consumers are less levered than precrisis. corporate are more levered. alix: the next big short. warns thatn corporate leverage in the equity market will be the epicenter of the next crisis. the fed walks the tight rope in the next -- between gradual rate increases. the apple gravy train. apple impresses investors with a $100 billion buyback. david: welcome to "bloomberg daybreak" on this wednesday, may 2, back with alix steel. alix: i miss you. -- missed you. i barely emailed. apple helping the market have a good time this morning. futures are up by about two points, the dow up by 21. euro-dollar pretty much flat. below the 200 day moving

average. the 10 year yield is sitting at around 3%. it is sell the core in europe, by the peripheries, and that theme holding true in the u.s. crude getting a boost of 2/10 of 1% despite the fact that we see a relatively strong dollar. david: we get the latest adp jobless claim numbers at 8:15 this morning. trump swearssident in mike pompeo as secretary of state. this afternoon, we get the next front of earnings, including tesla and sprint. we are joined by stephanie flanders and marty schenker to go back -- marty schenker. one of the big stories is the fed and what they will do. let me show you two things. where we were last month as opposed to this month, core pc

year was 1.5% and headline was 1.7%. we are all the way up to 1.9% and 2%. here is what the fed had to say. overall inflation and inflation for items other than food and energy continue to run below 2%. they cannot say that again. stephanie: they are going to be trying hard not to change the statement much, because if you are the fed, you are looking at a situation where the market is expecting that rate rise in june and maybe a couple more for the rest of the year. they are in quite a nice spot in terms of managing expectations and they do not want people to run away with the idea that they will go much faster. there is nothing in the numbers where they -- there is a sign of a real upward push, particularly wage pressures. that might concern them over the long-term. they might have quite a debate internally that we hear about

with the minutes. in terms of the statement, we are not expecting much change. david: what sort of risks could they talk about? they cannot blame it on inflation. marty: there are some hiccups in the economy i think the fed may want to be looking at, shortages of labor. we have seen stories of states trying to create incentives to get workers, and there may be some bottlenecks that could concern them and restrain their thoughts about raising interest rates to quickly. alix: does that put the compassion of the dollar rally we have seen? is that the short squeeze or is something fundamental pricing in? stephanie: carl riccadonna is expected to see the dollar over time pushed up by the trend we are seeing. you have interesting debate about how much will you see that changing global conditions feet into treasuries and into the 3% rate going higher. there is a lot of factors that could be pulling money into the

u.s. now, not just the growth, but the need to finance all of those budget deficits, the fact that the growth seems to be slowing down a bit in europe. everything points to a stronger dollar. you never know what it will do. alix: greg lippman was famously known for the big short on subprime mortgages. he is talking about what could trigger the next crisis. >> i think the next crisis is not going to be like the 2008 1. i think it will be less severe but perhaps longer in duration, which would be more akin to the 2000, 2002. we have rising interest rates, increasing deficits. we have a handful of cold stocks that are going up. even with some of the selloff, some of these stocks are up 25% on the year, so i think we could see that. alix: in addition to what you are talking about, some cracks you see, we went up having potential risk in the market for

when the recession will hit. marty: i think there is a wide range of opinion on when and whether we will get a recession. we just yesterday fast the second longest -- past the second longest expansion and for the u.s. to break the record, it is not until july. it will be interesting to see whether we can continue this growth rate for that amount of time. david: how much will depend on what is going on in europe and the rest of the world? stephanie: i think there is an interesting thing happening that we could see with that comment. we have had a lot of years where the markets have been doing much better than the economy, and that is what he is basically talking about. he was talking about the markets, referencing to 2000 and 2002 where there was a shallow recession. i think that is the dynamic you will get in the next year or two , that some of the things will cause trouble in the treasury market, maybe in credit where he

was talking about, will cause trouble for investors. how much trouble with a cause for the economy when you still have a lot of legs for this recovery? problems inabout the market without immediately assuming there will be a recession? david: how does that read back politically? the trump voters are feeling pretty good. they are making more money and do not care about the stock market. marty: the gallup poll shows donald trump had its highest approval rating in the past year . we have the midterm elections coming up in november. i think that cuts both ways. there is a certain element of uncertainty on what will happen in november 2018. do the democrats take control of the house and senate? what does that mean for the president's ability to do anything? stephanie: wage growth is probably important. we are waiting to see if

he has found the real economy as well. david: president reagan said, are you better off than four years ago? is president trump could say he is better off than two years ago, that will help him. alix: michelle wolf pointed out that the democrats will mess it up. david: i was not going to raise her name. alix: it is funny, i was on vacation. david: apple reported earnings yesterday, and boy, they were good across the board. you can see what happened to the stock. it shot up and pretty much stayed up there. does that tell us anything broader about tech? what it tellshink you is apple is managing to inoculate itself against them of the really big, long-term worries people are facing in tech. you have a lot of these earnings coming from boosts in services sector rather than the core know,, which people

smartphones is probably flattening out on a global basis. also, just the big factor, what do we talk about when we talk about tech? it is all about data, how they built their business models around data, and how that will be regulated. david: 21% growth sales in china. apple specifically has been called out by china as saying, if you come after us, we will go after apple. marty: it comes a day the delegation is trying to negotiate the straight deal. is trump administration trying to walk back optimism that there will be a quick deal. apple announced a $100 billion buyback. speaking about the trump effect, there is no question the tax bill allowed apple to make that kind of commitment to its stockholders. alix: which brings back the buyback versus capex discussion.

securities, $260 billion. cash and a this much tax package as well, what about the feedthrough to capex? stephanie: obviously, that is what president trump is wanting to point to when he did this deal, which is supposedly about encouraging companies like apple. they have spoken in the past about the investments they will make. it is very hard to make a dent in that. we are not seeing so much. --. -- capex. alix: the buyback is equal to 12% of its own market cap. stephanie flanders, great to see you, and marty schenker, great to see you. apple shares trading higher in premarket. iphone sales showing the company

can afford the cooling smart phone market. theresa may holding her weekly p.m. qs -- pmq. sterling has just gotten crushed over the last few weeks, down as much as we saw in the flash crash. this is bloomberg. ♪

