million in market cap wiped out. hike seems like a done deal. the question is, will it move higher this year or 2015? and higher store term funding cost triggering global financial distortion. >> welcome to bloomberg daybreak. i'm david westin. wednesday, it must be a nor'easter. >> 100% chance of snow tomorrow. who is going to go home tonight? serious one.s a >> let's see where we are trading ahead of the fed day me eting. euro-dollar a little flat. 10 year yield go nowhere. bonds selloff in

europe. crude hitting its highest level since early february and i have the chart of the morning. i want to point out what is happening with the cable rate. look at the jump in sterling. wage growth the fastest pace since the end of 2016 and many say it is clearing the way for a rate hike. david: at 2:00 this morning, we get existing sales for homes data for the month of february 2:00 we get the federal reserve open market committee rate decision after which a jay powell hold a news conference for the first time at fed chairman. it is time for bloomberg first take. take us the top stories. the bloomberg economic chief economist. she had the team covering investing. i want to put up a chart. a line chart showing what the fed futures are saying

is going to happen. ofhas it at 3.5 for the year 2018. >> basically they are pricing in end butby year basically we are looking at march, june and september. we are not going to get around to that 4th hike. it could look like we're getting to the fourth hike near the course of this year. q1 gdp not looking great. when we see a soft q1, we see a strong q2. economic momentum at midyear could make it look like we're going to get around to that 4th hike but after that balance sheet unwind, the dollar has a --wn significant maybe that 4th hike will get push into 2019.

david: when he testified on the house side, he said maybe four is not a bad idea. >> what investors are watching fed doesope that the not make a mistake. the biggest risk in the u.s. economy is the fed making a mistake. the hot s powell in seat. every note i get permits a different deal with the curve. flat -- dovish, >> jay powell and the fed have expressed they are sensitive to the notion of yield curve inversion. if they move to do too much now, four or five hikes, they are only increasing the risk of that they flatten or reverse the yield curve. this has consequences for the

banking sector. the key and we saw that in the language of the last data when they said further, gradual increases, they're not looking to go much faster. hikewill back fill the into the reject three of the -- trajectory of the oncoming years. their signal will be more of the same. >> talk about the fed reaction function. bank of america was asked about the widening light board -- libor spread. we know the answer is technical. when does it start to fundamentally matter in the economy? >> this is classically a gauge of risk in the banking sector.

to 2008ake this back and 2009 to say this is a canary in the coal mine. but there are reasons to believe this is not the case. this has to do with changes in code which leads to a repatriation of foreign earnings. back to my story about the dollar parking up, that can be part of my story as well. this is competing with commercial paper and cash like p that explains this lightening up libor. >> what are investors expecting when it comes to libor? >> libor is having investors lek about who is going to be ss under water when the tide comes out. the buffet line. we are talking about because of lending getting more expensive for people. saying,eeing people

there are people out there who are over leverage and how much can they take in terms of their fed rate or cost of living in terms of the libor rate. we've seen the libor rate have its effects in australia and the middle east. >> the story of the week, facebook. thes put a chart that shows market capitalization going back to july. you see a stark dip. facebook has a problem. is it a profound problem? >> they have three main risks. the first is users leaving. investors say you have a dip in the number of users. that number is lower

because of inertia. the ftc is investigating them for violating privacy settlement they had years ago. e banks bounce back from long-term fines. the risk investors are looking at is more regulation in the u.s. and globally. washington and other regulators are catching up to the technology companies. they will put in regulations that will not only have short-term costs long-term consequences. >> to what extent is it a broader issue about the business plan of these tech companies? >> we saw passenger sitting on the runway for 20 hours during the snowstorm, we have the passenger bill of rights passed. meltdownbanking sector during the financial crisis, we

had the consumer financial protection bureau. the more customers are finding out about privacy issues, the more we are seeing something along the lines of a digital privacy bill of rights moving riskrd so the regulatory is the major issue we have to -- four and that could be a game changer for that industry. >> is could be a change in revenue for the big take companies. >> facebook has the money. they are sitting on tons of cash and regulators are saying, if you're going to have this much money you are sitting on an as much as a public policy risk, we are coming for you. >> thank you both very much. coming up, more on the fed chairman jay powell fomc debuted. features flat. dollar a little softer into the

meeting. we'll discuss the markets we will be watching with michelle meyer's. before we get to break, headlines and the bloomberg european capital markets for. barclays ceo jeff bailey being interviewed and deutsche bank the deputy ceo is also there. making some headline saying we are making progress in the investment banking and it is focusing on returning capital to shareholders and not taking longer than they thought for the banks revamp. they are considering buybacks as well. this is bloomberg. ♪

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caitlin: bayer has cleared a big hurdle for $66 billion takeover of monsanto. the european union has given its ok for the deal. one condition, bayer have to sell its seed, pesticide and agriculture to dss. annualas increased its profit forecast for the second year in a row --second quarter in a row. fedex and its rival ups are cashing in on higher demand caused by rising online buying but there challenges that deliveries to holmes are less profitable -- homes are less profitable than those two businesses. profit will be in line with 2017. bmw is ramping up all of this investment in new models and electric vehicles. that is your bloomberg business

flash. ♪ kaylee: we are just moments away powell's think usa chairman. should we expect a more hawkish fed? >> my personal outlook for the economy has strengthened since december. each member of the fomc is going to be writing now a new set of appropriate monetary policy as we going to the march meeting. incoming data that suggests strength in the economy and labor market. we've seen some data that will add confidence to my view that inflation is moving up to target while many factors shaped the economic outlook. somebody had winds of the u.s. has faced over previous years .as turned into tail winds fiscal policy has become more stimulative. to continue to gradually raise interest rates, we are trying to balance and achieve inflation

