the white house do know is that general mcmaster will be replaced. markets don't react well to more white house turmoil. a decadefference makes. 10 years after j.p. morgan but stearns, investors say they have doubts about where things are headed overall. .nd growth without inflation on a meetings with fed and g20, the question is whether we can grow the economy without raising prices. the new economic advisor says let it rip. welcome to "bloomberg daybreak." i'm david westin. you let it go all morning. let's get caught up on the markets. dax is having gains of more than a half percent. futures basically flat. the u.s. dollar weakening against the yen against quality.

the german ten-year dropping after disappointing inflation data. it is time now for the bloomberg first take very three stories about what we are watching this morning. white house turbulence, the second market at a tipping point. the third, the week ahead at the g20 meeting and the fed. david: joining us to take this is lizzie. and also michael mckee. start with general mcmaster. there have been rumors that the president is not happy with mcmaster. we had a tweet coming out saying there are no changes. lizzie: that is a nondenial. there did seem to be some market reaction. >> we are getting in the heart of the national security

apparatus. he is at a point where he is talking about going to north korea to talk to the dictator there. he has to deal with russia right now. also the sanctions on china. there is no net under the sky who doesn't know anything about foreign policy to begin with. the world has seen them as propping him up. going into difficult situations without mcmaster and without gary cohn and without rex tillerson, you could have some problems. it is interesting when you wonder what political risk will matter to markets. interestingly, the possibility of mcmaster resigning or getting pushed out actually did have an effect on markets, maybe. if this is causation and correlation. if you take a look at the dollarrg, this shows the

and you see the yellow line is where we got the new york times the special prosecutor going after trump's organization. the dollar did go down, but spiked back up. the red line is when the mcmaster alert came out, and you can see the dollar did the client. caveats, arethose we seeing some of the political turmoil and headlines feed into market action? lizzie: markets hate uncertainty. they have had a year to get used to mcmaster and various people in the administration. what we are seeing now is real change, and it is coming fast and hard. every time a new person is announced or rumored to be out, markets have to reprice that in. they are actually doing that. david: this is not a one-off.

we will put up a list of pictures of people who have left already. it is pretty extraordinary. michael: no one has had the turnover that president trump has been the real issue besides the fact that he is losing what he has, is who can he replaced them with? a lot are concerned he won't be able to get top-tier people to come in because of the turmoil and turnover. there are questions about who he can get and if they can he confirmed. david: one of the names being talked about is john bolton. that is not going to calm things down. he is very much a hawk into the far right. that would worry markets to the extent you can price risk. you mentioned the molar story -- robert mueller story. reaching into the trump business operations, which donald trump said was a redline.

does he let him continue on the job? you can't price necessarily political risk, but you have to try. lisa: today is a special day for wall street. it is the 10th anniversary. happy anniversary. i am expecting some chocolate later, mike. this is when j.p. morgan took over stearns over -- under duress. you are looking at a chart about the banks since then. it has been especially wonderful in that. of time. that said -- that period of time. half -- glassm half empty gal, we are seeing uncertaintyis more creeping back in the market, whether it is the saudi aramco ipo or whether it is credit spreads wiping out.

somethinge we seeing more potentially deep and prolonged? investors is a great place to start. we see uncertainty as a start. companies want to go out into a stable marketplace. investors is a great place to start. they want to have a certainty. investors won't make risky bets. when you have something as huge as aramco coming to the market, they will have questions about valuation and dividends. they are getting a timeout on the road talking to investors. david: my, investors are nervous but you also have a lot of -- mike, investors are nervous but you also have a lot of people out there. are they nervous? michael: past performance is no indication of future returns. the fed can't bail anyone out.

the fed can't do it again. jamie dimon has said he would never buy bear stearns again. banks might not be able to. nobody knows if the orderly liquidation authority would really work. we are in a completely different climate. banks are a lot healthier than they used to be, which should give the markets confidence. we also have algorithms with trading that we did not have 10 years ago. if you get a problem, it will get magnified much more quickly. we are in a completely different world. you go back to the fundamentals. lizzie: they are rolling back a lot of the financial rules as a reaction to it. it is a funny way to mark and anniversary. lisa: we are also looking at weakening of credit markets. some say it is a blip, and some

have come out and said it is not a time to buy high-yield. this will outweigh acquisitions. david: we know a recession is coming, we just don't know when. michael: will all look back and say we knew it. we don't know for sure. david: who does know, we hope for sure, is the fed. we have the g20 meeting. one of the questions is look at body expects aery hike. what would we learn about the economic projections? they have to look at tax cuts and a lot globally and domestically. investors realhe chance to get eight look at how these things will be presented. it is pretty certain what will

happen. the first look for them at body language and they will look for any clues about how he is going to present things to them. lisa: it is a given that the fed will raise rates next week, i do not think that will make much of a difference to investors. i am wondering how closely they are watching a measure of start the short-term borrowing. if you look at the bloomberg, you can see that it has been rising dramatically since 2008. it has outpaced three-month treasury bills. three-month treasury bills also rising. this is an expectation with respect to fed raising rates, but this has to do with issuance of t-bills by the u.s. government. how much of this will be on the radar and forced their hand with raising rates faster? michael: on their radar.

they are concerned about what it actually means given that there is so much move to try to get away from it and they are not sure it is giving an accurate story. they are in a position where the outlook is we are going to see faster inflation and growth because of the fiscal stimulus. at the same time, we were talking about recession and they feel they don't have the ammunition to fight recession. they want to get rates up while they can to be able to fight the next recession when it comes. david: before we let you go, let's talk about the g20. g20, i want to put up a .hart about global growth some are raising the question, are we having too much? when you look back when it has gotten over four, not good things have happened. michael: you cannot come up and say things are going to be terrible. there will be talk about being looking atand

fundamentals and making sure growth continues in a noninflationary way. they will be talking behind the scenes to make sure everybody is on the same page. there will be a lot of talk about trade and whether or not we will have trade wars. lisa: take a bottle of wine for me and do some tango. i cannot wait to see the pictures. david: many thanks to mike mckee .nd lizzie fo the former secretary deputy will be here with us on the bloomberg. ♪