♪ a big daywas yesterday for apple, as it announced its second-quarter earnings that beat expectations across the board. will be joining us over the telephone. but right now here with us in

--said haidari and joseph vincent amato. apple has cast a big shadow across the equity markets. joseph: apple reported revenues up 15%, 60%, and earnings almost 500%. it is in line with where the s&p is coming in. growth, and ifgs you take away the impact from taxes you still have 16% earnings growth. david: i understand we have angelo zino on the phone. at how wellprised apple did across the board?

angelo: at the end of the day, the biggest concern going into the quarter was the iphone numbers. thankfully, those numbers held up pretty well in the guidance -- and the guidance ended up being much better than we anticipated. i think what most investors are looking at right now is how well that this is his did, desk services business did, and it gives the company a good growth driver. alix: one central negative that was pointed out is sequentially, iphone sales were down 32%. you still have a company that is tied to the fate of an iphone, which is a slowing product. service revenues are key for that. when can servants revenue take over for iphone sales? angelo: i do not know if that ever happens. when you look at where we think services coupled with this other hardware type business, primarily being wearables, we

think those represent close to about a quarter of the company's 2025, and probably 35 to 40% of their total profits. point, where we think investors will truly start to recognize the importance of those businesses. david: what about average selling price? it is down somewhat. do you expect that to continue to climb? it looks like their strategy is to bring in, excuse the expression, cheaper iphones. angelo: historically, what happens on a sequential basis and as we get toward the tail emd of the cycle, it typically starts to peter out. said, the average selling prices were below our expectations, yet still double-digit growth on a year-over-year basis.

tim cook highlighted the fact that the iphone x was the best-selling product in china and confirms our belief they will continue in future cycles to shift toward higher selling devices, despite the fact that the could be some concern about an lcd lower-priced device. alix: apple has tons of cash to wait it out. my favorite chart shows apple's cash and marketable securities. they did a $100 billion buyback. what do you want to see them do? angelo: the fact that they announced a $100 billion stock buyback and only increase the dividend by 60% speaks volumes of what the company is thinking about. we are looking for the company to potentially reduce its share count by about 10% over the next year, as we expect aggressive share repurchases. we agree with the company and the fact that we think the stock is significantly undervalued, and believe the best use of cash

at the moment is to buying back shares. alix: angelo zino, thank you very much. corporate to cause the next pain. >> the consumer is in much better shape than the corporate. the consumers are much less levered than they were precrisis and the corporate are more. alix: what the man behind the big short had to say. this is bloomberg. ♪

♪ david: he was the man behind the big short. spoke in his first ever tv interview with erik schatzker at the 2018 milken

conference. here is what he said about trouble in the corporate market. >> i think rates being higher is more beneficial than most bond funds. portfolios --our as rates go up, we are getting a multiplier effect while we are going up because it is floating rate at a discount. it is worth saying that at this point in the cycle, i think structured products are a great place to invest in that if we continue with the sort of qe, central bank riven rally that we have seen since the crisis, structured products will participate at a lower level than the equity market but we should be able to generate reasonably good returns, even though they will lag the equity market. if the first quarter's volatility is something bigger, i think you will see a lot more trouble in the corporate market and the equity market than structured market -- products

market. the consumer is in better shape than the corporate's. corporate's are more levered than precrisis, and structured products will not be the epicenter. people always fight the last war. sub primes were the last war. that is not what will happen this time. in an adverse environment, structured products will outperform, much as they did in 2000 to 2002. there were not a lot of structured product hedge funds but there were a lot of structured products. they were up modestly even while equities were down. where are you fighting the best opportunities? greg: our portfolio is more diversified than it was. from a high level, what i'm trying to do is construct a portfolio that generates enough returns until the next correction that people are happy

with us and satisfied investors. it is also constructed prudently enough that we survived the next correction. it is not clear when the next recession is coming and whether we have a liquidity driven -- erik: does it feel like we are getting close? we are certainly closer, by definition. greg: a lot depends on what happens with interest rates, wages and cost pressures, what happens with trade. you are seeing incidence is already that some of the states that have the most exposure to steel prices have had moderating employment growth relative to other states. things with china could all get sorted out. i had the pleasure of watching to's -- to fixng that. i am confident the next direction is not imminent, not

super imminent, but is on the horizon. atx: that was greg lippman the milken institute global conference. with us in new york is joe amato and said haidar. credithave construction and corporate credit, where is the bigger risk? market,think the credit people are very bearish on credit because they are worried about rates rising. we have seen on a total return basis, credit outperforming government securities, and we will see that for a while because it looks pretty good, and i think growth will rebound a little after a slight week patch in the first quarter. hasrest coverage is low, even if debt levels are high, interest rates are quite low so that means the corporates in terms of interest expenses, is not that troubling.

unless you are expecting a very fast increased in interest rates, i think credit will outperform government securities. alix: one of the issues comes in the covenants that we have seen, particularly in the clo market where you get exposure to the floating rates. those leveraged loans will not and that is seen as a particular risk. progressee a lot of behavior going on in credit markets, in the form of covenants being weaker than they have been. you are seeing overall levels of leverage in the corporate world edge up over the course of the last number of years, and spreads have narrowed. that is not a great combination. our teams have gotten a bit more defensive by trying to move up in quality, given some of the longer-term concerns from credit. the economic environment is the

most significant driver for my credit perspective, so if you see the economy continuing to grow at the rate we are seeing, the cycle will not necessarily spike up and that creates a reasonably benign environment for credit. david: are you protective because even if the growth rather than productivity, that is actually reducing the size of the payment effectively because it is cheaper money? joe: if you look at interest -- said: if you look at interest up,s, even if leverages go interest rates are so much lower than they were precrisis that the actual interest expense these guys are paying is lower. interest rates are going up, but not dramatically. central banks remain very dovish. we still have negative real interest rates in most places in the world. favorite areayour of the equity market to capitalize on the risk and the safety?

