tariffs on china. goldman warns of financial fragility. tech shows signs of stress as the fed gets ready to need. facebook cannot contain the fallout from cambridge analytica. their chief technology officer quits. david: the first day of spring, and snow is going. alix: happy spring. my allergies are aware. join to have hours before the cash of the u.s., it was an ugly day yesterday. its 50 was just below day moving average. you are seeing flat equities across the board. will we see a rebound after that technology rout? 10-year yield any much goes nowhere. you had some buying yesterday,

then selling at the end of the day. .86 is how we print. david: for the first take on today's top stories from we welcome stephanie flanders, and joe weber. is about trade with the u.s. and china. a lot of back-and-forth overnight whether the u.s. will unilaterally impose $60 billion worth of tariffs on china. the white line what we have for, the blue line what we import, and the yellow the deficit. $60 billion would not be that much. what it believes is this idea that it could get worse. it is just a starting point. david: one of the big issues, contentions is intellectual properties. talking aboutight

social property. this is what they had to say. >> we will also fully open up our manufacturing center. there will be no mandatory requirement for technology transfer, and intellectual property rights will be better protected. david: this appears to be a direct response to the section 301 proceeding. going on?negotiating stephanie: one of the things will be u.s. companies in this sector saying, hang on, do you realize how much of our supply chain is involved in this? the chinese have managed to take hostages in the supply chain. you can see it already from the fact that he is targeting this very small fraction of the overall export. it is a hard thing to address without really irritating and getting in the way of a lot of american companies who are bringing in electronic products

from china and making components in china. it is interesting that the chinese are giving donald trump a bone. you forced us to take action, but nothing different from what they were planning to do. alix: it feels like the markets are starting to get tired of this. we may not have believed things from the white house in the past, but this does not seem to be the case now. cannot andday, he wrote a letter. -- they came out and wrote a letter. they are being proactive for their investors. donald trump and his administration are like, we hear you, but we are doing this anyway. stephanie: a lot of people rooting for this to look like it has delivered something for donald trump and whoever the base he is talking to. ,t least he is still in the wto and the global trading system is

still there in theory. the rest is if he goes enough off the official route, he thinks he can remove us from the wto. joe: for all the rhetoric, he has singled out canada. alix: yesterday's market action was interesting because it attributed a lot to facebook and the tech selloff. financial instability, this is the high-grade investment-grade versus high yield spread, and the blue line is investment-grade. the spreads are blowing out versus high-yield. are we looking at a credit issue? stephanie: i think we are getting to the stage of this cycle where you start to question whether those things that you had a substitute for equities on the credit side are really going to give you enough upside going into this. i think you could well be saying

people who had seen the high-grade stuff as a substitute for equities now wanting to go back to the plain vanilla. i have my high risk, high yield, i know what i'm doing. with investment-grade, i want to go back to the equity side of the table. alix: it feels like we wrote that away as a supply issue. investment-grade is a supply issue. is the market still buying those excuses? joe: i think the widening spread has everyone's attention now. if it continues to widen, it will become an issue. is it a credit crisis, i don't think anyone thinks that. david: is the real vulnerability that there is so much leverage? a lot of companies have taken on a lot of debt. stephanie: the fundamentals have been curating in the high-yield

space. it could be we are starting to see some of these liquidity issues that many people have raised in the last few months lurking beneath the surface. people have gone to the more illiquid sides of the market to get that reach for yields, and now more concerned about that less liquidity. david: the third story is that they facebook flub. everybody is talking about it, all of the newspapers. you can see what happened to the market yesterday. did, andhow the stocks on the right is the number of index funds the s&p went down. these stocks alone accounted for about a quarter of it and facebook itself was 1/10 of it. this is affecting the marketplace. joe: facebook has everyone's attention because their reaction has been subpar. alix: that is a nice way of

putting that. joe: the response that started on friday that try to be proactive ended up shooting them in the foot. there is report that the chief information officer is out. it continues to get worse. tech really ended up supporting the market, who takes up the leadership if they roll over? stephanie: going back to facebook, they are really at the center of the storm. if we start to question the basic is this model of facebook, which is making money off of people's information that they freely offer, that applies to a lot of companies in the internet world. you can see the glimmer of that if we are thinking, the to some oflack lash these issues is not something you can wish away with better public relations or being more in front of it as they clearly have not. if it is the business model, this will affect a lot of

companies. david: for my convenience, i am willing to let you have this data, facebook, but if i think you are not taking it seriously, sharing it with people i don't know about the going to publishers i disagree with, that is a different matter. stephanie: i think it is more facebook than anyone else having to deal with this. was this just negligence or criminal negligence to allow these things that we had no idea? alix: i cannot believe we have not heard from zuckerberg and sandberg. was it you that pointed out that sandberg should know better? joe: i think the clock is ticking on that. alix: at some point, here is my quote. david: in the old days, when they took all the tylenol off-the-shelf, remember the old days, you'd expect zuckerberg or sandberg to say we will shut down all the showing of data into we figure this out. alix: instead, we are going to

be completely silent until we figure it out. i don't know how that is a good strategy. stephanie: i don't think you can take the data off-the-shelf. i don't think you could actually stop sharing data at this pocket david: that might be more frustrating and frightening than anything else, you cannot shut it down. alix: unless we have more relation, which will be the conversation. joe: the difference between the conversation in the u.k. and the u.s. is we have privacy laws that will be different on the other side of the atlantic. david: it feels like regulation is coming inevitably. joe weber and stephanie flanders, thank you very much. coming up, ellen zentner, morgan stanley's chief u.s. economist will be with us. this is bloomberg. ♪