♪ is "bloomberg daybreak. this is the flash." -- "bloomberg business flash." he began by sweeping factory force in hong kong. shares of tiffany are rising. they posted sales growth worldwide in america's. sales rose 4% in the fourth quarter, which included the holiday season. tiffany's has been trying to attract younger shoppers. a $7rt is in talks for billion deal to become the largest investor in the e-commerce giant. would put walmart and competition with amazon, and one of the world's most promising online retail markets. the deal may push the ration to

about $20 billion. that is your own flash." david: -- "bloomberg business flash." david: the national security adviser will be the next ago amid rumors. the president tweeted there are no changes. you might think markets are getting used to the turnover. but overnight, the yen strengthened on the news. we welcome someone was seen political uncertainty. he is roger altman, founder of evercore. seemed to the market react some. i will pull another chart. this is what the u.s. dollar did. the yellow line is when it came was looking mueller into the business rather than the campaign. then it came up. the red line is when the washington post cannot about

mcmaster. the dollar did go down against the yen, and asian markets were down. is that correspondence or causation? i don't know. our markets reacting? roger: not yet. this isn't evident in market levels until it is. instabilityds, this is not a good thing. other thingslot of in terms of markets. you never know the turning part -- turning point. this type of instability can seem to be irrelevant to markets until all of a sudden it isn't. white housek that revolving door issues by themselves will cause a meaningful turn in market levels, whether that is fixed income or currencies or equities. it is part of a larger piece. historically, this type of

revolving door is not a big market event. it has an accumulative impact. david: you served under the number two in the treasury department under obama. did you have consequently to get you with the market? is president trump defying all of the rules once again? is, and thatk he is his unique style. it is obviously a different style. historically, if you in a place like the treasury or white house, you want to convey confidence and you want to convey stability and business as it usual. in effect, a framework for investors and citizens so they can understand that this is where we are going. this white house would not get in a for doing that.

lisa: what would they get? a low they would get mark, but that doesn't mean it will be a big market event. a lot of people think market levels are high from the point of view of equities. that is causing some defensive thinking. fromnderlying fundamental the economic point of view remain good. there may be a lot more of this type of revolving door and markets might look through it. it is what they look for. a chartwant to show you that looks at a measure of political risk as measured in the u.s.. that is the white line here are steadily rising as we get the turmoil. the yellow line is the s&p 500. it does not care. then you see the bloomberg dollar, it seems to care, given the caveat of correlation and causation.

i spoke to patrick yesterday and he said in the last couple of weeks, he thinks the weakening of the dollar is due to political risk and the turmoil in washington. do you agree, and when you talk to corporations outside of the u.s., are they more reluctant to come here because of what we are seeing in the white house? roger: the answer to your second question is no. lisa: really? roger: if you are talking about mna and fixed investment, -- m and a and fixed investment, this is not deterring foreign investment. , or inother hand addition, if we had some perfect measure of geopolitical risk, some index we could all say that captures it, we would all say that measured is at a relatively high level, whether it is north

korea or tensions with russia or other factors. it is at a high level. it is like the question about the revolving door in the administration. do markets care about it? you pointed out that so far they don't. these things tend to have an accumulative effect. historically speaking, it is always accumulative effect that causes market turns, unless there is some stunning event like a war. mark things do you wrote -- erode market fundamentals, but it is a small drop. -- rogerger them in altman will be staying with us. this is bloomberg. ♪

♪ david: mergers and acquisitions

may not be breaking records, but it is strong with the trump administration. blue is m&a activity, which holds up nicely. roger altman of evercore is with us. this is right in your wheelhouse. how is m&a doing? roger: the levels remain high by historical efforts. they might be slightly lower than two years ago, but by it long-term standards, they are very high. thes not surprising because underlining fundamental is confidence and a level of interest rates and the availability of credit, level of a stock prices, they are where you want them to be if all you cared about in the world was mna. the fundamentals are excellent and that is manifested in the levels of m&a. shaking of the

confidence because this administration has said no to deal and that is not the only one they have stopped. qualcomm and also antitrust challenge. to have a tough time getting through. -- through? roger: our firm has been and remains and advisor to qualcomm , am personally advised in that so i don't want to comment. but most mergers don't carry regulatory risk, whether it is antitrust or other and are not affected by those concerns. maybe 95% of mergers in terms of

-- number of deals, not died dollar volume, don't carry regulatory risk. antitrust risk is higher than it was two years ago or four years ago or six years ago. the at&t time warner case is being watched very widely as a harbinger in that regard. there are certain big situations which get a lot of attention and which obviously are uncertain from a regulatory part of view. most transactions don't carry that. david: particularly at&t-time warner. does it lend some uncertainty? yes, i think if we had a perfect measure of antitrust risk, that would be at a relatively high level by the standards of the last few years.

it is not at gigantic levels. most transactions don't carry that risk. if you are talking about really industry --nd into , it is nottry affecting most deals. if it was, you wouldn't see mna -- m&a levels the site. with us.ger will stay a bank regulation. that is coming up right here on 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. daybreak. bloomberg i'm lisa abramowicz. dekes in germany up. -- dax in germany up.