joe: we would lean toward equities versus fixed income, given the economic environment is still robust. the corporate earnings outlook not just in the u.s. but across developed and emerging markets, is pretty strong. we tend to lean more to equities outside the u.s. versus outside the u.s. where we are in the rate cycle's from the fed's perspective -- where we are in the rate cycle from the fed's perspective is where we would be. alix: fed officials expecting to keep rates unchanged this afternoon. what will they say about the core pce kissing 2%? 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." it is fed day, no huge positions being taken on but the $100 billion buyback from apple is helping. european stocks up by half a

percent and the dax over 1%. all of that having an effect on the currency market as well. the dollar index above its 200 day moving average, meaning euro-dollar is below the 200 day moving average. how much more upside do we get in the dollar on the fed meeting? is it short covering or is it fundamental? selloff in the bond market in europe in the core, particularly in the u.k., getting hit very hard by five basis points. 2.99 is how we print into the fed meeting. we are slightly steeper today, but flatter as she goes. the reflecting of the curve does not bring the dollar down with it. crude up 3/10 of 1%. it is all about may 12 and iranian sanctions. david: cbs is out with their earnings and they had a nice

out with their earnings, and they had a nice beat. the real story is the aetna deal. they hope to close that in the second half of this year, which will transform their business. that is the big news. alix: potentially, that are news, or to -- better news, especially if amazon competes against cvs. david: amazon said they will put down a hold a little bit and help cvs a little bit. whatt to get an update on is making headlines from outside the business world. kailey leinz is here. u.s. toiran expects the withdraw from the nuclear deal by may 12. the iranian government has made preparations for what it calls different days ahead. tosident trump has vowed pull the u.s. out of the agreement if it is not changed. robert mueller's team is putting

pressure on president trump's lawyers. prosecutors have told the white house of the president does not agree to an interview, they will consider a subpoena to compel him to testify that could lead to a prolonged legal fight. some of the biggest names in american economics have a warning for president trump. they say it could be 1930 all over again. more than 1100 economists have signed a letter to the president, arguing his heavy tariff approach to trade. news 24 hours a day, on air and on tick-tock in twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. is cameroning us crise, joe a motto, and said amato and said

higher. what a difference a month makes. it is all the way up to 1.9% encore. this is a quote from last month where they basically said, on a 12 month basis, overall inflation and inflation for items other than food and energy continue to run below inflation. joe: it is a surprise, but noteworthy. it was because of these transitory factors like the verizon data plan, which fell out of the numbers in march, and we are up at 2% on headline. more importantly, on a high-frequency basis, if you look at a three-month 13-month or six month on six-month, we are well above 2%. the real issue is not that the headline year on year's, but on a high-frequency basis, we are

well above two. how well they establish that will dictate whether the market becomes more confident on pricing the fourth hike. alix: let's look at what the market is pricing in. this is david least favorite chart. chart.d's least favorite the white line is the probability of three hikes in the, and the blue line is probability of four hikes or more. i think they will have to a dollars they hit target on inflation, but will do the least they can get away with. they do not want to pre-commit to a fourth hike, so the statement will be on us like a non-statement. it will be very small changes. they want to leave their options open to see how things pan out. alix: they want to be data dependent, but the dollar, front running a little bit, a lot of ctas are heavily short.

how does that play out? joe: i think when it comes to a fed meeting like this, which is pretty non-eventful, it is about parsing through the statements. alix: tune in today at 2:00 p.m. said: -- joe: what is the longer term? assetook at the broader allocation picture, equities have treaded water for the first quarter of the year despite strong earnings growth because they are trying to get their arms around the increase in rates that have occurred so far, will slow down economic activity. how concerned does the fed have to be about overheating? you have a pretty tight labor market, even though the treasury secretary said, i see no tightness, sort of wink, wink at the fed.

a huge fiscal stimulus is still working its way to the system. aren't there indications we will be going farther faster? cameron: i was fall back on jerry maguire, show me the money. fed will feel more will,table, or if you less comfortable with the pace of economic activity in terms of it being too high, if we see a more pronounced and clear trend in higher wage growth. i think today, it has been a little disappointing, given obviously the rate of unemployment, and the fed has provided a number of rationales why the labor market is less tight than the headline unemployment rate would suggest, in terms of the participation rate, employment population ratio, etc. alix: which raises the question, what happens to the dollar?

and thepanel is the dxy bottom panel is the rx why of the dxy. anything above 70 teens we are overbought. what do you do with the dollar? said: the big trend so far is still the dollar weaker, and some of the rally in the dollar we have had the last week and a half has been probably shortcoming ahead of the fed. on the day of the fed, you will see the dollar give up some ground potentially. the biggest issue for the dollar is the large double deficit the u.s. is running, the large current account deficit and large fiscal deficit. we are about to get this treasury funding announcement today, which will put that back front and center for people. that will make it difficult probably for the dollar to rally strongly this year. david: which is a perfect lead into the fed funding decision we will get in about an hour. alix: that, you want to watch. david: we will keep increasing

the amount of money we have to borrow. thus far, the market seems to have absorbed that. think the treasury supply issue will be an important one, that just over the long term, because the amount of deficits when the economy is growing at a robust rate. if the economy slows, the deficit will balloon, and you do not have the fed is a big buyer. we have seen good demand still outside the u.s. from investors that look at the yield differential between treasuries and bunds. the supply is a big concern. alix: the issue is, where are they going to issue? this is the weighted average maturity of u.s. debt. they cannot really issue more on the long end so the flatter curve will have to issue -- will happen when they issue on the short.

