn more defensive. at this stage there is still a fair bit of optimism and on both sides of the atlantic. if that shifts, the dividend play of what you can get in government bonds becomes more important. we are not there yet but could become front and center on the radar. alix: what else are you looking

at? richard: the big concern right now, the big marketing is to get past this spd vote into next week. brexit will be something for people training the pound that will be increasingly more interesting. i think volatility will rise. i think those two things for the next week or two will be the most concern on the side of the atlantic. david: what is the next big development in brexit, what we get clarity on? richard: we have to get a bit more clarity on exactly what the u.k. position is, relative to what the eu has presented today. we have a big speech from theresa may tomorrow. that should lay more of the groundwork for what's to be expected as these negotiations continue into next month. david: do all the member states have to vote on a transition itself?

when do we have to get to the parliaments to have them ratify a proposal, they get to it? richard: i think we are still probably a fair while away from that. we to get an agreement in principle and that ratification needs to happen in the eu parliament. still a few months from that. wouldk the eu and u.k. like to have everything wrapped up by october, so that could be ratified. that is only five or six months away. still seems like they are far enough apart that it seems like it will take some time. richard jones, thank you. even as britain and european union try to work out their differences, business charges ahead on the continent and private equity funds have a lot of capital to put to work. top dealmakers are meeting in berlin today to discuss ways to deploy all that cash. matt miller is there with one of the top dealmakers, david rubenstein, cofounder of the carlyle group. matt: thank you. david rubenstein here,

financier, philanthropist, cofounder of the carlyle group. agoere talking a moment about what it is like to work in private equity. i would think from what i learned today that it is quite difficult because there is so much cash. fundraising has been so good over the last five years, a lot of private equity investors don't know what to do with it, especially of these valuations. is it difficult now? are high doubt prices by historic sanders and investors want to get the money invested. if you invested higher prices come you will probably get lower rates of return but investors are willing to take that to get the money invested. puttingu rather have 0% in for cash or a 14%? investors want us to invest, and we can get pretty good rates of return. att: it seems like a

lot of private equity firms are having trouble putting the money somewhere. they are still sitting on 1.7 join dollars in cash. matt: that money will be invested. $22 billion int equities and other firms did more. the money can be invested. larger firms have an advantage because they have a bigger scale and the conference can be invested. i have been coming here for 25 years and this is the happiest i have seen people. returns are good, fundraising is good. i have never seen anything quite like it. i gave a speech earlier today about how we have to remember eventually the good times will end, but i don't think it will be anytime soon. a pointu are still at when institutional investors want to give you their money. why do they it returns are expected to start to shrink? david r.: 20 years ago, you may

expect a private equity return to get a net rate of 20%. today it is about 15%, and that is still better than anything you can do legally with your money. if you are a larger sovereign wealth fund and you have billions of dollars to put out, sitting on cash is not good. getting a 60% net is pretty good. while the returns are down, they are still good returns. matt: investors talking about the end of the cycle, talking about when it eventually turns. you your view, when do think this economic expansion will come to an end? david: all cycles turn. right now we are in the third-largest growth cycle we have ever had. it will end at some time, but right now i don't see any end in 2018. the tax cut bill has propelled the u.s. economy of it longer. i suspect through 2019 we are in good shape. matt: i want to ask a question

about carlisle. because of the tax reform recently, we saw areas reform to ac court. it makes sense for investors as well. do you think that is a good ideal for carlisle? david: i think it is a good idea for ares. a large percent of their income is the oriented, so there is no disadvantage for them. a lot of our income is carried interest, so it would be not as favorable for our unitholders. we have looked at it and we are comfortable with our position but we will look at it all the time. right now we are not making a change that will continue to see it seems todo matt: be more advantageous for the investor to buy shares in the sea court, also for private equity firms to use their own shares as currency. it has some appeal to

investors who cannot buy the shares that we can buy. people are buying our shares, there should be a bigger float in shares of private equity firms, but i think it will sort out over the next year or so. matt: let's talk about valuations. in the public market, we see valuations in the low 20's. private equity deals we saw last year, half of them were paying a price of 11 times or more ebitda. things are getting pretty pricey. what does that say to you? david: the average multiple before the great recession was about nine times, now probably closer to 11 times. that means returns will be lower. on the other hand come interest rates are low, so i don't think it's the case that you automatically get a lower rate of return. i think it will be somewhat lower. 16%es return in the 15, funds would be fairly realistic.