moving to target but also make sure the economy does not over heat. >> in the earlier period, strong headwinds weighed down the path of policy. now, the reverse could be. said that bostic everything is on the table. join me is the bank of america --i'm trying to get a feel of the type of fed we are looking at. without yellen's dot, what do the dots look like at 2:00? >> for this year they will hold at three hikes we think. it is possible they shifted four but you need three fomc to shift

to get there. next year i think we will have a shift in the dots to three hikes. part of it you are doing this math in terms of naming your dots and removing yellen. and we have heard a number of fed officials --you get a sense of how they are seeing the risk s. >> if we do have the neutral does that2.85%, what mean for the market? >> the terminal rate of the hiking cycle maybe higher but gist that it is the fed officials should be shipping to a steady downshift in rsr. it will be particularly compelling is that goes along with a increase in potential growth estimates, which we do

anticipate. >> one of the going to learn about their assessment of the are we going to learn about their assessment of the economy? >> we have gdp at 2.9% and the potential to go below 2%. it does become an issue in less that potential growth rate starts to move up and then you see an economy that has more capacity. it will be critical for the lo ng term assessment. is there enough evidence where fed officials are starting to believe in a higherr start and market that can buy into that. >> the former treasury secretary was talking overnight in beijing. >> these tariffs are risky.

you asked me about what it means for u.s.-china, it is much bigger than that. int to start putting tariffs place that other countries do fair,hink our fair -- are the risk for retaliation is real. the world is not need a trade war. >> i would not call it an i would not call it an outright headwind. i would call it a risk factor. at this point, what has been in place is pretty impactful in changing aggregate data. with the steel and aluminum tariffs, you will see the micro economy impacted but not the aggregate numbers. but if it comes to retaliation and signs of a full-fledged trade war, that will be

problematic. stagnant of inflation. >> 55 basis points is the spread. today forns at 2:10 the spread. >> we were thinking a 2.5 point in the curve. hikesll expecting more versus in the future? >> the idea is that we start to 2019, you get more convinced. does not showt four hikes, if the fed officials are confident they can deliver the hikes for this year and next year, you could see the market -- >> into the meeting we are

seeing financial conditions tighten. you can see financial conditions down,ght and when it goes it means it is tightening. back to david's question about what is going to prevent the fed from going -- >> i do not think that is going to prevent them from hiking. the financial conditions tightening has been pretty modest. the reality is if you are tightening monetary policy, you should be tightening financial conditions. that ease throughout last year was the big question mark. aggressive tightening is problematic and that is something fed chair powell made very clear in his press conference. >> it is what they say and what they do and how they say. we saw that with jay powell, and

the first testimony, a different kind of approach. he answered questions differently. >> i did not fall asleep. >> it could be a different means of communication. >> it is a different means. it took some time for the market to understand yellen's talk relative to bernanke. they are both economists. powell is direct and gives ta rgeted responses. most market participants are most pleased with that. if you get clear direction, the challenge of that is if the economy does not evolve as you expect then you have to go back to this hand waving. >> michelle meyer's, staying with us. join us for live coverage of fed chairman jay powell's first rate

decision and news conference. that is some :00 in the evening in london. coming up, the three-month libor at its highest since a 2008. this is bloomberg. ♪

♪ >> it is a hot topic on the street. three months libor. take a look at this chart. 3-month libor versus the oas spread. at the highestor level since 2008. does it have more room to run? what are the actual implications? michelle meyer joins us, bank of america merrill lynch head of economics. i'm concerned about a three-month libor rate at the

highest since the 2008 even if it is temporary. >> you look at the outright level in about a hike and hike and a half equivalent. ing ofgests a tighten financial pressures. you want to consider the reasons behind it. could it be somewhat temporary and influence how the fed response? --responds? >> are we still in a world where we need to be expecting higher short-term funding? >> the fed are in a hiking cy cle. they are shrinking their balance sheet. this goes hand-in-hand that borrowing costs will be higher across the curve, what is concerning is the

speed of it. if you are doing some widening in the spread, it seems there are liquidity challenges that have not been accounted for. that is why it is getting the attention. >> there are two related questions from viewers. is this something the fed is going to be concerned about? and are they going to ask jay powell about it. >> is probably a dialogue happening around the table. they are talking about broad measures of financial conditions and this is a debate we will find out about in three weeks time. in the press conference, jay powell is going to be a clear as ansible in that this is not indication of a more broad based

stress in the economy are the market. it is something they are clearly keeping an eye on. >> bank of america said in their latest survey, they were asking about the spread widening. michelle meyer, bank of america merrill lynch head of u.s. economics. coming up, tech stocks could be hit by a new eu tax on the growth revenue. a double, triple, quadruple whammy for facebook and the deals with the fallout of a data breach and pr like of response to it after losing $50 billion in market cap. 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. this is "bloomberg daybreak" and i am alix steel. futures down another 20 points after facebook raised market

cap. european stocks are flat. -- a strong rise in the sterling after wage pressures are the highest since 2016. this is all about whether we will see a rate hike from the doe. other asset classes, waiting to see what the fed will do and what they will say. we do see a weaker dollar story into the fed. of action.ee a lot there is a strong selloff in europe. the 2/10 spread is sitting tight at 54 basis points. 1%, amoving up fascinating development. will we see more sanctions put on iran. this has been percolating with the saudi crown prince and trump. david: let's get the headlines outside the business world.

the first word news. sayolice in austin, texas, a purpose suspect that terrorized the city is dead. police closed in on his vehicle earlier today when he detonated and advice -- detonated a device. tookth explosion yesterday place near a fedex facility in san antonio. for the third time, the clock is ticking on a possible government shutdown. a $1.3 trillion spending bill. current government funding expires at the end of the day on friday. and for the fourth time this u.s. ishe northeastern bracing for severe weather. up to eight inches on washington.