down. futures s&p futures doing nothing. let's get a sense of what is going on in assets. the u.s. dollar continues its weakening path today against major peers. euro gaining. off a bid forisk the 10 year treasuries. now to find out what is going outside the business world, will go to kailey leinz. she is here with "first word ."ws kailey: the white house denies a report that the white house is about to fire h.r. mcmaster. the washington post said the president made the decision to remove mcmaster. he wants to make sure the lieutenant general is not humiliated and that his successor is lined up. muellercounsel robert may have crossed a redline set by president trump. according to the new york times, robert mueller has subpoenaed the trump administration to turn over documents.

the disagreement over the border between northern ireland and ireland is complicating breads it transaction talks. appointed diplomats, the u.k. has significant ground to make up before next week's summit. one official says that if the eu is not satisfied on a hard border, it might add more conditions to the deal. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. leinz.ley this is bloomberg. senateon wednesday, the passed its version of terming that dodd-frank, now it is up to the senate. with us is roger altman, evercore founder and senior chairman. we showed what the senate bill would do. it looks like they are going to trim back on dodd-frank. if that happens, what will the

effect be in the real world? roger: i can't resist reacting to that news report. you are fired, but i don't want you to be humiliated. lisa: talking about mcmaster. david: we both know what that is about in all likelihood. for mcmaster being a four-star, they have to wait. i am speculating. roger: in terms of the question, there will be legislation. the senate bill or something almost exactly like it will come into law. i don't think the house will be able to change the senate version. this will take effect. second of all, it is quite meaningful. it is in part overdue and in part a little too much. ?isa: too much do you think this could potentially spur another buildup in banking leverage that could

be threat to the system? i'm not saying that. there was good evidence that anding to small business the role of community banks and small banks was being hampered by the regulatory thrust of dodd-frank. an awful lot of people agree on that. that part of it was overdue. on the other hand, i think the idea of raising the ceiling to 250 billion in terms of institutions below which are not subject to extra supervision, extra capital requirements is just excessive. you are talking about large institutions that are now exempt from that. i think they went too far in that regard. that we needt is to reduce the regulatory burden on smaller lenders as it relates to local business and small business. that makes sense. lisa: you can see this chart on

thebloomberg showing broader banks pay the line indicates the outperformance of smaller banks or the difference of there's compared to bigger banks. for march returns show a vast outperformance of smaller banks versus larger ones. a lot of people looking for some kind of boom there that has been long waiting. roger: if you ask yourself, why is the rate of business declining in terms of the ratio of business destruction to business startup, it is declining. factorse a lot of involved. one of them is the availability businesseso emerging and brand-new businesses. adjusting that makes sense. david: does this address that? there is no question that if this become law -- becomes law,

that would be less burden on banks -- small banks. we know we're going to lend to small business as going to the pocket in a small banks? do you need to go to -- do we need it to go into lending? roger: you would want it to go into lending. lisa: there has been so much lending. think about all of direct lenders and the leverage loan tables. roger: not in terms of small business and emerging business. you are right about levels of macro lending. levels, if at m&a you are a large party -- broadcom had lined up $90 billion of loans for its offer for qualcomm. in that sector, credit is

robust. not in terms of small business. and i'm talking about emerging business. sachs did aan survey of small businesses last month, and the number one problem they had was credit, small business. will you fix it? not all by its self. mobility in the united states is declining. fewer people are picking up and moving in order to find a new job and start a new career. -- alls all come to come kinds of complicated reasons behind it. lisa: do you expect consolidation among regional banks as they have more ability to lend and they want a bigger foot? roger: probably at the margin a little bit. this alone will not drive a lot

of that. david: it is broadly believe that europe is over bank. are we over baked here? roger: it is hard to say. the united states broadly is over banking. you might argue from a consumer level, for example a simple forth, it atm and so is over bank in that sense. i don't think we are over bank. lisa: i understand bipartisan support to shore up lending for small businesses, but is this coming at the wrong time and give benefits to the wrong people at the wrong time? roger: as i said, part of the bill that most people like and agree with is that it loosens the regulatory burden on smaller

lenders. the part of the bill that a lot of people shake their head at is the ability to roll back a of examinations supervision, capital, liquidity racial's, and disclosure requirements for certain institutions that are not small -. i personally think it was too much. you: roger altman, thank for being with us, evercore founder and senior chairman. coming up, the deutsche drought is over. they try to obtain top talent by delivering bonuses. more on that next. from new york, this is bloomberg. ♪

♪ kailey: i'm kailey leinz. hour, up later this public and senator bill cassidy of louisiana. david: we turn to wall street beat where we cover three things that wall street is doing. number one, deutsche delivers. they will be getting back to normal and deutsche bank will get a -- give out $2.7 billion in bonuses. and bloomberg businessweek on what made john gray the heir apparent at blackstone. number three, country called -- club criminal. his neighborsd

out of $24 million worth of fake hedge funds. kellyjoining us is jason of bloomberg. let's start with deutsche bank. an interesting story because for many years, theycompensation by 80% as sought to appease regulators. this year, not so much. jason: it is hard to totally determine how much this says about the health of deutsche bankversus how deutsche may need to continue to be more competitive. they had a huge number of people the. lisa: you are being diplomatic. they have been posting disappointing results. this is not an indication of the health of the company. jason: would you say it is about keeping people? lisa: that is what analysts suggest. david: last year they cut didn't dout then they

it. jason: the argument could be that they are not delivering as a company and you are not getting paid. lisa: there is a big question here and that is at a time of increasing technical platforms and automation, how much do you need to pay for people to have traffic in the personal relationships? jason: the other thing that is pointed out in this story is that john himself had potential pay of 38 point $2 million. he actually made $11.2 million. from a delta perspective, that is a big jump down from what he could have. david: i want to go from the number one favorite subject deutsche bank to blackstone. exactly how is john gray going to take over the company?