♪ >> this is "bloomberg daybreak." suspended self driving car tests after a fatal accident in arizona. according to police, a woman was crossing the street outside a crosswalk when she was hit by a self driving uber car. there was a driver behind the wheel, but the car was in self driving mode. the weinstein company has filed for bankruptcy. the company plans to sell its assets. releasen also agreed to any women who settle sexual harassment claims from nondisclosure agreements. amazon is expanding its

brick-and-mortar footprint by purchasing toys "r" us stores. they are not interested in continuing the toys "r" us france. de was the conversation on at least three continents yesterday with reports that president trump is heading towards imposing tariffs on goods from china were $60 billion or more. g20 in ministers of the what is aries pressuring treasury secretary steven mnuchin on the importance of free trade. anding us is ellen zentner bruno pricing out -- braizinha. this chart shows the blue on top, our imports from china, the white is exports to china, and the yellow is the trade deficit. ellen, what would it mean if the

u.s. goes forward with this reportedly $60 billion worth of tariffs from china? ellen: this is what we don't want to see. it is one thing when you do spot tariffs against it's like steel and aluminum on things that don't impact the us economy that much from a macro perspective. when you start talking about putting tariffs on this broad swath of goods, it sounds more like a tariff that can start to slow imports right away, but damage domestic demand in the u.s. and raise prices in the u.s. this has downside for the u.s. economy if you do this. alix: how do you think of a cyclical allocation in light of a trade war? bruno: this is a problem. i agree with you. the issue for me is pricing maximum expectations for u.s.

growth, u.s. equities. this is what has sustained the equities markets for this long. any sign of headwinds or uncertainty will create a dampening effect on sentiment. we are very cautious on u.s. equities. this i think will great more of a headwind for our outlook, skewing risk to the downside. david: economists and business broughtenerally agree tariffs against china will not be helpful. 301 also comes out of the proceedings. the premier of china spoke out about this last night and offered a sort of all of branch. let's listen. -- olive branch. let's listen. >> we will fully opened our manufacturing center. there will be no requirements of technology sharing, and

intellectual property will be protected. david: it would be better if china did not have this requirement to give away intellectual property. ellen: i think the concessions or the tone out of other global leaders suggests that maybe this trump's tactic that you carry a big stick and get the concessions you want on things like social property. this is a dangerous game to play. if you go through with these broad-based tariffs, you may not have a conciliatory tone from other global leaders. they will bite back. you cannot do a broad tariff like this. both countries lose. alix: with the nasdaq falling yesterday the most in six weeks, what do you attribute that to?

bruno: yesterday, the news was the tech sector and the social media sector in particular. premiumsquity reflect risk relative to bonds. you need something to justify these valuations. news on anything that is a headwind, in this case the regulatory aspect of technologies, we argued a little bit out of the box a couple of months ago how from a relative value perspective, the regulatory risk would be a short for tech and long for financials. technology has been allowed to grow in a regulatory free environment for the most part. at this point, the balance seems to be tilting to technology a

lot more, and the balance on the financials is tilting a little bit towards softer regulation. alix: we will talk about that in just a moment. what is the downside potential for the s&p now? bruno: we are looking at a range bound between 2500 and 2900. i think this will skew more to the downside. this type of valuation is already typically hard to justify in the models we run. ellenll right, zentner and bruno braizinha staying with us. this is bloomberg. ♪

♪ alix: facebook following the

most since 2014 yesterday, dragging major indices down with it. down 6%, contributing to 3.5 points on the s&p. the company confronting the loss of its chief information officer. selena, where is mark zuckerberg? >> mark zuckerberg has tried to stay out of the spotlight as much as possible throughout all of these debates on russian manipulation and this data breach. instead, he has put in front low level executives to put out blog posts and tweets that sometimes contradict each other. david: this contradicts every piece of advice you get on crisis management. how long will this last? >> lawmakers not only want mark

zuckerberg, but they want the ceo of alphabet and twitter to be center stage. the general counsels at the end of the day are not the ones making decisions and allocating resources to these problems. alix: their chief security officer quit. role didit is true my change, spending more time exploring emerging security risks and exploring election security. that was their chief security officer. ofwe get the bleeding employees, what does that do to facebook? >> the fact that their chief security officer is leaving at this time is incredibly bad optics and is difficult for facebook at this time. the fact that he disagreed with top executives on how to convey this information, in fact he had

ordered an investigation on russian influence on the platform ahead of the 2016 elections. he thought that at that time they should have revealed this information that there were russian operatives working on facebook, top executives decided they should try to disclose as little as possible until they absolutely have to. he was very frustrated by that. david: silicon valley, do they understand that the regulators will catch up with them sooner or latter? -- later? >> they are trying to make sure that does not happen. that is definitely a headwind. as we saw from the huge stock dropped yesterday, investors are really reacting to this. regulation is coming eventually, and it will impact the bottom line. alix: if anything, just talk to people. get out there and say something. what is interesting about the

market reaction yesterday, it was not just attack. -- tech. usually when there is a tech selloff, financials would take the lead. not.rday, financials did this makes me wonder if we are seeing something more in the markets. >> i think, let's talk about the industries. noted, they are starting to move into that realm of are we going to be regulated? financials are a sector with deep regulation, something we are used to. investors going into this year, and i think bruno noted it earlier, priced for perfection. i can say that about the data, sentiment at near record high, business activity at near record

high. you go out and look for things to worry about on purpose. what do we do when things are going just fine, we look for things to worry about. we are moving later and later in the business expansion where it is not as easy to find your footing as an investor. you are looking for where to go, and it is no longer fundamentals driving things when you are late cycle. you are looking for those pockets. david: christ to perfection means downside risk is greater than upside. you need some new momentum coming in. what could come in to keep the momentum going on? when we look at the bond market, our chief rates strategist believes the bond market price in all these added treasuries will have to be issued because of the deficit

funded tax cut and the raising of the budget caps. what the market priced and was the economic momentum ricin from the tax policy -- priced in from the tax policy. we haven't really realized that explosive growth yet. look at the tracking models for first-quarter gdp, right around ,.7%, new york fed in the twos that does not look like a full-year forecast of near 3%. alix: we will discuss that. ellen zentner of morgan stanley will be staying with us. powell will have his first policy meeting today. this is bloomberg. ♪

♪ alix: this is "bloomberg daybreak." equities trying to recover this morning after that deep tech slide yesterday. four.tures up

slide for the nasdaq in six week -- it was the worst slide for the nasdaq in six weeks. the dax higher as well despite the fact that investor sentiment slid unexpectedly. we are on fed wants. one day before the announcement. euro-dollar down 0.2%. dollar-yen up slightly. there were reports from one boj official that they could raise rates, but that has since reversed. selloff continues in the treasury markets. we had some buying yesterday, some selling, and now we are going pretty much nowhere. the vix now at 18. remember when 18? david: i remember those days. prince spoke exclusively to bloomberg's erik

up about, opening his confinement. >> i need to clear my name and a lot of the lies. when you said i was tortured, i in sent to a prison 83 days the hotel. all of these were lies. i stayed the whole time there. i was never tortured. i was given very good service by the saudi government. documents came twice a day. we were given the best service, the best food. it hurts me to hear all these rumors and innuendos. : this whole ordeal has impacted your reputation. people will still believe no matter what you tell me today that because you were in the ritz-carlton you must be guilty of something or crooked perhaps.