cameron: on monday, the treasury said their next -- estimate for their market barwin requirement, they did bring it -- borrowing acquirement -- requirement, they did bring it down a bit to $75 billion, which is down from the original aphis -- estimate of $176 billion. there is some good news there, but they are kind of stuck between a rock and a hard place. they cannot go to bang far off the curve because the existing debt stock is pretty close to the highs. if they go to bring far in, in terms of concentrating most of the issuance in bills and twos and threes, you get the curve flattening and that has people worried. if you look at the original estimate from the last quarterly refunding, the treasury envisioned they would be selling 30 mile it -- 39 billion fives for auction.

the last auction was only 35 billion fives, so there is a gap in the belly of the curve versus what they have done, versus what they envisioned. there is a record short in the five-year note futures. the consensus from primary dealers as they will not increase that markedly, but i think there is an asymmetry. they will not go under what they are currently doing, but there is a chance they could increase five. ,t seems like it is a free bet although once the position gets too big, nothing is ever free. david: how concerned are you about the flattening yield curve? they will have to borrow more on the short end and it will flatten the yield curve. joe: that is one of the most reliable indicators of a slowdown in economic activity. there are some unique aspects, given what cameron was talking about, so we expected to flatten a bit, but not invert, is the red flag. amato,cameron crise, joe

and said haidar, thank you for being with us. do not forget to tune into bloomberg's special report at 2:00 p.m. eastern today. saysan from big short fame the steady rise in equities is putting pressure on hedge fund fees. today, you can turn on your radio and listen to tom keene and jonathan ferro from 7:00 to 9:00. bloomberg radio can be heard all across the united states. live from new york, this is bloomberg. ♪

kailey: this is bloomberg daybreak. i am kailey leinz. coming up, southern company cfo.

now to your bloomberg business flash. shares of snap are falling in premarket trading. of snapchat reported first-quarter sales that fell far short of the target. a dramatic redesign is not working. users have revolted, and snap's forecast is that revenue gains will be even smaller. cvs is moving forward and the regulatory review of its 68 alien dollar agreement to buy aetna. they expect the deal to close in the second half of the year. cvs reported second-quarter earnings that beat estimates. retirement lasted less than four , afterfor mark mobius three decades at franklin templeton investments. he set up his own money investment firm. he wants to raise about $1 billion within three years.

he is 81 and said he was ready for something new. that is your bloomberg business flash. alix: it is the fastest retirement ever, mark mobius. we turn now to wall street. three things wall street is buzzing about, the big fee. greg lippman says hedge fund fees cannot compete with a consistently rising equity market. -- manages more money than brevan howard. new york's old office, moving vans lineup as companies look for offices and potentially warmer climates. david: joining us is jason kelly. .e have missed you let's talk about greg lippman. were, oneort, as it of the things we talked about

were fees. this is what he had to say. reason there is pressure on fees is because the s&p goes up pretty much all the time. payle say, why should i fees and take a lockup when i can have daily liquidity, no fee, and the s&p will not be up 20% this year. compete with a consistently rising equity market. david: that is a pretty compelling mark -- question. why should i pay you when i do not have to pay anything? jason: this is at the heart of the existential crisis of hedge funds. erik schatzker delivered a good conversation and talks about a recession,oming recession talks about consumers versus corporate. this fee question is what really keeps hedge funds and their limited partners, the pensions and sovereigns, that's what keeps them up at night. david: maybe we can negotiate a

little bit. it's talk about the duration, how long do we lockup the capital? jason: i think that was an interesting point, that it is not all about bringing the fee down. maybe there are other ways you can play with this. 20 one not be around forever. -- will not be around forever. alix: five and 35. there is a finders fee. let's go to the outperformance of chris maragos. -- rokos. $2 billion is under market cap. jason: no existential crisis year. it is amazing how you see, this is a shakespearean story and a lot of ways. howard, brevan howard is down 75%. alix: the worst year on record.

winningow much is rokos and how much is howard losing? alix: it is a macro fund. jason: we are seeing a little bit of a change of the guard, when you look at some of the underperformers. , johnbrevan howard paulson, and maybe these up and comers will have their moment. david: is this temporary, is the cyclical? jason: and how much will they get paid? alix: the volatility was really just in u.s. equities. fic.s not in fact -- volatility is lower here than it is in europe for european equities. andn: going back to lippman this consumer versus corporate question, it is going to be harder to make money. wek to the fees, that is why

pay them, to figure out in a more complicated market how to actually sale through. -- sail through. david: we had a ceo of a big publicly traded fund, and an say the problem is digital. it used to be the case that macro would make money because you would be a step ahead on macro trends and now it does not happen anymore. central banks and governments publish it and it is out there for everybody. alix: interesting. unless you have idiosyncratic risk or factors, but that is the same issue. david: let's talk about new york old office. they are talking of it -- calling it the tennessee tech's haven. -- tax haven. bernstein holdings will move there offices -- their offices from new york to tennessee.

jason: the new york hero chief of bloomberg, -- bureau chief of bloomberg, nashville is great. david: as a taxpayer who owns a house, you can deduct a higher percentage of real estate taxes if you are down there. jason: and you are paying a lot less for a house. alix: if the tax issue had not worked out not in our favor, this might not have happened. jason: this is not an isolated incident. you are seeing some of the big banks set up bigger offices, whether it is in salt lake, jacksonville, other places like that. it is an interesting question about where the financial services world really will be headquartered. on a more global basis, we experienced and continue to experience the drama around brexit, where will those banks

be? maybe these money centers are not as good. there is some good eating in nashville. david: there is. do notoes that mean they work 20 hours days anymore? i cannot imagine it is set up for a 24/7 investment banking world. jason: i do not think so. david: thanks to bloomberg's jason kelly on his auspicious return. no collusion, president trump calls robert mueller's investigation a witchhunt in his recent tweet. alix: check out tv , watch us online, check out our charts and graphics. this is bloomberg. ♪