jason: john gray has long talked .bout more quiet ways lisa: i love that cover. jason: what is interesting about john gray who has a nice head health care -- head of hair, but in private equity where the tycoons are starting to do real succession planning. he is interesting because he is never worked anywhere other than blackstone. he built this business. his challenge is going to be, can he spread that magic dust on the rest of the businesses on private equity and hedge funds and credit? lisa: people in the story were saying that john gray revolutionized investing. what does that mean?

publicly traded real estate assets that were undervalued. over the course of about a decade or more, he did almost 30 public to private transactions, where he took real estate asset private. hilson was the big example of big -- hilton was the example of that. , theen hilton and equity investors made upwards of $20 billion. lisa: not so shabby. someone who didn't make that was the country called -- country club criminal. he stole peoples money. jason: this was a mini made off ff.-- many mado madoff. so you go to your neighbors and

ask them if they want a hedge fund. david: i have never had a neighbor asked me that. lisa: maybe you're not hanging out with the right people. ofon: this is the sun westchester and he went to stanford. he has a pedigree. but he allegedly swindled people. david: one person gave him $2.4 million. he was doing this out of his house. he didn't even have an office. doing this out of his house. he didn't even have an office. lisa: i love the story. david: we can't leave without talk of brackets. everyone go to bloomberg.com and go on the graphic. jason: there are 42 big hitters. david: you can click and see where they are. jason: you have to expand at the screen because you can dig in and see everyone's picks all the way through. david: if you click through it,

you can see and go through in a series. might record is totally blown already. jason: oh, really? david: i had arizona. i did not expect a float. lisa: what is your process? david: who i like. jason: in terms of who is in the lead, this is the on the clubhouse. -- is new to moved the contest. david: she is wonderful. jason: defending champion bill for one last year. david blitzer is also a new name. david: david was a bit of a ringer. he knows his stuff.

jason: the 76ers are not performing well. inkster bloomberg's jason kelly. coming up, we are joined by a republican -- that was bloomberg's jason kelly. coming up, we are joined by republican senator. this is bloomberg. ♪

♪ ford: health care accounts about 18% of u.s. gdp. everyone agrees that something has to be done. sen. bill cassidy thinks he has part of the answer. he joins us now from the capital. welcome, it is great to have you here. senator cassidy: it is great to be here. david: there has been some much turnover at the white house, and now there are rumors about mcmasters. the majority leader is saying you could go too far. for example, if you fire jeff there a redline for

republicans who say enough is enough? cassidy:: everyone is concerned. the president is entitled to have his own people, but when there is so much turnover, hopefully the president considers this when he makes personnel changes. lisa: based on some of the turmoil, is it wrapping this into your health care proposal and is it sucking the oxygen out of the air necessary to tackle issues like the health care bill? they are pushing the same thing. he gave a speech where he spoke for the need for trice -- price .ransparency the fda chief did the same speaking about how pharmaceutical companies wrap the deals together in which there cannot be competition. tohink this is in parallel whatever else may be occurring

in washington. talking about the pbm and health care companies , there have been rumors of others. does this concern you? are you worried about consolidation? absolutely, there is less competition. believe it or not, when there is less competition, prices rise. it has been clearly shown in the cases of hospitals where partners in boston formed the two major hospitals and prices have risen and the bargaining power of the hospital strengthens, so premium payers are paying more. that is wrong. competition is how you get lower prices. david: i want to illustrate what you are saying could we have a chart showing how health care cost have been going up much faster than inflation overall. asked forour bill transparency. could you explain what it covers

? does it cover drug prices as well as services? sen. cassidy:, we started with services, but prices will come on. to set up ag domino, where you click one domino and the consumer says, wait a second, i know the price now, i didn't before and i should know it. once you click that, it starts. it should be like buying an airline ticket. you know what you want you log on and you go for it. that should be how getting a ct scan is. go now, $2500. go thursday at midnight and get it for $250. allow the consumer to have price transparency. david: it makes such good sense and worked in so many parts of the u.s. economy. in the bipartisan bill, where is the resistance? if you are the person who is charging as was reported $17,000 for urine drug

test, you don't want that price transparency. imagine that, you go in for a preemployment urine drug screen, and it is $17,000. this was reported in kaiser health news. if you are jacking up the price, you like trice -- price transparency. sen., i want to go back to consolidation we are seeing we know that cigna is bidding for express scripts. was raised money for the aetna deal pair would you encourage governmental intervention in these fields because that is one question that is out there? sen. cassidy: the doj should look at this and the federal trade commission, absolutely. what scott gottlieb pointed out is that the strong relationship

between pharmaceutical manufacturers and the pbm's allows deals to be cast in which there cannot be competition. made.deals cannot be these clearly should be looked at. david: on this point, do you have allies in the pharmaceutical industry itself? i talked to alex gorsky of johnson & johnson and he said helpinger one way of was to have transparency on drugs. the pharmaceutical companies feel hostage to the rebate situation. they are getting blamed because if they took us $500, they are given a rebate down to $250, but the patient is still paying 500 dollars because somebody decides get the $250.nies

-- the drug companies get the $250. i am not sure rebate, which anything. we should give the patient the net rise. if it comes out of the from mexico company at $250, the patient should get it for $256. david: thank you so much. that is sen. bill cassidy of louisiana from the capital. coming up in the next hour, chief economist neil a richardson will give us housing numbers. live from new york, this is bloomberg. ♪

national insecurity.

the white house denies reports that mcmaster will be replaced, but markets do not react well to more white house turmoil. 10 years after j.p. morgan they might be, looking good, but investors have doubts about where things are headed. growth without inflation. whether to keep growing the economy without raising prices. the president's new economic advisor says let it rift. welcome, lisa. much.thank you, so are pointing to a little change to open. the u.s. dollar losing against the japanese yen and 10-year yields dropping a touch in germany. david: thank you.