when you do these investments, you're looking at a longer window. the cliche time content. do you worry about the exit time, do you look forward and say, if we have a turn in the cycle, it will be within the next 5, 7 years? david: the average cycle is between four and five years, maybe five and seven years. longer dated funds you may hold onto 10, 15 years. in the normal cycle, you find a point during the fourth or 50 or to exit when the economy is not in a depressed state. i think it is a good time to sell right now. right now you cannot predict when the growth cycle will go down. right now, people are still pretty happy with the prices they are getting when they are selling companies. matt: what do you make of the return to volatility we have seen over the last month? it has not collapsed the market but we have seen things wake up

again, on the wrong side of the bed, it seems. david: private equity is not really in the markets the way the public markets are. most of the downturn has been recovered. we are probably back to close to where we were before the volatility occurred. i don't think it is something to worry about now. the economy in the u.s. is in good shape, europe is in good shape. the u.s. economy is in pretty good shape as well as europe. does affect a few of your possible exits, the ipo market, secondary market. do those look less stable to you post volatility? are much less, because it is harder to do them to get the values you want. sales, those are much more common. as openmarket not being as we would prefer is not a problem. there are other ways to exit. them is to have a

sale of incorporation. private equity purchases have declined as a percentage of all m&a. 1% each of the last three years. why is private equity losing out when it comes to making purchases? investing ae still fair amount of money but corporations have high stocks, lots of cash, and no parking always outbid a private equity firm. when the stock prices were low, we could outbid corporations, but right now, if a strategic once to buy something, it will get it. matt: where are the good places to invest right now? when you are looking around at a world of fairly high valuations, where do you find the best deals? david: i think china is still very attractive. it has its challenges but it is a gigantic market. india is attractive right now. brazil is coming back from the

recession. also the united states there are some good pockets of investment. matt: are you concerned about china? we saw a spooky pmi number. monthng seng at its worst of all indexes in the world after its best month in three years the month before. what does that mean to you? case, youthat is the will buy things are lower prices that are attractive. people, an4 billion economy that is somewhat capitalistic, and a lot of people who are very good entrepreneurs and good operators of business. it is an attractive place to invest. matt: still an engine for this concerted global growth that everyone is talking about? david: the united states is growing at 2%, 3% and we are happy at that. china is growing at 6%. it is much more than we are growing at, so it is a major source of global growth, as for the last 20 years, and at least

for the next 20. matt: in the u.s. we had our best consumer confidence rating in 17 years, a lot of people are putting that to the tax reform bill. do you think this congress and administration is setting of the economy to continue to do better? david: i think the tax reform bill will help the economy. we've are a lot of money, $1.5 trillion over 10 years. at some point, we have to pay that debt off. right now, people are feeling pretty good about the economy. unemployment and growth are pretty good. matt: speaking of treasury rates, what do you think about the talk of going over 3%? i'm already starting to hear doomsday scenarios from companies if it goes over 4.5. do you think rates will go up? david: i don't think they will go up dramatically. i was in the white house when we had 14%. we are so used to low interest rates.