10 inches on boston. airlines have canceled 3000 flights and school kids get an unexpected holiday. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. this is bloomberg. alix: thank you. facebook problems go from that to worse. $60 million erased from facebook's market cap following the break that it released personal data to an analytics firm. joining us now is david kirkpatrick. is darren phone chervitz who joins us on the phone and runs a tech fund. facebook is 5% of his portfolio. i want to start with you as a market participant. are you selling?

darren: no. we are not selling. it is disappointing what has transpired. i believe that this is more likely than not to pass over with time, as long as the company comes out with forceful and proactive response. we haven't seen that yet and hopefully we will or otherwise governments around the world will be stepping in to fill in the gaps. alix: do you agree? david k.: not really. i understand why he would sell any hopethink there is that government will not step in. what we see now is a pattern of a failure of control that has extended over many years and for which it will appear that facebook has no answer. and it is compounded by the reality that this failure of control and the data releases

that are happening as a result , seem to be putting liberal democracy in peril across the world. that is a shocking crisis and it is one that is unforgivable for a company whose profits are so spectacularly large, which is why your guest owns the stock. and the prophets are still going up. going to have to fundamentally change the way they do business. that could have been said before based on the u.s. electoral manipulation with russians. but now it is more apparent to facebook isthat truly broken and i don't think the evidence is there that they know how to fix it. a direct question as an investor -- do you think they get it? the scope of the problem? forget the election. they had a problem in 2011 about havingg the data and

systems in place to protect data. do they really understand the magnitude of this problem? darren: that is a tough question. compared to a lot of other -- they are the biggest -- but other internet companies and social media networks out there, several times out to explain that they understand the scope of the problem. obviously, mark zuckerberg's goal for 2018 was to fix what is wrong with facebook. intubated, it isn't an easy solve. there are problems around the fact that they have collected all of this data on their base think users understand that there is an implied contract that they get to use this incredible platform to communicate with friends and family and businesses and it is

an incredible platform and it is free on the surface but the price you pay is obviously the data you share with facebook and their advertisers, which hopefully make the products they offer to you more relevant and profitable for them. now, the problem that facebook is having is that it hasn't been able to guarantee the security of that data. and that is something they do need to fix. i do think they understand the importance of the problem. but i think their silence to date speaks to the fact that it is a complicated issue. more: is that even complicated? maybe it is baked into their business model. of us understand that we get ads from people we don't particularly want. but i don't think we understand used to data was

initiate support for the president of the united states. david k.: problems are baked into the level of profitability. the reason they have these problems is because they have focused on growth at all costs. onhink they got drunk profitable growth, which no company has ever seen in a comparable way. the most profitable company of their size in the history of capitalism. they think they're geniuses and they do care about privacy, they do. but they clearly haven't given this enough priority in the context of their extraordinary profits, which are beginning to seem shameful in the light of the problems that their system is creating for society. and i think that is the explanation for the gravity of the crisis there is today and the seriousness of concerns that have risen above the world. everybody knows they are spectacularly profitable and everybody is also realizing that they are threatening democracy.

that is a toxic combination for their image. alix: clearly you do not think they are realizing the in of the scandal. market hasthink the fully realize the enormity of what is going on with facebook? the stock has lost a lot of value in the past week. we have, in our models, them having to increase the level of money they're spending on issues like security and privacy. it has been a focus affairs in recent earnings calls and i think it will pressure margins going forward. but this is a company trading at on numbers that look fairly conservative, assuming this doesn't explode into something where people start deleting accounts or are jeopardizing the business model. most of the downside is priced into the stock at this point but

there are headwinds out there. ad if government steps in in big way and fundamentally changes the way that facebook delivers its business to advertisers then perhaps there is more downside. alix: i want to illustrate the fundamental reason of why you are on facebook despite the headwinds -- let's look at revenue growth over time. it worst any other stock. nominal gdp in the u.s. .mazon, google you name it. what would you need to see to scare you out of owning? would have to see something that makes me question the fundamental business model. it is that our company we love to invest in companies that have developed dominant platforms. and does david was talking

about, the incredible profit margins and growth around the company, this is unprecedented in many ways in large part due to the fact that they have a 2 billion user database of people around the world and so much these peoplebout to offer advertisers and it has to come into question. right now i do think this is a bad storm that will blow over as long as they start approaching the problems more seriously and top leadership really makes a difference here. so it really does come down as to whether the platform is coming into question in some meaningful way. i don't see that right now happening. david: twitter already has a problem with israel, for example. we have possible taxation across the board. will this spread to other social media companies? david k.: it is spreading to

some degree because of the guilt by association. but i thought about this this morning. this affects many companies including apple. this is a big problem with mobile apps on ios. the problem is for facebook is that whenthis affects many comps including apple. data escapes from facebook, recipients get an extraordinary detailed set of profiles from people. date is on iphones. you may get somebody's phone. and that is bad. and apple probably doesn't have sufficient control. facebook set up their system in such a way that the risks were greater because of the quantity of personal data is exponentially greater. can i make two quick predictions? one is that facebook will pay a vast amount of money to solve this problem internally. they have already said it will affect their profits and it will affect profits a lot more. darren chervitz is

crazy to continue holding stock. but i do think people will come out from this company all over the world. every government wants to something. and managing that is extremely challenging. they cannot allow an entity like this to have an effect like this and not be regulated. as simple as that. meanwhile, mark zuckerberg? where are you? he will come out in the next 24 hours. let's see. want to thankz, i you. it is important to let you know that you are not crazy. does not thinkck you are crazy. he will be staying with us. coming up, bank of america offloading margin loans. more on that. you could turn on the radio to

listen to tom keene and jonathan ferro from 7:00-9:00 and join the conversation from 9:00-10:00. live from a snowy new york, this is bloomberg. ♪