david: this is what i am watching, president trump and

the mueller investigation. the president tweeted out -- there was no collusion, it is a hoax and there is no obstruction of justice. that is a set up and trap. there is negotiations going up with north korea over nuclear war, ok she nations going on with china over trade deficits, negotiation's on nafta, and much more. witchhunt. do mueller saying, if you not want to sit down voluntarily, i have subpoena power. alix: there is a difficulty president trump will have with a straight up interview because of his lawyers not having a security clearance. david: this is one of the trickiest things. decide,tricky thing to and right now he has a whole new legal team and they are not cleared for national security issues so they cannot look at the documents. alix: even if he wanted to, not that he would, could he go for

an interview with mueller? david: i would certainly advise him strongly not to. if you look at the 40 questions released, they are very wide-ranging. you have got to get it right. it is not like tweeting where if , it is at wrong here violation of criminal law. for the markets, no one cares at the end of the day. do you have to start paying attention as a market participant? i do not know what the turning point would be. david: nobody cares until they care, and something happens. there is a tipping point. someosenstein is under difficulty. this is what he had to say. >> there have been people who have been making threats privately and publicly against me for quite some time, and i

think they should understand by now, the department of justice will not be extorted. we will do what is required by the rule of law. david: if you are a subject of the investigation, you do not want it to go on long. alix: that does not matter how many trade negotiations you have. if something blows up domestically it well. john byner will be joining us on this that day, and the market is not taking a lot of positioning ahead of that. s&p futures up by about one point. it is all about the dollar strength, will it hold? this is bloomberg. ♪ mr. elliot, what's your wifi password?

wifi? wifi's ordinary. basic. do i look basic? nope! which is why i have xfinity xfi. it's super fast and you can control every device in the house. [ child offscreen ] hey! let's basement. and thanks to these xfi pods, the signal reaches down here, too. so sophie, i have an xfi password,

and it's "daditude". simple. easy. awesome. xfinity. the future of awesome. >> the consumer is in better shape than corporate's.

consumers are less levered them they were precrisis. alix: the next big short. corporaten warns leverage and the equity market will be the epicenter of the next crisis. hawkish hold. the fed walks a tightrope between core inflation and gradual rate increases. at the apple gravy train. apple impresses investors with a buy that and its fastest revenue growth in over two years. david: welcome to "bloomberg daybreak." alix: i did miss you. david: we missed you a lot. alix: i made a role for myself markets, aheady of that fed meeting s&p up about half a point at this juncture. we are pretty much flat but the

dollar overall has been on a winning streak. today modestly weaker. some key technical points into that fed meeting. we continue to see a selloff in the bond market. buying in the peripherals and in particular u.k. gilt seeing heavy selling. 3% 10e are just under year yields. crude up 2/10 of 1%. a weaker dollar helping crude. it's all about may 12 and what will happen with those iranian sanctions. we could see a 16% correction next year if we don't get materialization of geopolitical risk. david: you did miss a little of that while you're away. the news coming out in iran. alix: i was sad about missing it. but i got a manicure. david: we get the latest at 8:15nt numbers

eastern time. at 11:00, president trump swears in mike pompeo as secretary of state. no bite when it comes to apple's earnings. second quarter earnings after the bell beating on revenue and earnings eased in investors concerns. it was a killer quarter based on lowered expectations but the stock is up 4% in premarket. does that increase holds for apple? .> i think so there are other positive spinoff effects from this. everyone kind of worries about the saturation point for iphones but when you talk about services revenue that visually has a higher runway and is more occurring. apple's supply chain partners rally on the news helps firm up and bring together more of the story.

almost like we have this tale of two earnings seasons, up from jpmorgan through facebook tech down 2% and since then facebook lowered expectations part of this. soon as they held up the other tech giants the market has been able to find its footing. point.that is a great why is it that tech seems to be getting credit for the markets in a way that financials and industrials did not? overte with earnings, way performing expectations in terms of earnings and revenue. 80% and 70% respectively. is movement in stock price minimal. after does go or five days ago the negative. only marginally higher. the first day, .06% up. confusedave been especially the behavior of the financials.

posting solid earnings. everyone thinking we are in heightened volatility environment. they did not hold up better during this consolidation period. we are coming out of a stretch during the february correction, one of the first times ever financials have outperformed during a downturn. perhaps there is give back from that. tech actually getting credit and cashing in. tech is posting stellar higher earnings growth. 2019 we've seen expectations are gone nowhere. expeditions for the rest of this year have you to roll over. i'm trying to pull up a chart. is that going to be the trend? better results in the first quarter not trending to better results for the rest of the year? luke: tough to say. i think the comparables for things like energy and other commodity spaces get tougher to

.ell going forward we have had -- there is still a lot of concern i'm sure at another time will be going back to tech hardware and worries about saturation points. it will probably be a differentiation between the high-growth tech names and some of your classic old boring tech. talkedgreg litman exclusively with bloomberg television and he warns that corporate leverage might be at the center of the next crisis when it comes. >> if the first quarter volatility is a harbinger of something bigger i think you will see a lot more trouble in the corporate market and equity market than structured products market. the consumer is in better shape than the corporate. consumers are less levered than they were precrisis. thanrate are more levered they were precrisis. structured products will not be the epicenter. david: we welcome john beinner.

good to have you here. litman. heard what mr. jon: i think we are worried. he has a good point. maybe not in the near term. you think about investing in fixed income, lending to corporations, what do you care about? you care about their ability to pay you back. you're concerned about leverage and volatility. volatility has picked up a bit. it is not that high. and leverage is high. once we have a downturn going to be a big problem. corporations have taken full advantage of the low interest rate market and have increased leverage, lowered credit quality , so when we do have a downturn i think there's going to be significant issues. we will have a default wave. the question is when is it going to happen. we suggest it is a year if not two or three years out.