we are going to bring in julia from london to talk about a phenomenon. changing the rules on taxes for the oil pipeline and mlp prices went down. we had this word come out and does not applyit to most of the pipelines. >> it does seem that from what we've heard the ruling will only apply to the pipelines that are under the regulation of the ferc. most of the pipelines in the united states do not fall into category. the tariffs that they charge are negotiated or set by the markets, so they are outside of this category. ruling. it should have no impact on them. i think this is why we have seen

the bounce back. lisa: we have seen a bounce back. ferc is the federal energy regulatory commission, for those not following it. i'm looking at the biggest fund tracking the pipelines in the u.s.. it saw its third-biggest outflow ever yesterday. you can see that this is the $118out yesterday, million. it raises the question of, could there be rulings that undermine the investment benefit of these partnerships that some believe have benefited from double tax relief? there is always the possibility that regulations can be enacted or repeal that could impact any business model.

it seems like the regulation yesterday is not that change. it initially spooked investors. we have seen some of that come back. my anticipation would be that as we get further clarification, as it becomes clear that most pipelines will not be affected, we will see some outflow coming back in. david: we appreciate you joining us from london. joining us from st. louis is sameer samana. thank you for coming to us today. i will put up a chart and i will describe it to you. it will not be specific about mlp, but more general about political uncertainty and how it is affecting markets. it has been going straight up under president trump. the s&p has not been affected much, apart from the one time in

early february. at the same time, the dollar has been affected. thehat what is going on, dollar is reacting to political uncertainty but equity markets are not? sameer: what investors are looking for is certainty and returns. when you try to balance the 2 in the currency market it is easier. you have rates clustered around 0% to 1%. it is not much to go from the dollar to the euro. in the equity markets, u.s. stocks are doing quite well. taking into account tax reform, a huge windfall to investors, that is why stocks are hanging in better than some would expect. lisa: we were talking to roger he said the alchemy of markets is the turning points. are we getting towards one? when you look into your magical, technical world, are we hitting

thresholds or getting close to one in market sentiment? sameer: that is what i am on the lookout for. it is not enough to look at fundamentals and growth, you want to see when investor sentiment changes. we do not see it yet. the most recent correction was very textbook, one that was viable. the trend is higher on an absolute basis and relative to fixed income. lisa: you are watching for it, what do you look at? sameer: the absolute trends are a great measure of psychology. i look at sp y versus tlt, the big s&p 500 fund. it shows how investors are viewing stocks versus bonds. david: if roger altman is right, how do you prepare investors? how do you position yourself so

you did not lose out on the gains people are seeing, but at the same time are prepared if it suddenly tips on you? history,f you look at like october of 1987, you do not see a lot of big one-day drawdowns. or quartersths where stocks try to make additional ground on an absolute or relative basis and are unable to. they finally crumble under their own weight. you can see stocks going higher and you can check that box taste on what happened in january and february. we will try to retest those levels. if we get through it it is removed, but if we cannot you have to start opening the possibility that we might be in for additional volatility. maybe the peak does come into view. lisa: i want to talk about liquidity. when you see the tipping point on the horizon it might be too

late to shore up that liquidity. how are you preparing for that? are you recommending people hold more cash? sameer: we are not recommending more cash, but if you are a balanced investor getting the stocks and bonds mix right is a big deal. a lot has been gravitating towards high-yield, so they are going into the riskier parts thinking that will help when markets pull backi. the tricky part is we know the correlations on high-yield and market debt are high when there are disruptions. if we can get people to go back to more traditional fixed income, that would be balanced and when volatility picks up they will have that dry powder. guggenheim was saying it is time to sell high yield bonds in particular? sameer: in high-yield there's

not a lot of reward. the risk could be as much as 10% to 15% if you have the right disruption. in equitys you have a more balanced outlook where you could see high single digits and low teens if everything plays out right and the symmetry to the downside is similar. lisa: thank you. we have more coming up. marketsnd for emerging have benefited, but could a stronger dollar put those that -- but those gains at risk? this is bloomberg. ♪

"daybreak."loomberg shares of tiffany are rising. shares growth worldwide, especially in the americas biggest market. sales rose 4% in the fourth quarter, which included the holiday season. tiffany has been trying to attract younger shoppers. walmart in a deal to become the largest investor in india's flip cart. int would put walmart competition with amazon. the deal might push flipkar ts valuation. an investor will retire after amassing fortunes. ka-shing began by sweeping

factory floors in hong kong. dollar hasweakening been a boon for emerging markets. the blue number is equities going up. president trump's new economic advisor wants a stronger dollar. what does this say if he gets his way? >> i think we are at a real flexion point in the dollar. it has been driven by influentials for so long. usual.o is quite david: what about driven by mr. kudlow and mr. trump? returns,urrency debt for anyone who has been in these markets for a long time they

know that that currency dominates return, 70% over the last 10 years. what his comments mean and how it will impact the dollar is anyone's guess. for me and what we are looking cheapens themeone price of e.m. currency options to the point where you can lock in some of the returns you have generated over the last year and a half. lisa: you were showing fascinating charts to me yesterday and talking about how it is the cheapest that it has been since 2009 to hedge against the dollar strength versus the euro strength. this raises the question about a lopsided trade with investors into emerging markets credit and equity unhedged with the bit that the dollar will continue to weaken and emerging-market currencies will continue to strengthen. into emergingfrom? your perspew dangerous is this is this leverage -- from your perspective, how dangerous is

this? is it leverage that could unravel quickly? sameer: when you think back to where it was last year in january, it was just as long. it is not enough to call a turning point, but there is a lot of risk and a lot of people in there. if you saw the data play out a certain way, you could cause a bit of a short squeeze. lisa: the last time in history we saw something was 2009 -- you anything.pare it to what normally happens when you get a trade that is this lopsided? damian: we're talking about the modern era of debt. to hedge one million of y chineseuan is less -- chinese yuan is less than it was. you take what the market gives you as an investor. volatility used to price

options are decoupling from u.s. interest rate differentials you take advantage. you walk in your returns and sleep better at night. that is what we will see investors do. david: i'm going to put up your chart and i want you to explain it. damian: the white line is the jp index emf volatility which is a proxy for fx volatility. the orange line is the u.s. dollar three-month one year swap, a proxy for u.s. interest rates expectations. that decoupled in february when the yield spike. that is showing you that affects is -- that fx is still cheapening. lisa: would you recommend that your clients start to hedge against dollar strength at this point as a hedge to some of the bets that are inherently leveraged to the dollar continuing to weaken?