you must realize that surely. >> for sure. some in the business community, the banking community will have one iota of doubt. it is my job to interact, meet with all of them individually, or jointly, or go through a good reporter like you and say my story. it is not easy at all because some banks and some people in the business community will be doubtful. they will say what is going on? i assure them everything is normal. everything is going back to normal. we are functioning as we were before. we welcome them to come here to see what we are doing in saudi arabia. life is back to normal. erik: how will you know if it is or isn't affecting your business and investment opportunities? >> i know because i met a lot of

businessmen, and the banking community is a very important barometer. we met most of them, and we are still meeting some of them. we take the position of trust and confidence in us and say we are willing to continue as before. erik: it would surely help if the government said all wally did nothing -- alwaleed did nothing wrong. he remains a saudi citizen in good standing. that has not happened. >> all of these points were in the, confirmed understanding agreement between the government. i cannot go into that. the government cannot go into that. erik: i understand, but you have to agree, surely, that if the government, prince mohammed or some other government official were to say, were to affirm

everything we discussed today, that would help. am speakingthat i to you right now and saying everything honestly, and the fact that the government is not going to say he is wrong is proof of what i am saying. correct? erik: the crown prince, prince mohammed is touring the west. he is trying to attract capital to saudi arabia. given your experience in the ritz-carlton, how good can you feel presenting a common front with the very same government that put you in the hotel? >> i am a supporter of saudi arabia, supporter of my government, supporter of the king, all the way. before, during, and after detention, there is no one else

that would say that. that hardle will find to understand. one family. the sky is my cousin, this guy is my uncle, and the sky is my grandfather. these are my sons and daughters. i am proud to be part of this community. i am part of it. in the united states, do you think paul ryan always agrees with president trump? and they are the same party. they disagree sometimes. nancy pelosi and chuck schumer of the senate disagree sometimes. they are one party. we are one party, the ruling party of saudi arabia. this family was established with the blood. i am not going to move from that front where i support saudi arabia. understand, being detained by the king and the crown prince

and still supporting them, you bet. i am supporting them wholeheartedly in complete freedom and liberty. david: erik schatzker turns us now. utterly fascinating interview with its alwaleed -- prince alwaleed. you spent an hour with him. give us the highlights we did not get to see. erik: you did see a bit of the highlights, and that is the amazing solidarity you hear from the prince with the rest of the royal family, including the game. from lot of criticism isnce alwaleed heard about characters, it -- his captors, his own family. he insisted he was not tortured. he stayed in a royal suite.

he have a, was allowed to walk around, allowed to use the swimming pool. notably, he did not talk to anyone else in the ritz-carlton. he was allowed to make some phone calls to his family and his company, but that is the only contact he had with the outside world. he believes those calls were probably monitored. life inside the ritz-carlton in conditions, plush it is clear he is struggling with the aftermath of that expense. whether he likes it or not, and no matter how many times he insists that he is innocent, and he does, the government lumped him in with a group of people they labeled crooks. that taint is painful, there is

no question. it will be on the minds of many for years to come no matter what the prince does and how determined he is to get on with his life. david: apart from the change to his reputation, what about financial consequences? there has been reports that he had to write some pretty big checks to get out of the ritz-carlton. what does come out of it? it?as come out of has: much of his wealth remained intact. citigroup, four seasons hotels and resorts, the rest of the empire seems to be intact. largest world's entertaining company, he maintains his interest in that. when i asked him for details, did you have to surrender shares, hand over any of your

vast private landholdings in saudi arabia, he said that is subject to what he called this confirmed understanding, the previously secret agreement he reached with the ground in order -- crown in order to leave the ritz-carlton. he will not under repeated questioning answer any questions, saying it is secret, and the government itself will not divulge details. for the time being, it remains secret. he did tell me if was part of a "ongoing process." there is a signed agreement. david: we are familiar with nondisclosure agreements as part of settlements here in the u.s., to be fair. doctor want to see a twice a day. david: do you need a doctor twice a day?

alix: that would be kind of crazy. jay powell will hold his first policy meeting today as fed chair before issuing a statement tomorrow. the fed may raise rates four times this year, that unlikely to signal it. ellen zentner, you are at three rate hikes this year. what would it take you to get to four? an upsidey would take that is suppressed. inflation data seems to be coming in line with their forecast at the fed. it does not mean you move the goalposts because you are moving to your goal. inflation has to move ahead of what the fed is expecting this year. back in certain happen. if it does, we don't think that will emerge until the middle of the year. from a strategic standpoint, why would i feel the need to add on

a fourth rate hike on this meeting? why overpromise and under deliver like in 2015 and 2016? by june, at least i have the first quarter of gdp. i don't have that enhance going into this meeting. i don't have the true inflation print of this year in terms of core pce. why not wait for more data? tothink they will get close announcing a right had -- rate hike, but you don't need to get to that fall meeting of four, no matter that it takes most all them to move from three to four. david: what about the rest of the world? what do consumers expect? what do businesses expect? the fed really keys off of

others expectations. ellen: the inflation compensation measure has been rising. what helped that was in january when we got the average hourly earnings report that showed that pop up. that told markets inflation is going to rise this year. remains nearthat historical lows, so tempering how they view that rise. for businesses and consumers, it is really all about tariffs. going back to trade, the latest university of michigan consumer sentiment report, some of those inflation measures did respond to tariffs in the short run. that is not good inflation. that is bad inflation. that is moving up for not the right reasons. alix: based on this meeting, will we see a reframing of the stocks target for inflation?