alix: when it comes to the impact on equities, bloomberg intelligence did a great coach the numbers and showed the underperformance of high letter names trading at 1.2 times discount to those that have low leverage. how quickly is the market starting to not pay up for leverage? luke: it is a long-standing trend. bloomberg puts together portfolios based on factors. leverage factor has been down every quarter since the start of 2017. investors have been discerning along the lines for a while. what gets me interested about credit, it has held up well during equity selloffs. that is the thing we keep pointing to as the fundamentals, the economy, growth outlook, remains strong. ofstill have these fun cases american tire recently and toys "r" us where it seems to also believe that on the company level for the last minute until we don't.

david: one of the things i look liferiminal if you could pay it back -- the fact that you are not willing to promise it doesn't that not give you indication there some reason not to pay it back? a jon: company's perspective there on the other side so we are essentially lending on a clients behalf. they want the best they could possibly get. it is a question of is the market open for it. if you don't need these constraints, why put them on yourself? the market is not demanding it so you are seeing this issue with -- this issuance. alix: while you seeing underperformance of investment grade? jon: i think most of that has been technical. there's a lot of bonds. corporate have taken full advantage. a lot of duration out there read with interest rates going up investors have gotten concerned about that. we've seen some outflows purely from interest rates.

corporate bonds as well as government bonds have had mostly negative returns this year. we have not seen that in a while. the second thing is the concern about supply. supply from new issuance but also supply from pharma and tech companies who have huge portfolios of investment grade corporate bonds. one of the biggest buyers. best case scenario, stepping away and worst, they start selling. alix: credit risk or duration risk? jon: which one you prefer? --you're asked my c asked that question -- credit risk premium is high. the extra yield you are getting to extend maturity given our view on the economy and the fed is actually still negative. alix: great to see you as always. coming up, fed officials expect to keep rates unchanged this

afternoon but what will they say about inflation kissing the 2% target?

>> this is bloomberg daybreak. cbs says it is moving forward in the regulatory review of its $68 billion agreement to buy at not. cvs reported first

quarter earnings that beat estimates. a victory for carl icahn. andx ceo jeffrey jacobson six board members have agreed to step down. part of an agreement with activist investors that will put in place executives close to ahn. a court temporarily halted the deal. word has begun leaking that the firm plans to relocate its headquarters to the tennessee city known for country music. there are reports that a lions weinstein city leaders -- the wall street journal says lower taxes played a role. that is your bloomberg's new/. david: today is fed date with the announcement coming this afternoon of what the fomc decided over its two days of meetings. still with us, john beinner. the difference that the month has made. a month ago when they came out

2%. were below corp. pce and headlines. now they are at 1.9% on the core and last time this is what they had to say in their statement. they say that 12 month basis overall inflation and inflation products have continued to run below 2%. what will they signal to the markets? jon: it's going to be interesting obviously not going to change rates at the meeting. i think they will have to recognize that inflation is close to, if not right at target. there certainly going to have to indicate that inflation is running closer to their target. what's interesting is, we've said for a long time the unemployment rate is well below no target but we have inflation. now we got inflation. over the last three months they are running well above 2% on an annualized basis.

i think what they want the market to think is that they will allow inflation to run above the target. david: if they just say mission accomplished people will read four hikes this year. do they have to be overly hawkish in their signal? jon: as always they tried to be balanced. they are going to want the market to believe that they are on this path of quarterly hikes. alix: we got the adp employment change for april. jobs000 jobs -- 200-4000 march wasld point out revived to 228,000. what handle do you need to see to think the phillips curve is alive and really going to become started? jon: the last employment cost index we saw was also a surprise to the upside. in our view you are already seeing upward pressure on wages

and on prices. you are seeing that now in the data. for so long and ruin said there was no inflation. the numbers are accelerating already. above the level we should be at this point in the cycle. we will see a three handled no question on the unemployment rate. irrelevant asst to where we go in terms of what the number is. we are well beyond full employment. david: can we actually curtail some growth? president trump wants to get to 3.0 plus. jon: we are optimistic about the growth outlook in before the stimulus, before the tax bill. that will add fuel to the fire. we are optimistic about the growth outlook in the near term. we think the labor market will continue to be strong and we think the implications of that, we will overheat of it and have

some inflation expectations that will rise. i think the fed has to point out maybe the balance of risk is no longer to the downside, only on inflation. alix: $70 oil cannot hurt either. john beinner sticking with us. check in later today to bloomberg's special report as the fed announces its latest policy. david: nascar came out with first-quarter earnings and they had a dollar 50 per share. can see what's happening the stock in the premarket up 3.8%. mastercard doing very nicely. up, a powerful quarter. right before -- this is bloomberg.

overall plans are expected to come on between 2031 in 2022. joining us is our 80 -- art beattie. i want to get a timeline for the nuclear plant. with 2022 still be the goal? 2021 four unit three and 2022 will be the second unit. making great progress on the construction. alix: in terms of cost of that has been pushed back five years to begin with and there has been cost overrun. southern company is part of the cost is about $7.3 billion. is that still the cap for how much you guys are looking to spend?

amount art: that has been authorized by regulators in georgia to be spent. we are well on our way with a target of achieving that and the schedule as well. we are making great progress on the project. our key milestones are being met. we are cautiously optimistic that we are going to make that schedule. alix: what is your biggest hurdle to that deadline? art: the biggest hurdle is getting execute -- execution. we have all of the equipment on-site. it's a matter of executing our plan. working with contractors to make sure we meet every week the outlined jobs we have targeted to meet the entire schedule. it is a day-to-day process. producing the outcomes we expect , that is the metrics that will follow and will communicate with the street. see costse might you starting to rise?