sameer: for our clients hedging is as big of a vehicle for them that they can benefit from this by trimming the equity positions within in equities and bring some of that money back to the u.s. if you look at tax reform and rates and inflation, u.s. small are the primary beneficiaries of a lot going on. they lagged last year and are starting to pick up this year. a great trade would bring some of that back from e.m. to u.s. small mids. david: what gives them the upside? rates, they were paying some of the highest effective tax rates, so if you cut taxes they should be the biggest beneficiaries. standpoint, they export the least. if there are frictions they will be less impacted.

if you think about the dollar does not hurtt large global multinationals, because when you bring it back it is not as much. if you look at the rates, you have more financials in the small to mid cap space. if you have less regulation making its way to the legislature, all of these will feed into small to mid caps. if e.m. has a little bit of a stumble to two fx that could be vulnerable. lisa: i know that you did a lot of client response to things you put out. this timeou get around as a gauge of investor sentiment and concern about an extremely crowded em trade? welln: you can carry so at the front of the curve that investors are taking advantage of that. we are seeing the fed balance sheet runoff become prohibited. we have financial assets, the

value, at 3.5 times the value of global gdp. there is still a massive shortage of investable assets. you're going to see people go into less liquid asset classes, it is still going to happen. in such an environment where you are seeing dislocations, you have to lock in your return and manage them. sameer says you are better off coming back to the united states, where do you make the decision of where to put your money? damian: i do not look at small to mid cap u.s. equities that much, but what it comes down to is the complexity factor that i think investors are looking at and saying, e.m. debt, local currency, there are mechanisms that provide investors the ability to offset risks that have persisted in these markets

unlike any other time. it is about going intelligently and in the right way. to cap offe to say this conversation that the reason why people are saying that emerging markets is crowded is if you look at the bloomberg this is local currency emerging markets. this is a debt etf, total assets you can see a dramatic increase from $1 billion. david: sameer some honor and damien, thank you for joining us. coming up, walmart shares saw their worst drop in two weeks. how whistleblower claim is bringing new jitters into an amazon battle. this is bloomberg. ♪

david: walmart shares saw their worst decline in two weeks after whistleblower said the retailer misled on it e-commerce report.

concern over walmart's ability to fend off amazon. an nyualloway is professor of marketing. , we appreciate you taking the time. this guy got fired and is now filing a lawsuit saying it is because he tried to blow the whistle on shenanigans overreporting the numbers. is there a real issue here? scott: it is hard to tell. first off, it looks like with a company like walmart with such a solid reputation for reporting and corporate governance that it looks like a disgruntled employee. the market is always a in a hurry to discount efforts to combat a push back against amazon. the marketplace is receptive to

any story that is negative about anyone going up against amazon. the: i want to talk about nature of this complaint. it had to do with the fact that according to this whistleblower, was overestimating its online activity. existentiale question as everyone tries to go against amazon, how do you measure success and how do we know what we are looking at is right? walmartith a firm like that has decades under its belt and strong relationships with investors and a $350 billion market cap it does not want to risk and capital that it could it does short-term hit, not pass the smell test that they would do this. i think they will get a pass on this. the market stock did recover

pretty quickly. in terms of the metrics, what is unusual about amazon and how they changed the relationship between firms and the market is that amazon has managed to replace profits with vision and growth and has shifted the game so that companies are pursuing growth at the expense of profits. what does a firm have to do to compete with amazon? it has to take the profit expectations down to zero or negative. david: there have been reports in the advertising area, facebook and other social media firms, that there has been a misreporting, an overreporting, of traffic. are people nervous there might be funny accounting in the online world? scott: we know that there is funny accounting in the online world. it is murkier.

you need to distinguish between accounting for e-commerce, where there is a physical item, and more standard practices measuring something in the world of atoms versus bits. there is more opportunity for fraud and squishy metrics in online advertising as opposed to online grocery. david: i want to come back to something that seems to be important. walmart has not had problems in this area before. we know some companies time after time it has been misreporting. scott: it would not make sense. decades long relationship with institutional investors. they can afford to take the hit. long-term, the truth has a way of bubbling up. if they were misreporting, it would be an isolated incident.

walmart is a culture of integrity and wanting to do the right thing. this is not a small company worried about going out of business if it does not make its numbers. on the face of it, it does not pass the smell test. it doesn't matter, because if the market wants to take your stock down because they're worried about you competing against amazon, they will do that. lisa: our thanks to you. coming up, we break down the next round of economic data. from new york, this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. lisa: this is "bloomberg daybreak." markets are finding a little bit of direction in europe. the dax is up .25%.