when they go up modestly, we still think they are high. by traditional standards, even if they go up two or three additional terms this year, we will still have the richest rates. if a fed increases by 25 basis points even three times a year, interest rates will still below low by historical standards, just high from a year or two ago, but still manager for firms like us. matt: you sound optimistic, and you did in your speech as well. what are your biggest concerns, what are the biggest risks? david: we have a lot of debt in the u.s. we have to realize that has to be paid. one day people will wake up and say this is too much, more than we should have. is always geopolitical risk in north korea, iran come.. . when things seem great, that is

often when things happen. right now, i feel pretty good about the economy, the u.s. is in pretty reasonable shape. some point we will end the cycle, it cannot go on forever. matt: appreciate your time today, david rubenstein. cochairman, cofounder of the carlyle group. to seehank you, great you. let's talk about a better economy that david was talking about. the second reader gdp for the fourth quarter coming in 2.5%, in line with estimates all the first three. personal consumption, 3.8%, pretty consistent with the last three. core pce coming in line with estimates. 1.9%. also looking at earnings breaking, tj maxx getting a nice pop in the premarket. sales coming in better than estimated, almost $11 billion, comp sales up 4%. the company however boosting

their dividend and buyback plan. in the markets, take a look at where we are. s&p futures trying to cling onto a positive lead. futures of by about five points. in the bond market, the 10-year yield going nowhere until the end of the quarter. a little bit of buying on the margins. the dollar index still trying to hold onto its lead. the weakest for the euro since october of last year. mckee joined by michael and oliver chen. he has an outperform rating on tjx, has an $88 price target, but cannot talk about it until he publishes his research. anything stand up to you about the economic data? mike: nothing really. this is a tweet to the earlier report. less government spending come

inventories were smaller. the declineed for in gdp. no change in the price. leaders. the real story comes tomorrow. this is backward looking stuff. a lot of it before the tax bill was passed. tomorrow we get personal spending and income data for january. , thenew pc information inflation monitor that that that follows. that will be much more interesting to the markets and what we are seeing today. today it was steady as she goes in the fourth quarter. consumer spending stays the same. oliver did his job. the state of consumer spending in the middle of retail season? unemployment is low, we have the prospect of which run. the consumer environment is healthy. macy's had better-than-expected numbers. the overall consumer environment is very favorable. there are some unique challenges. the rise of amazon, as well as

those mobile revolution going on. it is a difficult time in terms of getting people physically to come into your stores. the consumer engagement model and as well as how macy's competes. have stated worries about the consumer balance, saving less, spending more. is that a threat to retail? concept ofre is this deep value now, new generation of shoppers concerned about pricing, concerns about how you can be offered the best deals and save time, money. i'm concerned about retailers need to execute in that vein. who does a great job there? costco, tj, ross. macy's is a little bit stuck in the middle because it has to clean up its pricing architecture and make sure that you understand what kind of price to get and don't make it overly complex for the customer. alix: we saw yesterday consumer confidence higher, reasonably as

the tax cuts start filtering through. have we seen the impacts in the hard data, and if not, when? we have not and we don't know when. there is a very loose connection between consumer confidence and spending. it has not been proven through the years that they follow each other. consumers feel better but a lot depends on their incomes and prospects for future income. in the conference board number yesterday, the idea that incomes would go up over the next year was much higher, and that maybe gives you a little bit of hope that people will spend. people have been spending down their savings, so it is not clear that they will immediately run out to the mall or go online. david: tax cuts can affect the retailers. do we have any sense if they are putting that money back in their business or distributing it? we see a lot of buybacks, dividend increases. oliver: union great people in your infrastructure, horse. we have seen wage increases.

the other aspect is digital and supply chain. if you are not target or amazon, you need to be on a game with speed, investing in your supply chain to deliver products quickly to customers. retail isfuture of data, thinking about big data, customer relationship management. loyalty programs, tracking your 3-d recognition when you walk in the store. that is the future of retail. hopefully not creepy but helpful. alix: i know you cannot discuss tjx, but which companies have the best momentum that can discount without killing their gross margins and can compete with those tax dollars we will see? oliver: we like walmart. we think it is defensive in terms of dividend yield, offensive in terms of the jet.com and smart supply chain.