"bloomberg daybreak" and i'm in the hewlett-packard enterprise greenroom room. coming up in the next hour, scott minard. global ceo. ♪ returned to wall street beat where recover three things wall street is covering this morning.

said to berica is offsetting margin loans and bond to the future. is ready to deal bonds that look more like peterg stocks and peterson, the leading exile behind blackstone has died. will start with this story that we know something about. withof america got hit $300 million. and it was a margin loan and they thought they were protected. didn't work out that well. want to make sure that the nonrecourse single stock market loan -- stock margin loan -- that is just one thing and if it goes sideways or straight down, you really are in a pickle. brian moynihan has prided himself on being so cautious.

word is they are not very happy inside of bank of america. they obviously were not alone on this. but they did have a heavy exposure. loss is $300 million and for me, that sounds like pennies. -- ok, not pennies, maybe quarter. why the drama? it is sort of a cultural thing. we have seen the shift. in the post crisis world, it anchored ceo is highly sensitive to these sort of mistakes and when you see elements of this, there is a little bit of a canary in the coal mine element here. david: they had to write off so much. matt brian moynihan come in as the cautious one to get this under control.

alix: but at the same time you have goldman sachs and one of the commentary about him is that he didn't take on enough risk. >> that is why these jobs are hard. to balance the right amount of risk in a market that is this unpredictable. alix: my favorite title of the day. "bond to the future." "technology is our friend. this is revolutionizing. cracks i did dig into this story in part as i moved around in the bloomberg this morning and i linked back to a story that was written about this in february the $8 trillion

market. the second thing is that this is the inverse of the equity market where the vast majority is traded electronically. market. the second thingthe fixed incoms really about phones and chats and things like that. that is the way business is done. so this is a massive opportunity and it seems to finally be coming in. the other notable thing with the research was that the high-yield in the you see a surge high-yield market. so that struck me as interesting. david: we do want to turn to a sad note. peters, 91, passed away. he was a ceo of the movie company when he was 37 years old and was brought into the nixon cabinet and then he went to run lehman brothers and stepped aside because he didn't want to fight with a trader who wanted the job.

and then he started blackstone and made a couple of bucks. he was an author man and career. >> they do not make them like that anymore. of the history of wall street, there are very few people have made this much of an imprint. and there are people who have tos legacy to be attached names like he was. you have served the government and the country in a way that has become more commonplace. but was not back then. a greek immigrant from nebraska with a modest background. i can tell you -- a really decent man. a man full of curiosity and consideration and compassion. you would think someone as a type of industry would be as hard as nails but that isn't the man i knew. a lovely man.

>> yes. and he held court at the fourth seasons and elsewhere and he was a strong voice on responsibility up to the end. saying we ran the country into the ditch if we didn't take accountability. that is part of why he founded the peters industry -- the peter interest you -- the peters institute. >> a lot of legacy. david: many thanks. wex: one press conference are watching is the economics affairs commissioner of the european commission. speaking out in brussels and widely expected to unveil taxes on american tech companies. still with us is david kirkpatrick. a tax on gross

revenue, based on where users are located. to google andt do facebook operating there? i think what is interesting is that they're proposing to tax revenues which is an unprecedented approach for governments when it comes to business. that is the way this is typically taxed. of tremendous frustration that they feel in europe where they see a american tech giants -- facebook, google, amazon -- coming in and making massive profits and funneling profits through selected jurisdictions where aphids can be lower and as a result, not supporting the european economy from which they are making so much profit. and the idea is to just tax the revenue. and i think it is rational on their part. if countries all over the rest the world to imitate that,

in south africa and asia, i would be looking at this with great interest thinking i should do that too. david: you can watch us on a live go if you want. these are very large companies with digital advertising dollars. facebook, google and amazon and reports are that it may include online merchants? amazon and ebay? is it a coincidence that these are american companies? europe has failed to create a global tech giants. that is part of the reason for their annoyance. it isn't a coincidence. compounds with their frustration that companies are operating there and not paying what they say are sufficient taxes. they do all happen to be american. alix: we get headlines slowly

but they say that they must attract digital investments. i don't how that makes sense when you talk about a 3% tax on local revenue. does this wind up hurting companies in europe? companies in digital's to europe? i don't know. launchd with the eminent , it will significantly restrict the way companies handle personal data and this could be a serious 12 punch for any company. you have to worry about that. to have two major restrictive rule-making regimes coming into fundamentally challenge how these companies do business. don't they have a point? when you made a product, you could tax that product.

but a lot of the value that we give is what we give to it. data, in the cloud. david k.: to me, the way to think of it is going back to our andy about facebook cambridge analytica. the profits these companies are making just seemed wrong. be sociallyeem to responsible in terms of their obligation to nations and data and the policies of democracy. evil want to punish them and i don't think it is a rational. atx: i want to take a look amazon, slightly lower. no big deal. weakness in google and apple but who is to say it is from this or just general weakness? facebook is off the lows of the session and down 2%. david: it will be using to see have the different tech stocks

source themselves out. alix: "apple, we are not like you." google is trying to say that there helping news organizations. david k.: and i point to microsoft because it is a more mature organization, they have had a much more mature attitude to the social responsibility. isn't typically mentioned by some others even though the market cap is comparable. it has really taken a more responsible approach. david: but it is not unimportant that they have turned to make the money off the cloud. they are providing the back offices for the people who deal with the consumers. david k.: true.