what is the sign for a soft move in that direction? q&a,: i think in the chairman powell may stress the symmetry of their 2% goal. 2017, you may not recall that they actually changed their inflation goal from 2% to eight symmetric 2% goal. you can target a reasonable band around that 2%, which would capture if you believe they have undershot that they should overshoot that. they could easily tolerate and overshoot. if you are in that camp, usa the second headwinds turn to tailwinds, you want to stamp -- you say the second headwinds

turn to taelor scott you want to stamp that out. -- tailwinds you want to stamp that out. david: thank you. stay with us on television and radio for the fed meeting. coming up, questions about the future of charmless farce after an autonomous -- driverless cars after an autonomous uber car struck and killed a pedestrian. bloomberg surveillance can be heard on the radio all across the u.s. on sirius xm radio. this is bloomberg. ♪

>> this is "bloomberg daybreak." next hour,n the equity group investment chairman and founder samuel zell will join us. alix: timeout to cover three things wall street is buzzing about this money. first up, a driverless car from uber hits and kills a pedestrian in arizona. president trump looks to cut deals with the crown prince of saudi arabia. expanding the position in south millionth a $750 deal. alix: -- david: let's start with this tragedy in arizona.

a pedestrian got hit by an autonomous vehicle. >> obviously, a tragedy here. it does have some wide-ranging economic and business locations because of all this money that has been invested in the momentum that has been behind autonomous driving. 2021 as you know from all of your work around cars was the big date that it felt like a lot of these companies would get there, alphabet, uber, lyft. david: there is someone who has died, which is the big story here, but there is the rivalry between detroit and silicon valley. detroit saying this is more compensated in the silicon valley people think. alix: the question is what caused this? is it software? is it hardware? that is not clear. >> what is becoming clear as we

dig into this a little bit is uber's strategy, there have been some existential questions with the new ceo, questions about how much he was going to invest in this, whether they need to be more deeply partnered with some folks, toyota executives he met with not long ago. lyft in contrast to uber has been pretty aggressive in their partnership with gm and others. david: the second story, the crown prince of saudi arabia this thing washington today and then traveling around the country. this is not just geopolitics. >> amazing. he is a dealmaker. that is one of the things that is so intriguing to people as he comes to the u.s. given the nature of the u.s. president and how he frames himself. here is a young guy, very different from any other

predecessor from a saudi leadership perspective. he brought a huge number of global business leaders to riya dh last september, october. our understanding is he will be meeting with a lot of those same people in the u.s. in the next several weeks. dealmaking in washington and new york. one of the reasons people are so interested in saudi arabia is saudi aramco and all the money that will throw out. alix: there is a skewed today that maybe in 2019, it might just be a local listing for saudi arabia and not an international one because of legal issues, and with oil prices so high, they don't need the extra cash flow. >> that scoop follow us some great scoopage from our own bloomberg reporters. alix: we scooped it first.

>> we found that u.s. investors and mutual funds were a little cool to this. the superlatives around this deal, the reality is there is not a lot of transparency, and there are existential questions around the aramco business and transaction. alix: part of the issue is shale production keeps producing. that leads us to our third story, kkr are buying more assets in the eagle ford. i spoke to them last summer, and they like the eagle ford because it is safe production and growth. >> what does this mean? it feels like kkr is being especially aggressive in the oil patch, and in this one in particular. alix: they want deals that are backed by cash flow.

they say they want low costs. permian is low-cost, but none of you will buy it. it is not if you go in and buy it today. eagle ford will keep show production going because private equity will keep buying. >> private equity money has been pretty consistent over the last decade or more of feeling this shale -- fueling this shale production. alix: now we have ex-ceo's creating basically a fund to fund this indefinitely. david: good luck to opec as they tried to take control of this thing. ok, many thanks to jason kelly. as illinois voters head to the officials election

prepared for russian hackers? alix: at one point, facebook did raise its losses for the session, totally creamed yesterday, worst session since 2014. will they rally today? we still have not heard from mark zuckerberg about this data breach and potential shakeup in his staff. this is bloomberg. ♪

♪ david: elections, not just the first day of spring, it is the day of the illinois primaries. there are a lot of fascinating races. the thing i want to focus on is the possibility of russian tampering. so far in this country, it depends on whether you are democrat or republican if you trust the polls. --only 34% ofcent

republicans think russians will impact the polls. if you are democratic, you think the russians are coming. this is important in illinois because that is the one state we know there was actual hacking of their poll facilities. alix: you have to wonder if we had secretary clinton in the white house, with those numbers the reverse? david: you know they would be worse. i fear they would be. they have to take special precautions in illinois against hacking because they were hacked. alix: coming up -- this is bloomberg. ♪ mom you called?

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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: trump versus li.

the white house is ready to drop tariffs on china while li is offering protection for foreign properties. a tech rally in other areas of the market shows stress as the fed prepares to meet. facebook slump as the stock gets creamed. the company cannot contain the fallout from cambridge analytical revelations. zuckerberg as well as the chief operating officer quits. david: i'm david westin right here with ale alix steel. alix: in the markets and how in a half before the cash open here in the u.s., s&p futures try to rebound from yesterday efforts were slide since february. -- facebookally really take a hammer and is really in neutral territory for the day. down goingdollar into the fed meeting. 2.87 is how we print on the 10

year. did not get the safe haven as we expected and crude decoupling from a risk off deal. i'm puzzled as to why and guessing it has to do with -- david: presen president trump greets the crown prince of saudi arabia. steven mnuchin will be holding a news conference down of the g20 in buenos aires. finally, we will get third-quarter earnings from the fedex corporation. alix: let's get an update on what is making headlines outside the business world. kailey leinz is here with first word news. ey: an explosion at a fedex facility in san antonio, but the word is that it was headed to austin. the trump administration is imposing heavy tariffs on chinese products as early as this week. the u.s. wants to crack down as

what it sees his intellectual property theft from businesses. the initiation crackdown on chinese products could hurt the economy. in china, the president has begun his second term with a warning to taiwan. china has the capability to stop any attempt to formalize the island's independence. few daysks come a after an order allowing high level official visits to taiwan. global news story for hours a day powered by 27 journalists and analysts in more than 120 countries, i'm kailey leinz. this is bloomberg. david: u.s. china trade is front and center today with the reports that the trump and ministration is considering tariffs on china. saying he wants more balance and trade between the two countries. we welcome now sam zell and stephanie flanders, bloomberg's senior executive editor for economics.