gross margins will be tough for everybody. everyone is using as a tool to offer a discount to the consumer, so it is hard to answer that. we like walmart because it is one of the biggest players in the market. they will not be undersold. jay powell wants to know the answer to this, you talk about discounting. are we going to see prices rise for retailers? oliver: i think it will be the year of the consumer. they will get some great deals. there will be some selective price raises in activewear, lululemon, a lot -- a renaissance of boutique fitness. health and wellness is a good sector. handbags as well. food, think about apparel, there are lots of pricing pressure, which is better for the consumer and hopefully exciting for the consumer to reinvest that. david: thank you for being with us, oliver chen.

coming up, a read on the u.s. housing market from sheryl palmer. you commute in today, you can listen to our colleagues tom keene and jonathan ferro on the radio. bloomberg surveillance can be heard in new york, boston, all across the united states on sirius xm radio. live from new york, this is bloomberg. ♪

kailey: this is "bloomberg daybreak." up in the next hour, anastasia amoroso, jpmorgan global market strategist. david: mba mortgage applications

rose last week with the first time in three weeks with refinancing comprising 42% of applications. for a read on the u.s. housing market, we welcome sheryl palmer. this is one of the nation's largest homebuilders. thank you for being here. give us a sense of your business, how much of a market do you have? >> taylor morrison is a national homebuilder, we build across the u.s., 17 operating divisions across the u.s.. last year we did over 8000 home closings. let's put up a chart that i have in the terminal to talk about where we are with a snapshot of where we are with the home industry. the yellow line our home prices, which are holding up nicely. the white line is the 30-year rate on mortgages. that is coming up now. these gray bars are stocks.

why isn't that growing, given that housing prices continue to increase? sheryl: you can see over the last 40 months we have seen supply dropping every month. we don't have the infrastructure to build a new home to meet the demand. we continue to build on the deficit, based on population growth. you look at the overall supply dropping, the prices, which have flattened out over the last many months. month over month increases but certainly more moderate than over the last couple of years. david: when you say infrastructure, roads, sewers systems, water? you cannot build houses because there is not the infrastructure to support them? sheryl: that is a piece of it. the other part is the ability for folks to build homes. when you look at where we were in the prior peak, we had some are close to a million workers in the u.s. building the homes

when we were doing about 2 million starts a year. right now that is about a third of that. housing starts is well over half way back. david: is there a skills gap, people that would work but they don't know how to build houses? sheryl: that's correct. if you think about the length of the downturn, we had folks that aged out, we have immigration reform, we were not really developing new talent through the schools, did not have vocational programs to bring new folks into the industry. it has really put a governor on our ability -- david: why doesn't the market adjust for that, so wages go up, and that people can come in and get the skills that they need? sheryl: we are. we have seen 10% start growth over year-over-year, but expectations are that it would grow much greater than that. that's not possible. it is a journey, we will get there, but that is part of the good news. then i think about the new thatation of millennials

have not even begun to buy houses. that is why i'm so optimistic and polish about what we have ahead. david: as you look at growth for your company, what are the biggest obstacles, chokepoints, is in the mortgage rate, is it the skills gap, something else? what do you see between you and faster growth? the skillstainly, gap is a governor in housing formation, new household starts, for sure. when i think about land availability and having lots in the right locations, that is another one. i think there are a lot more tailwinds than headwinds. we think about the generational opportunities ahead. i think about millennials, we have a generation of over 80 million, 25 million of them are still living at home. the average age of new folks buying homes today is 32. millennialscore of is just turning 29, 30.