but if you listen to what they say, this is fundamentally different than what facebook and google talk about. alix: what is this in response to? steel and aluminum tariffs? i ask you the antitrust guy -- what is your read on that? whether europe is say, ok, you want to tax us? we will hit your company. this: i think administration has made it easier for every country and union to try to talk about things like that whereas in the past, we all believed in globalization and free trade but now it is on the table. it made it easier to have that conversation whereas before you would be the skunk at the garden party. i agree with exactly what he just said.

the u.s.'s opening itself up to all kinds of consequential pushback, revenge action, we aren't even beginning to see it yet. it is connected, at least psychologically. and i think that would be a trade up. [laughter] now from are joined the senior reporter for bloomberg tech. what can you tell us about what the eu is proposing? this is not effective yet? >>the u.s.'s opening itself up o all kinds of consequential pushback you're right. this could take quite a while. the eu in a press release out today says they are imposing a 3% tax on the revenue of digital companies. statesy say that member could raise as much as 5 billion euros a year through this measure. today, the eu identifies three main types of business. engine, socialch

media companies and online marketplaces through peer-to-peer. so listening to your conversation, that is what we are talking about. u.s., multinational. i don't think the e.u. is particularly targeting these businesses but it can -- but it happens to be that user value in business, key to profit. alix: what happens after today? >> this is the thing. because this is a tax measure, the eu needs all the member of the member states for that. ireland is waiting for them to come up with wider reforms and solutions in 2020. alix: got to leave it there. that was then stumbles -- that stupples. ♪

alix: it is all about facebook. we are coming for you. wall street, eu, canada and the u.s. gunning for facebook after its billion-dollar loss in market cap. also, the fed is looking to hike rates today. done deal. but will jobs post higher this year or 2019? and europe imposes taxes for text giants -- for tech giants. david: welcome to "bloomberg daybreak" and there is a lot of news. alix: it is hitting the nasdaq. the s&p is flat going into the fed meeting. .robably, a weaker dollar story

with the exception of risk on currencies. in terms of yields, we go nowhere. there is a selloff in europe led by the gilt market. . will we see more iranian sanctions? , irrespective of the drama in tech and the fed. this morning we get existing home sales data. also, robert lighthizer will testify on a u.s. trade policy. and the one we have all been waiting for. the federal reserve committee meeting. jay powell will hold a news conference for the first time as fed chairman. alix: all eyes on jay powell. the fed is expected to raise rates. will we see a more hawkish tone? >> my personal outlook for the economy has strengthened. each member of the fomc will be writing down a new set of projections and estimates of

appropriate monetary policy as we go into the march meeting. see incoming data that suggest strengthening and the economy. continuing strength in the data market. we have seen data that will, in my case, add confidence to my view that inflation is moving up many factorsle shape the economic outlook. some of the headwinds the u.s. -- the scope policy has become more stimulative. and there is a furniture directory. i continuing to gradually raise interest rates over time, we are trying to balance those things and achieve inflation moving up to target but also making sure the economy doesn't overheat. >> earlier, strong headwinds sacked the momentum of the economy. today, with headwinds shifting to tailwinds, the reverse could be true.

joining me now is seth meyer. scott minard. is it super snowy yet? my california blood is getting very thin. let's focus on one of the top topics this morning. this shows me how many hikes are baked into the fed fund. this is at 3.5%. where are you? 4%.t: the real question is how many will we get into thousand 19. and personally i think the fed will move to three or four in 2019. but the market is not priced for that, either. alix: where is the asymmetric risk? scott: we have all the fiscal stimulus coming through the isn'tne and a lot of this

going to hit us until later this year into 2019. and at the same time, we are running into constraints because we have labor markets that are becoming tight. we have inflationary pressure starting to build. and the federal reserve has to start leaning against us. and i think they are slowly moving. >> does the restrictive movement change the terminal rate? i think it doesn't affect the terminal rate. but it will be interesting to see today whether the policymakers are starting to think the terminal rate should be higher. i think ultimately where we will end up is that we will have an overshoot to the upside in rates. probably a short-term rate hike .5% and that will ultimately bring us back to a recession.

is very flat. history shows us at the end of the cycle that the 10-year note lowerghly equal to or full-term rates. so with the rates around -- 1.5%. a two2% percentage -- percent increase closer to 3.5% -- it is almost 3% so there isn't a lot of room for it to move up. david: history also shows there is a lack be doing the yield curve and the onset of a recession. how do you play that out? when does it tell you that a recession might hit us? scott: by the time we get to this time next year, we will look at a relatively flat curve. short-term rates and long-term rates will probably be close to equal. if policymakers keep moving them we will have an inversion of the

curve before the end of 2019. and history shows us that the beforenverts 6-12 months a recession which means late in the fourth quarter in 2019. more likely in the first half of 2020 we will get a recession. the biggest percentage in history think we are late cycle. is that to blame for the market volatility we have seen? scott: in part. because people are getting nervous. the late cycle part of the expansion, we traditionally get some of the best performers in equity. so this wall of worry, to me, it it is probably mean that equities will move up 50%-20% before we get to the peak. alix: what sectors? that is a broad market.

i think financials are one of the best places to be. history shows that if short-term rates rise, institutions like bank of america don't raise the deposit rate. so what happens is that loans are repriced in and it looks really attractive. places that should feel pressure should be areas that are interest rates and ultimately, things like utilities, underperforming. if you were sitting at the fomc today, what would you do or could you do to avoid a recession in 2020? scott: it isn't in the fans of the fed. it is interesting. for years, fiscal policy remained restrictive while we did sequester's and all of these things and was left to the fed to be the source of stimulus. now we have gone the other

direction late in the cycle and the real challenge is, can policymakers adapt to policies which would help prolong the expansion? and i always point to this. that we can't have a trade war. it would be devastating for the economy. and we need to come up with a rational immigration plan. we don't have enough people in this country to continue growing at the rate we are at. that is the thing. you either get it from people or increased capital investment. can we grow productivity fast enough so we don't trigger inflation with fiscal stimulus? scott: i don't think so. between theag time capital investment and the gains in productivity. typically, let's consider the expensing of capital equipment, which is a great policy to raise.