art: in terms of equipment all of that has been procured already. we are less exposed to the inflation caused of materials come of commodities. primarily what we're focused on now in place for. productivity is that labor. little bitsed to there but we think we have a great path forward and we are well on our way to achieving those cost targets. alix: how much would you anticipate unit labor costs rising? art: it's hard to say. there has been pressure on wage labor costs. we will have to address that as we move through. but there are contingencies in our cost estimates so we think we are well within those dollar amounts that we can achieve those targets. alix: for a broader look at southern company as you are leaning towards retirement i'm sure if you could go back and rethink where we were in the utility space it would be all about natural gas and less about

nuclear. how will southern company position in tougher that going forward? yearsara: in my 42 at southern company i'vea lot of change. certainly we moved away from coal. build nuclear. as we look forward to the next 10 years we will see a path toward lower carbon. we made a commitment to low to no carbon by 2050. we think there will be more renewables in the southeast. more wind that will need transmission be filled in order to access that other areas of the country. we are completing the nuclear units in georgia which are no carbon emitting assets. we will work with energy efficiency, and the last part would be additional r and d to make sure we can capture carbon concertther efforts in with other companies to find

newer ways to deal with the issue alix:. first energy solutions has been in the headlines asking the government to bail out nuclear and coal plants. do you agree with that? assets arenk those certainly important. we think the merchant markets don't value those assets as they should be valued. when i think about it in the -- different give regulatory regime. it certainly puts more value on baseload assets and the value they bring in total to the equation. i don't think the merchant the inherent value value of those nuclear assets over time. alix: kind of like a yes maybe. thank you very much. good to talk with you. david: still with us is john beinner, goldman sachs asset manager. i want to take a look at a chart that i have.

the white line is the s&p utilities divided by s&p overall. how it's doing. the is the yield curve on the 10 year. -- since december -- how to you as a fixed income person look at utilities? jon: from a fixed income perspective in some sense i think equity investors look at utilities as a bond proxies you that goble cash flows out for a long time so you can think of it as a long-term bond. as interest rates go up they tend to perform poorly. from fixed income we are excited about the fact that interest rates have gone up particularly in the intermediate part of the curve. we're actually giving a yield, which for a long time we did not provide. i think fixed income is now a real alternative to

higher-quality, lower volume equities. in the fixed income market utilities issue debt. we talked about volatility. they tend not to be that volatile so we like the credit story with utilities and they can be a good conservative exposure in a corporate bond or folio. alix: coming up, u.s. treasury is minutes away from announcing quarterly refunding plan. all of that is next.

alix: this is bloomberg daybreak. moments away from the treasury refunding agreement so yield and the dollar front and center. 1% despite theer fact that overall growth in the

eurozone now up for tenths of 1%. i didn't want to highlight what's happening with the dollar as well as yields are staying steady. a selloff in europe particularly when it comes to the u.k. gilt market. 299 is how we print on the 10 year. that treasury refunding tipsncement keeping its option unchanged but they are studying a new five-year sale. they are lifting option sizes of all nominal coupon debt as well as floating-rate notes and plan to introduce a two-month bill 8.ter in 201 let's bring in ira jersey, mike from d.c. and john beinner at goldman sachs. mike: the treasury is doing pretty much what traders had anticipated raising option sizes for most tenors by $1 billion.

the three year gets the most attention. going up to $31 billion in three-year notes versus twice $6 billion last quarter. we will hear from john and i run on the impact of going short as they ramp up borrowing to meet their budget deficit. when we start to get less revenue a couple years from now if the economy slows down is about the time these bills and notes would be expiring. what theye will see want to do with the two-month bill. the cash balance has risen since it was drained because of the debt ceiling crisis. i guess with the debt they are incurring a want to have enough cash on hand. ira: the much bigger three-year note is an interesting development. one of the things they probably looked at is how good demand has sector.that particular

the fact that they are increasing that is assigned they think demand will keep up with this amount of supply. on the two-month bill i think the two-month bill is important. we started talking about this a few years ago. with money market reform that went into effect two years ago. it is hard for money market funds to buy six-month bills. two-month bills fit everything they need. if it's all of the regulatory requirements for money market mutual funds. i suspect there will be a lot more take away from things like david: six-month bills. it's not a secret the united borrowgovernment has to more money. the question is at what tenor they're going after. does the treasury have much choice but to shorten it up a bit? . i got a chart here.

the weighted average maturities and it's gone up quite a bit from its low point in 2013 or so . ira: who says refunding is not sexy? i would say the bottom line is -- theicit is in the government had to borrow money where they can. extending it across the board. over the last several years that had a concerted effort to extend the maturity of the overall debt which turned out to be a good idea. interest rates were very low. i think they have some discretion but not a ton. they have to go where the demand is. i think that is the case. where the curve is so flat, that intermediate three to five year maturity looks attractive.

increasehat is with a issuance even more. they will increase it across the board. a alix: record short in the five-year so they would be buying not shorting? our view relative to a normal exposure is that rates could continue to push higher. we think growth outlook and inflation outlook will suggest that the fed is not only going to do so hikes this year but they will do more next year. the market has priced in more hikes. we think there's more to go. relative to longer dated bonds -- in an absolute sense it is great yields are higher. i think investors are excited to get a yield. we never thought we would get back to 3%. we think there's probably more to go. david: it's not just the issuance.

it is what the fed is doing with its balance sheet. what is that doing to affect the curve? jon: the fed was a buyer of last reserve. everyone on trading debts new there was someone would pick up the paper. how much is the fed going to be influencing the yield with its decision to pull out of the markets. a lot of people are looking at them going from 100% to about 40% of the market and saying somebody's got to make up the difference. we will have to pay up for it. you have the other side of what is the fed doing to increase rates in terms of monetary policy. you were saying what are we pricing and going forward. it's kind of hard to figure out where the fed is, influencing people and we on the curve it matters. ira: i think where on the curve matters. the fed runoff is fairly small compared to the extra $5 million

of three-year notes we're getting. the federal reserve has run off between $10 billion and $20 billion a month on average. that is a lot. a $1 trilliongate -- 150 on top of a $150 billion dollars of runoff from the fed he were not talking about the fed being that meaningful for supply. important,t is very maybe three hikes next year i think that is an area where i think you could wind up seeing a lot of curve flattening and higher yield at the same time. partly due to supply, partly due to the strength of the economy. david: is it evenly distributed but the fed is holding now? ira: they are pretty much across the board but it is pretty long. it is going to take a while for that to roll off. it is not huge.