i'm excited about what the next year's are. david: immigration reform. how big is that for you in your business, how much has that affected you to get the records that you need? sheryl: it is something that we have become somewhat accustomed to, working with the workforce, how we work with our trade partners. we certainly do not have the skilled labor on the ground. different parts of the construction schedule in different parts of the country. but it is what we continue to work on, developing new talent. but it is a slow process. david: how far out in the business can you see, two years, two months? sheryl: we have great visibility for the next 36 months when i look at my own inventory we are building on. i look across the u.s., how we are positioned, and i'm bullish about what we have. the growth that we are building on the last couple of years, the business has grown 25% over the last two years, 50% over the last three years.

certainly not at's, but i'm excited about where we are going. david: thank you for being with us, sheryl palmer. alix: jpmorgan held its annual investor day yesterday. they discuss their venture with berkshire and amazon, jamie dimon spoke on corporate governance and blockchain. joining us now is mike mayo, wells fargo head of large-cap banks. he has an overweight rating on goldman sachs. for time i gave you shade not bringing props. you did not disappoint this time. >> jpmorgan investor day was yesterday. jpmorgan, take 3. bought bank one, it was a hodgepodge of companies, then you had been joined together, made it through the financial crisis better than the average bank. now you are at take three, which means the benefits of scale

iq have not seen before. ,f they had one message, it is we are jpmorgan, hear us roar. they are expanding with bankers, markets, bots. jamie dimon basically said we will defend our turn if there is an upstart, a smaller bank that wants to compete. we need to preserve the value of our franchise. we will spend whatever it takes. the reason is because they can afford to do so. jpmorgan is benefiting from scale more than ever before. that is similar to many large banks in the u.s. banking industry. alix: bloomberg intelligence had a note out that said that we so anyave a fed put, sort of catalyst has to come from regulatory relief. do you see it in that kind of trade-off? >> no. rates, revenues, regulation are very important, that is what

host of the discussion is about. what we see for the u.s. banking industry is a 25-year structural breakup for the benefits of scale. it comes down to revenues growing faster than expenses for the next three years. while j.p. morgan stock is at an all-time high, we think it can go higher. earnings should grow 50% over the next three years. j.p. morgan stock price is anchored to earnings, just like any other stock. we see better times ahead for j.p. morgan. alix: what about goldman? there was a great piece today talking about consumer lending and how much they are putting behind that, the potential opportunity, but they are late to the party. mike: welcome to consumer lending. we describe that as from caviar two cheeseburgers. todman sachs, the advisor billionaires, multinational corporations, now going to the person on the street. this is in contrast to jpmorgan

or bank of america where consumer lending is a core competency. we are watching this expansion very closely. having said that, we give goldman sachs zero credit in earnings for this expansion with consumer lending, even with giving them zero credit, our expectations are that they will still exceed earnings expectations because of its core business of capital markets, investment banking, advising large corporations. alix: i love that you mention that because when i talk to you guys at goldman, i say, the fees on this will be nothing. can you make up the volume? it can be an incremental builder. 2% growth for them can be huge. it is yet to be seen what will happen with goldman sachs. they have been quite to investors right now. is a hodgepodge of consumer facing businesses. they have not yet defined to us how this will live together. they are planting seeds for future growth.

into huge trees, great. if they don't come it will be considered research and development. alix: favorite bank? the: citigroup has come farthest in the crisis and still has the farthest to go. we think their returns go out more than anybody else and we think they should have the biggest structural risk reduction of anybody else. alix: thank you. good to see you. finally bringing me a prop to play with. david: stay tuned for bloomberg markets and the open. scott wren will be here, as well as anastasia amoroso. live from new york, this is bloomberg. ♪

jon: from new york city, 30 minutes until the start of trading, this is the countdown to the open.

coming up, chairman powell's positivity opening the doors to a conversation about four hikes in 2017. eurozone inflation starts heading in the wrong direction. it dropped for a third straight month. says ary mnuchin in tpp --- resurge some stability after yesterday's drop. yields climbing to 2.8%. the euro weaker once again. we are down by .1%. the global markets moved lower after we saw a pickup after jay powell's testimony to congress. >>