if we get to new capital investment later in the year, it typically takes 4-5 years to get the advantages out of it. it takes them a while to get to the point where they really built the productivity out of the investment. alix: you have been saying this for ever. it isn't a one-for-one. i'm curious, only talk about the rotation into the change -- you mentioned financials and if you come inside the bloomberg, you see the growth index. growth is the blue line which is counterintuitive in a line -- in a world where we should be buying value. about 3%-three .5%. scott: it reminds me what we went through in 1999-2000 where

value was considered to be garbage. it is the place you had to be media technology and because these were the hot places to go. it is funny to talk about facebook because the value is on the trash heap and typically the things that are out of fashion today are the things you should be buying and looking to invest. be there he on domestic businesses. because if we do get ourselves into a trade war situation, you know, it will be extremely difficult for companies to compete overseas. minard, great to have you here. firstay powell's

news conference starting at 1:00 p.m. new york. alix: you could see the economics of fair condition or -- economics affair commissioner . speaking out saying that this doesn't target any company or country. an proposed levy isn't anti-u.s. tax and we are waiting for more details. softer, particularly facebook, into the open. david: i wonder if the companies don't feel targeted. alix: this is bloomberg. ♪

alix: markets pricing in a fed rate hike as indicated by the

rise in libor. the highest level since 2008. what does this mean for the real economy? we spoke with the equity investment firm in founder. >> investment rates are the ultimate elixir. and the ultimate beverage is leverage. and that provides enormous benefits and it is a lot to worry about. alix: leverage and beverage. .till with us is scott minerd iraq, i want to start with you. what is the difference between the three-month libor -- this is a bit more technical. this is because the treasury

department is issuing and water treasury bills now to fund the deficit and tax refunds and the like and repatriation from the tax plan where dollars are leaving london. the pricee of that, of banking has gone up and gone up substantially. alix: do we have to look at this as a higher level, overall? ira: it is priced to come down by year end. it is still significantly lower compared to the overnight index and the federal funds rate. so the market thinks this is a short term phenomenon. the risk is that it is not. have dramatic effects if it were to be sustained for a long amount of time. david: that is the question. that it isn't just a technical or a one-off but it is more

-- more troubling of the system? scott: with all of the issuance in treasury bills going on and the money perform we went through, it is just costing more money for people to borrow short term. and i think the spread between be. treasury and libor will more sustained. today the libor rate is 2.25% but i think it will move up to 2.5%. forward markets are notorious for mispricing things so i don't think we can look at the forward rate and expected to rationally follow that path. : three months treasury bills have risen as well. so the three-month treasury bills used to trade at -10 basis

points and now they are trading at plus 10 basis points. so this could probably be attributed to the fact that there are a lot of treasury bills. when you think at this from a credit card perspective, look at bank credit fold swaps. relative to recent paths but it is only five basis points. not singling any kind of serious financial stress even though it is costing more with the credit risk for banks. alix: there could be reparation through markets. the -- would be more appealing been equities? scott: the thing i am getting concerned about is the increase in libor. the repricing of bank loans. and if my view of the world is one hundredll have

basis points higher than we are today and we will have a lot more around 3.5% or 3.25%. those kinds of interest rates could soak up a lot of the free cash flow in corporate america. concerns aren't here today. but there are a lot of companies that are zombie companies that survive from the last cycle. companies have debt being repressed by the markets and rates going up, it will be define.nd harder to david: how do you define zombie companies? scott: free cash flow. david: define. thank you so much. that is scott minerd and ira

jersey. tax thep, a new plan to tech. but the chair says it is in that -- says it isn't meant to target specific companies or countries. this is bloomberg. ♪

daybreak.""bloomberg forr has cleared her hurdle its takeover of monsanto. the european union has given its ok for the deal but one condition is that i have to sell the pesticides and digital agricultural technology investments. shareholders that tesla will decide today whether elon musk is worth a 2.6 billion dollar pay package. the board will speak their approval on the unprecedented 10

figure award. theould turn it into one of world's biggest companies. for the first time, amazon's market value is larger than alphabet. 768 billionalued at dollars after yesterday's close. the world's largest online retailer has searched reaching into new markets such as groceries and health insurance. both amazon and google, facebook, twitter and apple have to contend with possible new tax laws. the plan was announced today by the economic affairs commissioner. joining us from london with more is ben stupples. is still with us.

ben: in terms of key next steps, the eu council will discuss this tomorrow at the council meeting they are having. the headlines from the proposal is that it is a revenue based hitwhich would -- it would companies. this needs the approval of all eu member states. may have like ireland an ego and it could take quite a while for it to get through. david: on the face, any government would say this is just fine. money and we could use more money with the u.k. leaving the you. what government would be against this?

ben: the u.s. treasury came out last week saying it would oppose any measure that goes against the measures that target u.s. multinationals. if you think about foreign direct investment of multinationals, companies like upon strong depend direct investment for their economy, i think they could be the sort of country that potentially muddy the waters with what will happen as we go toad as eu member states try make this legislation. david: as a rule, you are pro-tax -- you are not pro-tax. but this is a different kind of business. scott: i think it is a brilliant idea if you are going to tax. because with the concerns in the european union about hiding in tax havens and moving to low systems and it exists in the cloud. and the other interesting thing here is that it is the first

retaliation tactic to tariffs. no one can accuse you of engaging in a trade war and it is a great way to get money out of u.s. corporations. do you like tech at all? saying -- dolike you like ice cream? sometimes you eat too much and you have had enough for a while? that is my view on tech. tech has had a great run. very low regulation. and they are attracting the attention of regulators which probably means it will be a lot more difficult to tax. to the g20ent down and the eq proposed they want a global proposal. can't they just do this on their own? en: the eu is warning of a

patchwork of legislation for large companies. they are trying to ensure that there is a global consensus on this issue. otherwise there will be significant economic distortions. the eu does not want individual companies. the eu has come out with its own proposals and italy introduced a last november. and the eu was trying to get all of the member states together to reduce the damage that this it could thend get a global consensus. alix: great to see you, ben stupples. -- scott miron will be staying with us. mom you called?