the nasdaq futures are unchanged. not really finding much to go on a cross assets. the euro is gaining against the dollar. the italian 10-year yields are declining. crude oil is gaining. i want to bring you breaking news. we are getting the economic data covering housing. you can see that the actual came in below what the survey was 123 -- 1.20at 3000. multi family 424. david: trying to make sense of these numbers, we are joined by neil of richardson and michael

mckee. what happened? nela: they went down. 1.5 million used to be mediocre, and now we cannot hit it. there is a little bit of good news that single-family number will hopefully stay steady and is growingthough it too slow. overall, these numbers are not with the housing market needs for this buyer demand. the low interest rates are not keeping up. david: i hate to bring up the weather question, but because we have had bad weather have we had trouble building the houses? everythere is winter year. the numbers are not with the market needs. there are labor shortages and lumber and nowin

in steel. lisa: what is your take? michael: this chart is housing completion, the number i like to look at after the housing starts number. it is the difference on what is being supplied and what is being demanded. the supply of houses that you can buy is very low, well below the historical average. it is nowhere near where we were at the beginning of the 2000 into the housing crisis. lisa: this should speak to more housing. you there is tells more demand than is being supplied. we do not know why. that is why we have an expert like nela. why don't they put more houses in the ground? nela: labor shortages, there are not enough construction workers. it is really expensive to build. you have zoning at the local

level and permiting, which is a huge headache for builders. and the building costs have risen. this last read is the highest since the 1980's, going 1.6% year-over-year. it is more expensive and that is translating into prices. this indicates the housing crisis can go further? nela: housing crises have so much run room. housing areas for existing homes were up 9%. what grew at 9%? house prices did. we can expect new home construction will continue to grow as well. david: the factor of the price to the buyer, particularly the mortgage prices as the yield goes up. the price of mortgages has gone up with the yield rate. are buyers being deterred?

smaller,y might buy but they won't stop. is problem is that smaller not available. they are searching for the unicorn in housing, the starter home. builders are not building a because there is no money to be made, and current homeowners are not putting it on the market because you can rent it for more than you can sell it. there's a lot of deterrence, but homebuyers are still out there and trying. we were talking about if there is a recession on the horizon. 2 sectors of the economy that lead where we are going have started to slow down. that is housing, not only starts but sales have started to fall back. autos have fallen back. is the consumer going to take their new tax cut and spend it

or save it and pay down bills? david: we are looking at only one part of the housing market, new homes. many more existing homes are sold the new homes. what is going on with existing homes? the highest seeing percentage of new homes on the market than we have seen in a long time, 16%. the reason is because of fewer existing. we know that the demand is out there. that is why builder confidence is so high. the sales are down because there are not enough homes to buy, not because there are not enough buyers. michael: people don't have the confidence to move? nela: people don't have a home to move to, it is a supply issue. david: meetings next week are important, particularly the fed. how will this fit in with cpi, retail sales?

what is the picture of what the fed will be looking at? michael: the economy is in pretty good shape, inflation is moving up slowly. we don't have to panic, we can afford to raise rates but we will keep an eye on things. we are at an interesting inflection growth where we are expecting more growth because of tax cuts and fiscal policy, but it isn't happening it. is that because -- isn't happening yet. is that because the first quarter is seasonably week, or because something else is going on? nela: we are seeing short-term rates rise quite a bit. i'm wondering, is that going to fed the economy and if the will address the potential? michael: it shouldn't because are made onisions

longer-term notes because of the investment horizon. it does have a little horizon, but when the yield curve steepen's more, that would -- yield curve steepens more, that which it just they are holding back from investing. i hate to sound like a realtor, but your mortgage is not going to cost you that much compared to what you would have been paying before the financial crisis. david: let's talk about the realtor situation. we keep waiting for the money to show up in the pockets of the taxpayers. president trump says they are getting more money. is that having any affect so far in the housing market? nela: it is too soon to tell. we are just ending february. we will see what spring and summer will look like. demand is the highest that we have seen, it has not declined at all.any bump in income we expect to be felt in the housing market.

the kicker is in new jersey and new york because you cannot propertyl of the prices. this will be felt most in this part of the country. lisa: a quick question, what is the main question that you would ask the fed during their meeting, or after their meeting, tomorrow? nela: maybe you should think differently about house prices. watch it differently. breakdown the inflation numbers. if most of the inflation is driven by house prices and not wages, maybe we want a different response. they positioning themselves to be aggressive this year will stop it is in opposition to fiscal policy where they are trying to slow down the economy. house prices are in the middle. they are going gang busters, but not in keeping with some of the other prices in consumer goods. and at the opposite arrows,

understand if this aggressive stance is the right one for the economy now. david: where is this fiscal stimulus showing up? we have heard about borrowing money for tax cuts and the budget deal. is it showing up in the economy? michael: it is beginning to show up in people's paychecks. it was in february the tables came out. we did see a little bit in average hourly earnings, and we will see in the quarterly numbers some going up, but it will be in the second, third, and fourth quarter. the fourth quarter is when you will see more government money being spent, because it takes a while to ramp up. david: a lot of that will go to companies, investments like in i.t. are we seeing it in capex? that is we are not and disappointing, but it is too early for that.

one of the questions about the fiscal policy is due companies really need to invest, not just want to. are they going to spend the money? that will take time to decide. a lot of people say we could get to 3% growth this year if the next three are faster than his first one. the real effect -- then this first one. the real effect would not be felt until next year. this'll be the first meeting of the fed chair, so it will be interesting how he takes those questions. richardson and michael mckee -- nela richardson and michael mckee.