we want to put up a chart that shows the trade deficit with china. one at the top is the imports that the u.s. has from china and the white is the exports could th. how concerned are we that we could end up in a trade war with china? sam: i think the good news is that china has done so well off of us that they have real motivation, may be greater than we do, not to have a trade war. when china was admitted to the wto, the assumption was the concessions that were made to make that happen would encourage profitable,ome more more middle-class, and therefore more like the developed world. unfortunately that has not happened. david: do you believe china has neged on there deal? have they reneged on that deal?

sam: i don't understand the definition of the word remeged, but clearly they ain't doing what everyone thought they would do. alix: clearly sam has to put money to work. at what point does he have to get worried about investing in chinese assets? stephanie: you'd be surprised that this is not had more of a market impact when you have had this concrete proposal that is going to come down the track for actual terrorists. what people are wondering is it shows how difficult it is to do these things. it's a fraction of the overall trade that we are talking about. it is a sector where we know there's going to be a lot of pushback from u.s. companies resisting every move. there'll be u.s. losers to everything he proposes. i guarantee it. people are waiting for it to play out. we are not sure exactly

what's going to happen. if we go further down this road because the president does not feel like what he needs to get to show he's tough on trade, that could end up in a bad place for the global economy. alix: if you are looking at assets in china and their opening up the manufacturing sector and let foreigners retained their property rights, does that make it more or less attractive? sam: that just determines on whether the -- you used is just true. eepx: did we just believl him? [laughter] sam: all they've done is steal it. i'm not optimistic the chinese will do what they say they are going to do. a good portion of the time, they don't. right,assuming that's

i'm sure that's right, that puts a discount on the price. our the chinese assets that you might find attractive? right now you have a situation with anbang and they will have to get rid of assets. would you be interested in those assets? sam: those are not chinese assets. those are u.s. assets bought by chinese companies in over leveraging. i and any buyer or owner of real estate in the u.s. would look at what they bought and consider it. david: are you looking at it now? sam: sure, but we look at everything. alix: what assets are most attractive? sam: all assets look attractive. alix: come on now. sam: it's like which women you know are good looking. women are all good-looking. alix: which ones are more or less appealing? you don't date everybody. [laughter] sam: but you try.

[laughter] it's getting bad, isn't it? david: we are so far off the rails. alix: seriously, which assets are tractive? sam: the answer is that they own some office buildings in manhattan. they own some office buildings in chicago, minneapolis. some of them are better than others. some of them are very well located. obviously the question is can they afford to sell them at whatever today's market price is? they bought them at the peak and it could be painful. but so far, they have liquidated only real estate that they have a profit in, which is interesting. they have not liquidated very much yet, but you can just look at the stuff they have liquidated and it's all been at a profit. it's like a townhouse here in new york that somebody bought

that they paid 54 it and sold it for 90. that's a function of someone wants the townhouse. 245 park in the building in minneapolis and chicago are normal "real estate assets." depending on what the market is, they will or won't sell at prices that are profitable to the. m. david: i want to come back to what sam was talking about earlier, the wto situation. how important is it to the chinese regime that they become full card-carrying members of the global community in terms of investment and liberalizing their markets? stephanie: it's interesting because we have seen even some of the decisions that came out of the congress and the last few weeks, does speak to the theme that whatever the big bargain the make with china, you will become richer. that's definitely not working out. the interesting question is how much is the investment case

bound up with that vision of china's economy and how much of it was bound up with china becoming a richer, faster growing, more sophisticated economy because that is still on track. we are not seeing this rules-based western approach the capitalism, but we are seeing a continued economic management, but they've managed to do a soft landing. they have developed the consumer side of the market. people will see opportunities in that potentially even if we are not getting all these guarantees on the rule of law and everything else. it's very interesting because it becomes a rather different trade-off. david: clearly you believe china is not there yet. as it made progress? is china a more reliable place to make investments today than it was five or 10 years ago? sam: i don't think anybody knows the answer to that. i think china is extraordinarily opaque. you can't look at china and

predict what action they would take. we have seen in the last two corruption andof then he disappears from the street. they are running by very different rules. i think everybody would be very naive to not understand that. we did deals in china 10 years , worked successful well. and then my chinese partners no longer spoke english. amazing thing. when he needed my money, he spoke english perfectly. once the situation had changed and capital was available locally, they all became chinese. david: does that mean you're not looking at investments in china at all or do you go in with a really cherry eye? sam: a very cherry eye. the extent that we do make

investments or try to find unique situations that perhaps won't be effective by china. alix: is it sector specific? stations that was converting and adding many marts. that's not an ideological issue. that's not very overly difficult , potentially very profitable. that was where interesting to us, but to get involved with chinese soes or government or any kind of politics in china, i think you're looking for a lot of challenge. it's the consumer oriented pockets where you would see growth like you would in any other country. that potentially will still be interesting. that youer backdrop are not completely confident of the contracts you signed is going to matter to people.

sam: i think there's every reason in the world to believe that you're not completely comfortable with the contracts you signed. you would not want to go into a chinese courtroom as the defendant. stephanie: or into a courtroom at all. ell is going to be staying with us. stephanie flanders, thank you so much for being with us. toys "r" us is holding out hope that a buyer may take them out of bankruptcy. could that buyer be amazon? we will discuss that next. live from new york, this is bloomberg. ♪

alix: toys "r" us is planning on shuttering its u.s. stores after companyruptcy and a

responsible for the chain's downfall may be interested in buying some of the stores. amazon is considering vacant spaces to expand its brick-and-mortar footprint. still with us to discuss is sam zell. when you were on before, it was like you are not interested in retail. what about now? sam: i think retail is still a falling knife. when you talk about retail in the united states, we have three or four times the amount of retail per population of any country in the world. withnsequently we start very great supply. we built an enormous number of obsolete shopping centers, shopping centers between the very top mall and the very local scenario. frankly the kind of shopping centers that toys "r" us was a tenant in. i'm not sure what amazon will do or not, but there are some of

the big boxes available. they don't have to buy toys "r" us. there are sears stores and jcpenney stores. the answer is they may want some retail locations for other reasons, but i would not think that toys "r" us is a special attraction to amazon. david: i think we have a chart that we can put up that illustrate what you said. we have far more square feet and retail per person than they do for example in europe. sam: five times more. david: that must mean that the value of that real estate has got to come down. is it coming down now? how far does it have to go before it's attractive? sam: the answer is it has come down. it is continuing to go down. if you know where it's going to stop dumbing down, you and i can make a deal. alix: to david's point, europe is not over malled. we are seeing big names buying