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

it's a drone! i know. find your phone easily with the xfinity voice remote. one more way comcast is working to fit into your life, not the other way around. 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: we are a few hours away from the fed rate hike decision. here's how we are stacked up. the nasdaq futures are continuing to bleed.

s&p flat. the ftse down by .5%. a big rally in cable rates here. wage inflation at the highest since 2016. other asset classes, steady as she goes but a weaker dollar story. the euro-dollar is up. yields are not going anywhere here it in the u.s. they are holding up quite well with the big selloff led by the gilt market. always keeping our eye on the spread. and crude got a boost, training irrespective of all of the macro issues. will be see sanctions put on iran? that is the conversation percolating. david: tough talk yesterday. let's get headlines on the world outside business. texas sayin austin,

the suspect of the package bombs is dead. up.lew himself he has been identified as a 24-year-old white male. exploded,mbs have killing two people. imposes sweeping tariffs on china's products, beijing is ready to respond. china is preparing to head back with tariffs including levies targeting agricultural exports. illinois, a billionaire has won the democratic party nomination for governor. already spent his own money trying to win a job with huge fiscal challenges. illinois has the worst bond rating among the 50 states. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. this is bloomberg.

speaking in brussels with theresa may speaking in london. its foraving tough for facebook. she says the allegations are very concerning on cambridge she expectsd facebook to comply with the investigation into the data years. but she does see no connection with the tories. david: credit markets are under pressure recently. is toy to measure it compare to the u.s. economy. thatt may surprise you this number goes up as this number goes down. comparedow high it is to the overall gdp, the highest it has been in quite a few years. still with us is scott minerd. reaction to this chart, i was

surprised by the rate at which it has outstripped gdp growth? scott: interest rates have been low. the return on equity have been declining. a good way to get stocks up is with money and buying back shares and now, we are at the point where it is becoming more interesting to do acquisitions. david: all right, one theory is to lever up. you put the money to work and you grow the economy faster. that chart -- that is not what is happening? scott: no, when you look at the repatriation, over 40% of companies expect to use proceeds to repurchase stocks. it is the fastest way to drive up your return on equities and stock prices.

alix: what sectors have leverage to high? media is one of the most disturbing places. we seehas played out and the wash out there with claire's and others. but when you look at media companies and you see how much pressure they have, a lot of people have forgotten about what went on the tax reform -- the limitation on your ability to deduct interest. so a lot of these companies are now beyond their ability to deduct interest. this is a puzzle for me. you talk to legislators and ceos who say it doesn't matter whether you use shares to buy back because it frees up capital to be put into others. why isn't that working? it does work but it works in the long run. , you lever upun

your balance sheet. it raises productivity and output in the economy but just like the conversation we were having about corporate investment -- there is a big lag here. in five years this is good. it createsshort run challenges for corporate america. alix: investment-grade versus high yield spread. it is the investment spread that has been widening with that space underperforming. how underweight are you? every client is different. spokee we do a lot of the strategies. -- invested in investment-grade credit or less than 5% in

we are running at fractional levels. and -- alix: do you want to sell more? scott: i would try to sell more. and corporate credit. clear, the scenario i was talking about earlier, we are going to face a recession. with the rates so high in corporate america, we see faults. -- this is the age of enron and all of the companies that basically had too much debt. decides the financial fraud.

think this downturn will be left by corporate america. alix: how easy is it to find buyers? scott: -- alix: does that make you nervous? scott: it is a good indicator. alix: you see bankruptcies. you say the sectors play out. going back to the media , i think these are very vulnerable so it will take some time. utilities, because of regulation, they will probably be able to raise rates. certain companies have over levered themselves. you go through a normal

economic downturn with highly leveraged companies, they will have more of a problem. and i think we are starting to see this in the market. toys "r" us was a fascinating story. traded within three points of par before the default and then it fell off the cliff. why? what new information? and what happened was the upreased use of -- propped prices because when toys "r" us came out of the index, all of a sudden the index fund sold. and it collapsed. david: so who is in or out of the index is driving a lot. is an art for you. you play the etf's. david: let's think about this. fixed income funds have had trouble with positive returns.

-- what isput up on your secret sauce? and the macro opportunity fund, we are trying to give positive, consistent return. thatey is to tell people -- said, what is the secret to great wealth? we sell early. thingsto move away from that are becoming and fashion. we did that with high yield bank loans in the last year. 2015, ifin december you have had me on, i would have told you how we are loading up on high yields and things like that. having the ability to move where you want to go without the managing, you can

hopefully manage positive returns most of the time. alix: we've seen high performance and triple c's. to wonder if the promo in the credit market -- nobody wanted to buy teslas bonds. but they felt like they had to. if they store the markets too much -- do they allow them to play out? scott: that is a short run phenomenon. it is like, you are at the point where there are three phases. the first phase is release. which we had back right after the financial crisis. you realize the world isn't coming to an end. the second phase is the phase where you have strong growth and the economy is doing well. is the grief phase

phase which is where you are afraid to not own it because you are scared to underperform. and if you look at the bank yield products -- we have gotten so conservative we have underperformed. david: given all you have said about caution, does that mean you're into coo's and -- you have assets to back that up? scott: exactly. we are looking for collateralization. rusk -- so far with the loss of risk as low. grown out day. i have to explain to people there was a movie with bill murray -- there is another generation behind me. every day you lived in groundhog day. so there is a test we use which says if the fault and credit losses stay at the same level at 1937y year as he did