>> this is "bloomberg daybreak." coming up later on "bloomberg markets," balance of power, john delaney of maryland. ♪ now to your bloomberg business flash. investors have jumped into the u.s. stock funds weeks after the first correction in two years. according to bank of america merrill lynch there was an

unprecedented $34.6 billion in endedney in the week that on wednesday. outflows continue from high yield bond fund's. saudi aramco has gotten a cool response from american investors. at an informal meetings in the u.s. have pushed back on several aspects of the deal, including the proposed $2 trillion valuation. the saudis have indicated the offer could be pushed off until next year. the bonus pool is almost back to normal at deutsche bank. they are warding the staff $2.7 billion in compensation, close to what it was before the deutsche bank ceo started to cut back as revenue fell. that is your bloomberg business flash. david: another twist in the qualcomm broadcasting saga. paul jacobs is seeking bio funding with shares trading higher in the premarket. .oining us is dan morgan

he joins us from atlanta and brooke sullivan. you have an investment in this. how serious is this venture? is this likely to go forward? dan: i think of michael dell in the pc industry. he took his company private because he was frustrated with the way that things were going. it would be interesting for qualcomm. sideways ass gone the semi conductor industry has done well from a performance perspective. you talk about issues with apple in terms of royalty fees. they had problems with china. all of a sudden they disbanded .his merger with qualcomm they have not been doing as well as micron technology in terms of performance. maybe this is how they feel they can create lun their company i taking a private -- create value

in their company by taking it private, because they have not been performing in the last couple of years. david: do they have a plan b? dan: in terms of plan b, the thing for qualcomm going forward will be this annexation. cdmaomm is a leader in technology, technology that is used in the wireless industry to compete against analog. forward,isition going if they are able to execute, will allow them to get into a new space, which will be auto. they will compete against analog devices like texas instruments in that space. there a lot hanging on for future growth for qualcomm. they will tag $10 billion in revenue with the nxp deal if it goes through. it is contingent upon going forward with this acquisition of

autochip maker. lisa: a private buyout of qualcomm we were looking at billion bidding autochip $112 for this company. in this? invest softbank says they are not interested. >> i do not know that you could have softbank or any foreign power invest in this. they say they're worried about this falling into other hands and how it will be managed. over you can smooth it with the founders part of the package, but i do not know how shareholders will feel moving from one for an investor to another. $82 beforeid the lowering it to $79 was not even in the ballpark. you have to be significantly higher or your previous argument is undercut. david: is this all on 5g?

dan: 5g is huge going forward. that is the latest technology coming out. everyone wants an in. going back to what your other guest was saying in terms of valuations, if you look at the radcom deal it had qualcomm at 5.5% sales. analoglook at intel, devices, they are 10 times to 11 times sale. going back to valuation and ofuments, the broadcom deal $112 billion is half a foot some of the most recent deals that have gone through in that space are -- is half of what some of the recent deals that have gone through in that . that the former chairman of qualcomm is making this now raises the question

about why is everyone trying to buy qualcomm? is it not viable alone without mass backing? dan: the interesting --brooke: the interesting part is that it came down to different views of the semi conductor industry and how that should be run. the founders and management had a different view than broadcom. innovationlieves in and investing, relying on the quality of your product to sustain growth. broadcom says the massive growth in the semi conductor industry is over so you should run your company for profit. it is a different worldview. the chairman taking this private is protecting the view. lisa: the chairman of this company is taking the view that we are nearing -- where is he coming in on this?

that we will see more potential for our coming to a plateau? brooke: he is realizing there is a tension in the way that qualcomm believes in this versus shareholders who want to see returns. they're more frustrated with qualcomm management and the handling of the licensing withess and the spat apple. he says i don't want to deal with this, let's bring this in-house to the things we are good at. david: it puts it in play and every other ceo in the industry is saying, should i try to buy it or do something with it, or possible candidates who might emerge with qualcomm. intel is saying we are not interested after all. dan: the intel rumor was interesting because they have been trying to get into the communication chip space and qualcomm has $12 billion in communication chip revenue will set broadcom has a little over $2 billion. it is tough on qualcomm who would want their niche

technology. you mentioned the fifth generation. i do not know who out there would be big enough. they would have to be a big player like texas instruments, someone who could take on the debt or do a stock swap merger to offer enough that would make sense, especially after broadcom did not. it is an interesting concept. who would want this technology that qualcomm offers in the cdma space and is big enough to execute this transaction? it is difficult, but it does put them in play, no doubt. lisa: where do you fall in this debate if qualcomm is in a growth trajectory or it needs to monetize? is verylcomm interesting. i have been following technology stocks for 30 years, so i have a historical view of the company. in the late 1990's they redid their business and got out of

infrastructure and selling mobile phones through sony and focused on royalty and chip set. themselves.eer i look at qualcomm going through that same positioning where they are restructuring in terms of what do they want to be? communications? automotive? i remember paul's father, when he ran the company, did a great job and i expect paul to do the same thing. give them a little bit of space up eventually it will be and running again. up again when a reshuffle the cars and get going in the right direction. ofa: dan morgan and brooke bloomberg gadfly. e seniorp, the japanes citizens shoplifting so they can go to jail. more and what i am watching. you can watch us online.

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japan's senior citizens are shoplifting so that they can go to jail. you're laughing because you are wondering why did you choose such a tragic story to end friday on? it is fascinating. it is tragic, but telling us the global population in developed markets ages. if you look at the story, it shows one in five women in japanese prisons is a senior. in 10 senior women who are convicted were found guilty of shoplifting. they are stealing things from the stores to go to jail. they found half of the senior

citizens going to jail live alone. have a support system. it raises the question of as you have an aging population, how do you care for people in the way you would hope for your loved ones? david: it will get worse in japan given the demographics and how far behind are we? lisa: there was a story on the aboutberg talking how aging americans will outnumber kids by 2035. markets, on bloomberg from new york, this is bloomberg. ♪

jonathan: from new york city, i am jonathan ferro. this is the countdown to the open. ♪

jonathan: coming up, who falls off the white house merry-go-round next? administration denying reports it is the national security adviser. futures go nowhere. treasuries stable. the attention turning to the fed , just days away from a possible hike and chairman powell's first news conference. 30 minutes away from the opening bell. the story across assets looks like this. we have been dead flat all morning. euro-dollar going nowhere. treasuries just on offer. basis point. one the white house merry-go-round a fever pitch. multiple sources reporting the national security adviser could be next, a reportedly high-profile departure from administration