also. sam: slowdown. you start with this basic premise that europe is not over malled. alix: as much as the u.s.? sam: that's not what you said. my point is all retail everywhere -- europe, the u.s., etc. -- is being affected by the availability of the online option. europe's we seeing brookfield buying gdp? sam: you can talk to a bunch of people who might have different views as to whether that was a great idea or not. alix: you don't think there's other good deals? sam: i didn't say that. i said there's a possibility that might not be as attractive as one would think. david: there's an opportunity for you to get some free advice. he comes on a real state where you came out of real state and is now going on to more broader investments the way you have done. what is your advice to him? ability tok that my

operate outside of real estate is a function of the fact that i think kind of broadly. john is very smart. john thinks broadly. i think john will do great. my advice to him his answer read phone call, everything you can come assume nothing, and you'll do great. alix: before we wrap this part of, in commercial real estate in general, where do you see the value? sam: i probably have been a seller rather than a buyer. i look at commercial real estate a lot and what i see is of supply coming on in almost every capacity. i'm not sure where the demand is going to come from. costs are above

what's so we will see first. david: sam zell will be staying with us. technology shares soared more than a month yesterday, but financials cannot prop up the broader market at this time. more on the sector correlation that could mean more choppiness is coming. live from new york, this is bloomberg. ♪

alix: sam zell is here and fired up. than itres fell more could in a month and one sector cannot bailout investors. this is financials and tech. the bottom panel is the correlation. we are announcing==--- we have now seen the correlation pickup. we are not seeing it at this point in joining us is the bloomberg cross assets reporter.

luke, you had this great article out yesterday. what do you make of this positive correlation? the bests means example of how markets have changed once we flip the calendar year. last year was a great story of why volatility was able to stay so low. you had an offset. for the first time ever you had the three-month daily correlation between the bank index and the tech heavy nasdaq 100. you had that flipped to negative. even though there were big moves, they would be massed because one big move would offset the other. now the correlation between the two is at its most positive since before the u.s. election so it suggests that we go up together and down together and poses a little more market choppiness. david: at one point of divergence, you have appear the most regulated parts in a market and one of the least regular departs in american history. how far behind is tech and that the government is going to catch up with these guys? sam: i don't think there's any

question that the government is going to catch up to them. the irony is that the government challenged ibm. the government challenged microsoft. i don't think the government had much of a case in either of those, but i think the government has an unbelievable case against facebook and the rest of these monopolistic tech companies. they've operated under a theory that we are tech and we are the future and therefore you cannot regulate us. if you believe that, i've got a bridge to sell you. highlight these two sectors from regulatory perspective and they do seem to be marching in different movingons and then toward rolling back some of the dodd frank and getting thanks off their lease, while the same time it seems in both europe and the united states come up from a tax perspective and terms of a quality assurance type standpoint, we are starting to see a little more regulation in tech. alix: february we also have that shakeup.

how do you view the markets right now? sam: i read the markets as particularly in the tech arena, i would be worried about it. economy hasoverall gotten a -- there really has been a trump boost. there has been a boost that is the result of confidence. and that's very good. at the same time, the idea that somebody like facebook can say we are not a utility. we are not responsible. we are just a provider of what ever anybody puts on us. that's preposterous and does not fit any other part of the world of regulation. david: when you look at this correlation with financials and tech, what happens if we get a surprise with the fed tomorrow? how much of the performance is really tightened monetary policy? luke: a lot of it. in the market sense, it's a little odd because o we think

of security transformation therefore the widening spread between short long rates goes to profitability. that has not really tracked the curve the cycle. where it is still bearing out his markets. it is largely a function of the yield curve. what constitutes a surprise from the fed? it's probably 2018-2019 dots moving up more than expected and a long-term not moving up as much is expected. that's the fed basically tell you we are going to keep flattening the yield curve. that's the are part about the banks in q4 because they were able to look ahead to tax reform and their big beneficiaries of that. they were still able to outperform despite a flattening yield curve. now they have been back to tracking the curve a lot more. alix: quickly, valuations come down enough in the open market? sam: no. alix: how much more do you think we can go down? sam: can or should?

alix: should. sam: should more, but can i'm not up across could -- i'm not a pretty masticated of that. alix: the prince goes deal shopping. he is looking at $3 billion in deals. arsenals of interview with him next. -- our exclusive interview with him next. markets trying to rally today. how about a rebound from yesterday's selloff? the dax also on the front despite the fact that investment sentiment really soured in the last month. classes -- yields go nowhere and the dollar broadly stronger. 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. 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. alix: this is "bloomberg daybreak." i'm alix steel. here's where we stand the markets with nasdaq and s&p futures try to rebound in the deep selloff we saw yesterday really led by facebook. european stocks in the green and

the dax off the highs of the session. i want to take a look at what is happening with dollar-yen. but by 4/10 of 1%. at one moment, you did see a big drawdown in dollar-yen as the boj officials said they might raise rates before they reached the 2% inflation target. the euro-dollar back down 4/10 of 1% and the treasury selloff with the treasuries declining. did not see the safe haven demand buying a strong as you would've expected yesterday. the vix a little bit weaker after having a nice pop yesterday on all that volatility. we are getting some headlines out of a news conference over in berlin between german chancellor angela merkel and the premise of ireland. angela merkel saying a few things about the brexit deal yesterday. she said that she was positive on that deal and completely supports the irish position on the border and at the irish border issue is essential. that was one sticking point that

the eu and the u.k. were not able to resolve. she did say that eu unity must be maintained on brexit and she hopes that the eu does not have time to react or doesn't have to react on tariffs. the prime minister violent is also citing steady progress on brexit negotiations and welcomes the recent headway. the more optimistic tone continues out of brexit talks. release,st weeks after prince alawite is coming for deals. an exquisite interview with erik plansker, he explains his for kingdom holdings, working to find as much as $3 billion for investments. prince alaweed: we are raising $2 billion of debt because we do obviously have cash at kingdom holdings and we are looking at a second deal for us. deals andew big although the market right now is