-- the worst year on record, then will security survive? so if they don't pass groundhog day and they don't even get on the list. it is a screening technique. we have the ability. the ability to do the work and figure out where opportunities live. and one of the guys that work with me always says that there are two ways to make money. take risk or do work. we like to do work. alix: do you wind up saying that the next risk comes from credit? is it downgrading? scott: it is interesting. we did a study to look for the the timingtors with of a recession and the best indicator was widening in credit spreads and high yield. so now i tell my high-yield team

that i will look for something that tells us for the indications of when the credit spread widens. the thing to look at is the shape of the yield curve. -- if thebeliever yield curve has inverted -- it has gone flat for every recession in the postwar time. it tells you when it goes flat that you are six months-one year away from a recession. you may not be able to sell in the market but you could at least get out before the worst of it happened. alix: a real pleasure. i don't want him to go. scott minerd, thank you very much. breaking news on general mills. the ceo is speaking on a call and they are expecting to grow profit in the fourth quarter. they could move faster to mitigate costs.

spending less on traditional advertising. that stock hit after they wound up hitting their cost. higher shipping costs and higher freight and commodity expenses. you would think at this time you would be able to control your costs better. david: i don't remember hearing about that from other companies recently. either they quickly re-rated or they weren't managing costs well. david: coming up, we speak with the ceo of the larger operator airline in the world. as you commute in today, tune in to the radio. that is tom keene? no. alix: we will get it. we will get it. listening toorth

them on "bloomberg surveillance." this is bloomberg. ♪

this is "bloomberg daybreak and this is a hewlett-packard enterprise greenroom room. coming up later today, jay alford broader jr.. ♪ david: the largest private airline operator in the world with more than 50 terminals in the world. of raising goal funding for future expansion. but shares have fallen since

then nearly 20%. shares did close shy of $14 yesterday. joining us now is martin eurnekian. welcome. good to have you here. tell me how your company is doing? martin: we have a great company. more than 20 years, we started in 1998 from the home country of argentina. we have grown since then. most of our business is in emerging markets. emerging markets have been doing great and they are expected to do great in the future. today, markets around 45% of global passengers. 2040pect to move to 65% in and going to 7 million passengers today to more than 20 million passengers so we have a great challenge ahead. to be anally happy

industry that is thriving. and we think the same of our company. david: why did you go public? are private, family-owned company and this is a step into the future for professionals. looking into growth. --have a very diversified worldwide. based in latin america and europe now. we see this step as a way into the future, a springboard with growth. david: stocks are trading below the ipo price. scott: in our view -- martin: in our view, we are not financial experts. we run our company. we don't know a lot about financial markets. wheret out in a week volatility started to hit the market, compared to a great time

before our ipo. since we look at the long-term projects, of course we are worried but this is a great opportunity and the future will give us -- alix: are subsidiaries going to have to raise more equity? martin: not as we see so far. we think this will give us the opportunity to raise it if we needed to. go intoed capital to new opportunities. but the company itself today has the capacity to invest into important programs that we're doing through our main companies in argentina and brazil and italy. david: where would you like to expand into? europe? like thenly definitely

americas. that is what we feel at home. we look at the opportunity in canada to argentina. a fourth round of -- four three new classes of airports in brazil where we are already operating. there are opportunities in the caribbean and in central america and we see those opportunities coming and will see what is happening in the u.s. alix: the backup is potential trade wars with the administration in the u.s. how does a company in argentina -- how do you think about that? martin: overall, for the industry, anything going against free trade is bad. argentina -- this government has put argentina back on the map. opening its borders and friendly

for business. i think the government is taking the right steps into putting the country back to work and they are getting ready for the benefits of fiscal policy. but all of the travel and tourism industry is in the fact of freecan see trends trade and open borders and so on. ofid: emerging markets share air traffic will be growing over the next few years? what is the overall growth? what are you anticipating and the next 3-5 years? martin: i don't think we can mention growth on our company due to the ipo but in terms of market strength, what i just mentioned. the whole world will grow. we are almost 8 billion

passengers worldwide. the fact that emerging markets are coming in, it if you take the flight per capita for the u.s. or australia or brazil or chile, or or t emerging markets like india, there is a lot of room to go. passengers will grow. and i think the only threat to that are the borders being more complex to cross. alix: thank you so much for your perspective. that was margin margin, -- that martin eurnekian.

alix: what i am watching today is deutsche bank, stocks taking a nosedive. the cfo speaking at a morgan stanley conference in london saying the corporate investment banking unit is facing headwind with higher funding costs and the hit could be 450 million euro headwind to the first quarter. not something you want to hear when a company is turning around. david: deutsche bank, headwinds -- i think i've heard that. cut costs can't anymore. they have to compete. coming up, brent hill. this is bloomberg. ♪

jonathan: from new york city, i am jonathan ferro. this is the countdown to the open. 30 minutes until the start of trading.

up, where is zuckerberg? he is remaining silent as pressure ramps up from wall street. -- siliconley racing valley bracing for another hit. and investors waiting for another rate hike, looking for clues for the rest of 2018. 30 minutes away from the opening bell. futures are a little softer, down by .1% on the s&p 500. euro stronger, dollar weaker. euro up .3%. treasuries going nowhere. the federal reserve chairman expected to make few headlines by raising rates at the first meeting as fed chairman investors will be listening closely at the news conference for any hint i want to