i would not say overvalued, but not where we wish it would bp we've we would like to get some firepower ready for us. i think we are on the verge of getting the $1 billion to $2 billion financing facilities . erik: you are thinking about a deal of what size? prince alwaleed: any deal, but we wanted to be $3 billion. erik: and what industry? prince alwaleed: we are open. now i've heard that you are working with goldman sachs. prince alwaleed: yes. goldman sachs actually and mr. blankfein i think him personally for his support in the previous deal. stake in the the saudi french bank. right now we working through them and others also for other deals for kingdom holdings and others in the region and nationally. ever would you consider

restructuring kingdom holding to make it a little easier for people outside of saudi arabia to understand? in other words, taking perhaps the domestic projects and the domestic real estate and turning it into a reit and other investments that you have remain in the kingdom holding structure? prince alwaleed: you are not only an astute reporter but an astute business men also. that is what we are doing. we are divesting the local part of saudi kingdom holding. it's in real estate and in the tower and all of our local holdings. it is ongoing. we are having an ongoing discussion right now on that particular situation. alix: that's just a portion of erik schatzker's exclusive interview. still with us is sam zell. sam coming is --

looking to buy stuff. are you looking to buy stuff with him? sam: i do think we have the same standards. alix: meeting? sam: he bought stuff i would buy and i've bought stuff he wouldn't buy. alix: there's speculation that starwood might be a good buy between the two of you. sam: that was before marriott but starwood. we had a big position and starwood. he has been involved in the four seasons. i don't know that was ever realistic. david: have you been in business with the prince before? sam: no, i've been to riyadh and in his office. david: you met with him? sam: i met with him and he's very, very bright, a very confident guy. i think his orientation is very non-saudi and that is what made him as accessible as he is meant. david: does that mean that you would be more likely to consider doing business with him? sam: that's a question i can't answer. alix: also taking place,

mohammad bin salman is in the u.s. and he is also looking to buy stuff as well. you met with him. what was your take? sam: i've not met with him yet, but i know a lot about him. i've been a student of what's been going on over there. doing isay what he's extraordinarily brave. i think it represents the right decision if they were is going to be a future to saudi arabia. i think if somebody did not do this, i think we would see saudi arabia disappear. david: to draw a possible parallel, saudi arabia has a lot of things going for it. it is a kingdom and what happens within the kingdom is determined by the king ultimately. why is it different from china for an investor going in? for china, one of your concerns as president xi decides everything. with saudi arabia, the king

decides everything. are they different? sam: any time you invest in any place where there is not a rule of law, you got a problem. david: does that apply to aramco when it goes to an ipo? sam: i think what you are identifying is one of the major issues of the whole aramco offering. is really a colony of the challenges of taking a public and where it should be taken public and what are the tech consequences and what are the government requirements, nobody has ever done anything like this before. frankly i'm surprised there has been such optimism it would be done so quickly. alix: you would not want to have any party do with the saudi aramco ipo? sam: i don't think the saudi

aramco ipo is going to be something for some of the like me to invest in. it's going to be institutional. it's going to be a very different kind of an offering. it's going to be a lot of people buying it because they don't have any exposure to that particular company. alix: what's interesting is if you take a look at dividend yields a big oil companies and the potential divvy i dividend d of aramco, it is not measure up to exxon or the debt that saudi arabia issued. are there other ways to get exposure to the transition of saudi arabia? sam: i think that there are probably lots of ways to benefit from the saudi change. whether it be we have a company exored an excerpt -- ann and we set up in saudi arabia. there are a lot of opportunities

there and the rules are relatively clear. david: it sounds like you are not that interested in china. not that interested in saudi arabia. where are you interested outside of the united states? sam: i think right now we think latin america is one of the most interesting places in the world. a lot of change going on there, and a lot of movement from socialist to free market. david: is that brazil or mexico? sam: it's brazil, mexico, argentina. those three for sure, maybe columbia. alix: are you sector specific and that or is it more in a consumer domestic play? sam: all those countries are still in the process of "growing the middle class." it's having various degrees of

success depending on where you are. certainly the middle class in brazil has grown despite the setbacks of the recession. the same is true in mexico, chile, peru, etc. david: you have been in mexico before. how worried are you about the elections coming up this summer? sam: i think it would be a very serious problem. i think getting mastodon now -- is important. i think nafta is very close to getting done despite what you might read in the newspapers. or on cable tv. alix: i also want to take a look at other opportunities that talk about what you are buying. what you would be selling? would you be selling any assets? sam: every day if you don't sell something, you're buying it. alix: you must be selling a lot because you are not buying a lot. sam: at the moment we do not see

enormous opportunity. there have been times where we bought everything in sight. the environment let itself to be very attractive. i think pricing today primarily because of the supply and demand scenario in terms of capital is distorting all markets. there's too much capital chasing, too little opportunity. david: at least related to your business, isn't there pent-up th demand for new housing? sam: i don't know the answer to that, ok. if you are a homebuilder, maybe that's what you think. but i don't think there is. the numbers don't show. starter houses are not getting sold. student debt is a serious problem. the delay in marriage is a huge

deal. used to get married and buy a house within a year or two out of getting out of college. now you don't even think about it for 10 years. changing to demand and supply and changes to household formations. adjusting to that is a critical part of being an investor. alix: another thing we have seen is that short-term borrowing rates really spiked. this is the liber ois spread and it's at the highest level since 2009. when you see a chart like this, how does it affect your business? sam: caution. interest rates are still the ultimate elixir and the ultimate beverage is leverage. it provides enormous benefits and is a lot to worry about. liborwith the rise in the spread, a lot has been made about this, but it doesn't

really matter because it's all about supply. is that how you look at it? sam: the answer is i don't know enough to look at it that way. alix: you look at this and say we are going to have a credit problem? sam: you said a few minutes ago that the fed is going to raise three or four times this year. if you know the interest rates question,up, without that affects your thinking and affects your decision-making. if you no interest rates are going up, can you realistically depend on where they are today? the answer is no, not when the system has told you unequivocally that we are going up. we have had interest rates that have been below inflation. david: when you have your list of concerns, how high up that list is the fact that so much leverage has been taken on in the private sector and the public because interest rates have been so low?

is that something we should be concerned about? is that up toward the top of the list? sam: i don't see how it cannot be. ultimately whenever this boom or ends, itod of recovery is ultimately going to get in trouble on leverage. there's an awful lot of debt that was generated when interest rate was 4%. what happens when five years later the interest rate is 7%? does the property go up? does it produce the same cash flow? has the result of that five-year on or do we end up with balloon debt coming to and obligations that are far in excess of what was initially envisioned? david: sam zell will be staying with us. g20 finance ministers and central bankers are gathering in window buenos aires.

we will speak with the italian finance minister today. lease of a broader wicks -- lisa abramowicz is in for tom keene. pimm fox adjoins a conversation with lisa from 9:00 to 10:00. it can be heard in boston, the bay area, and all across the the united states on sirius xm radio. this is bloomberg. ♪

kailey: this is "bloomberg daybreak." i'm kailey leinz in this is the hewlett-packard enterprise greenroom. ,oming up later today republican representative dave brat virginia. ♪ g20 finance ministers and

central bankers are gathered in buenos aires. michael mckee is there with them and he is italy's. pablo cap on. we are the italian minister of the economy and finance. thank you for joining us today. >> happy to be here. michael: you have been through these meetings for many years. do you see the g20 as divided as it is today over the issue of trade in the past? >> not on the issue of trade, maybe on other issues there have been divisions. i would not qualify the current situation as divisive rather than different points of view have been put on with a common understanding. michael: what is the common understanding? it is our understanding that the rest of the g20 does not agree with the u.s. turn toward protectionism. pier: no one wins the trade war. we need to avoid trade frictions that go beyond the usual

dialects so i hope that the u.s. and europe and china and the big players around will look at the situation and will avoid taking steps that would undermine the global trading situation. michael: we understand that secretary mnuchin is turning toward this without a lot of success. pier carlo: we have been discussing the recent measures and as europeans, we want to speak with one voice and we want to avoid any friction. we want to find a solution both with issues with the u.s. and with china. michael: is there a solution? pier carlo: there's always a solution. there's many solutions. the question is which one generates the best outcome and over which time horizon. there are many colleagues and i would support that statement. there's a lot to gain of the

and the liberalization of services which are not open to competition. michael: if i can ask you about italy, the president has suggested he does not have a particular timetable for the formation of a new government. what should investors expect? pier carlo: a resilient economy which continues to be resilient. the fact that this is not unusual in europe. we have seen many cases and the latest one is germany where months were needed to find a stable government. why should italy be different? michael: would you suggest months are going to be needed in your case or when we see a new election? pier carlo: i would anticipate several weeks and maybe a couple of months. new elections always claimed to be in the background, but i would rule them out at this stage. michael: how would markets be affected if government takes a long time to form? whetherlo: it depends the time needed to fund the government leads to a clear direction and there is an implicit assumption that what has been gained in terms of in confidence has

been maintained. michael: are you optimistic those conditions will continue? pier carlo: i'm moderately optimistic. michael: moderately does not sound like a strong endorsement. pier carlo: i moderately optimistic because i'm still the acting finance minister and finance ministers have to be prudent. michael: what do you think your democratic party will do? pier carlo: the democratic party is at the opposition and i think the democratic party should take seriously the issue of understanding what went wrong, why the party was defeated in spite of the very good job done if i may say so over the past legislature. michael: do you have a preference? pier carlo: i have a preference for policies that preserve and reinforce actions taken in the past three to four years. michael: are any of the possible governments unacceptable? pier carlo: at this stage, i cannot say something on that.

michael: at this point, do you see anybody who would particularly carry on the work of the democratic party? pier carlo: an individual terms? michael: individual terms are party terms. pier carlo: party terms, i think the democratic party is starting to have a deep down discussion among its membership to understand the reasons of the defeat but also the policy applications. what is the democratic party strategy? this is not an italian issue. this is an issue across europe. we have seen it in germany and also witnessing a strong defeat and still being government. we have to rethink the social democratic agenda in europe. michael: thank you very much for joining us today. we will send it back to you. alix: thank you very much coul still wit. still with us is sam zell. before we let you go, your top investment in the u.s., the best opportunity? sam: we are doing three things

at once. we are doing a lot of energy. we think pricing is still attractive and there's room in the pricing. alix: where? sam: in oklahoma and the permian and the balkans. up wasteolling operations and rolling up hospitals, particular nonprofits and turning them into profit hospitals. very interesting field, not one in which there a lot of competition, and ultimately that's attractive. david: do you take a lot of cost out of those hospitals? sam: you can't imagine how poorly run nonprofit hospitals are. alix: interesting. sam: they are charity oriented. for a long time, we have just ignored that. life has changed. so there's a lot of this

conversion from nonprofit hospitals to actually profit oriented focused. alix: great to see you. good to spend the hour with you. sam zell, thank you very much. crown prince of saudi arabia's charm offensive. that's next. if you have bloomberg terminal, check out tv to watch us online and clicked on our charts and graphics. just check out tv on your terminal. this is bloomberg. ♪

alix: what am watching as the crown prince of saudi arabia meeting with president trump today and it will all be about potential deals. take a look at this chart. the yellow bar is the public investment fund of saudi arabia that spent $54 billion in investments last year, dwarfing every other middle east sovereign wealth funds and a

huge increase from what we saw in 2015. david: the crown prince is looking to make $35 billion with of deals in this visit alone. alix: if you look at a breakdown of what they did last year, the majority was an infotech and a little bit in real estate and consumer staples and a tiny bit and industrials. also interested to see what kind of sectors they are adjusted in. david: that's an investment. they are buying things. that's an enormous amount of money they are spending on defense. for lockheed martin, enormous amounts. alix: coming up on "bloomberg joining" greg peters jonathan ferro as the market tries to recover from yesterday selloff. this is bloomberg. ♪

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

jonathan: coming up, facebook's amateur crisis response making matters worse. officials writing of the pressure on zuckerberg. the g20 begins just as the united states is said to be planning up to $60 billion worth of new tariffs. the much-anticipated meeting for the fed begins. in a market 30 minutes away from the opening, facebook led tech routes. in the fx market, some dollar strength against most of the g10, including the euro. in the treasury market, we count down to that said decision and a towel news conference -- powell news conference. lawmakers demanding an