i do think it adds fuel to the fire. these are securities that are maturing greeted they will not be reinvesting. we actually think it's an even bigger deal in the mortgage market. the fed became a huge part of the mortgage market. there's really not a natural buyer of mortgage-backed securities. the mortgage market is growing. house prices are going up. you have that and the fed shrinking their balance sheet. people are refinancing. has to come in and buy it. the treasury market, it just sort of ads to the supply issue. we think it adds to upper pressure on yield. in the mortgage market we think it's an even bigger deal. alix: at one point does the fed get themselves into to tougher spot? the curve will continue to flat and flatter.

ira: a report that we wrote about two weeks ago looked at , is the curve gets flat that the policy mistake that the fed makes that they continue to hike after the curve is flat. we don't have a lot of history of this, only three or four hiking cycles that you can actually analyze. fed that'ske the perhaps a policy they should consider when yield curves get to zero maybe the fed should stop. i could be sooner rather than later. that could be in the next 12 months. chairman.new . new fed in place

ira: i think they're watching it at the us of the day the change in the fed is meaningful. they generally are suggesting they will be going along a similar path. at the end of the day we believe the fed's outlook driven. the idea that the curve itself is a forecasting tool i think is more the market saying the fed is tightening. ishtening short-term rates to slow down the economy and eventually it works. that is why long-term rates are not go up one to one. i don't the fed is going to take the curve as the input into their decision to stop hiking rates. the curve flattening is not saying pickup -- it is saying that the fed is hiking. exxon not going to have reading growth forever. that is a natural response to the fed tightening monetary

policy. jerseyjohn beinner, ira and mike mckee, thank you for being with us. let's can update on what is making headlines from outside the business world. kaylee lions is here with first word news. >> the government spokesman says the iranian government has made preparations for what it calls different days ahead. president trump has vowed to pull the u.s. out of the agreement if it is not changed. robert mueller's team is pulling the pressure on president trump lawyers. prosecutors have told the white does that if the president not agree to an interview they would consider a subpoena that would compel him to testify. that could lead to a prolonged legal fight. the euro area economy is losing momentum. gdp in the region expanded 4/10 the% in the first quarter, slowest growth rate in six quarters and poses a challenge

for the european central bank deciding whether to ease monetary stimulus measures. alix: just a recap for you the treasury options are you here's what we know. basically across the maturities they were increased by $1 billion per month. the treasuries also looking at introducing another five-year tips offering and a two-month bill and the largest increase was in the three-year issuing about $31 billion this quarter. they need more money. they are issuing to get it. the front end takes the burden. david: we understand it all now. apples strength. shares are up in the premarket. we will have more with gene munster.

colleagues tom -- bloomberg ferro surveillance can be heard in new york, and across the united states on sirius xm radio.

kaylee: coming up later today on bloomberg markets balance of power, tom reed of new york. alix: apple shares trading -- themaintaining post company beat on revenue and earnings per share.

us now from san francisco, gene munster, getting up early. thank you so much for joining us. gene: thanks, alix. alix: the thing you liked best and least about apple's first quarter. gene: they did not guided down. i was expecting they would guide the june quarter slightly below analyst expectations. a lot of negative chatter from the supply chain about iphone demand. what i phoneed numbers were. it got it up slightly for the june quarter which is a surprise . the second big part of the quarter was the services business, up 31% year-over-year. service is now accounts for 15% of revenue so i want to put those together and talk about why that's the most important surprise from last night. oflectively that is 75% apple's business.

we are seeing more stability and predictability in the iphone business. the strength and growth in services. what you're left with his high visibility in three quarters of apple's business. this is a different visibility business then we had several years ago. if i can indulge you for one more on the buyback i think that is a critical part of the story longer-term. not a big surprise last night of the by that is an important part of the story. david: forgive me you will laugh at this question. are you concerned about margin compression? given the margins they have, they are extraordinary. the average selling price, increasingly under pressure as they bring out cheaper iphones to maintain their position. gene: they did guide margins below a couple points. .2% lower the street was for the june quarter. i'm not concerned about margin. i think the average selling price of the phones will inch

higher. they gave a little indication that might happen on a call last night when they talked about the strength of the iphone 10. that is the most popular and most expensive iphone. in the out quarter so the second quarter after a product is released, the most expensive product tends to be the second most popular product since the iphone 10 is still the most popular that's a sign that apple has a license to come up with more expensive products. investors are hyper focused on what is coming out in the future . we think in the fall they will have a more extensive -- a more expensive even larger phone. to put it all together, we are not concerned about margins. we think they will be inching asp higher. expansion in the number of iphones over the years. it seems to be working for them. they keep adding more and more

models. why is that working for them? gene: intensely loyal base. about 800 million active iphone users. the reason the model works, they have a great product people want to buy again. the typical renewal rate is about 93%. the most sticky iphone in terms of commitment. usersontinue to mindof and best of mine this base of users. i want to impress upon what this means about this base. i think we are entering a new story.round the iphone's a phase of greater predictability so we will not have to sweat each quarter. separately, i think it will be lower growth. a 0% to 5% growth. that is because they have this 800 million base they keep

mining with a broad line of. alix: does that mean that the stock has re-rated to a more visible potential apple as a value name story? gene: we are not there yet. tech investors love growth. i think there will be a slow shift over the next several years. there will still be anxiety around an iphone. if that anxiety would scale between one and 100 i think it will get slower and tighter and tighter. into ande are a shrink his phase of how investors think about the apple story. i think it's going to be less stressful. i think people are going to value the buyback more. this should be good for the multiple. david: let me turn you to a different tech company. afterwill have earnings the bell. what you expecting out of tesla/ gene: i love the tesla story.

just want to remind people quickly what their mission statement is which plays into what will happen tonight, to thebrate -- to accelerate globes acceptance of renewable energy. it will be about elon musk reassuring investors he can scale model three production. he had this internal e-mail that was leaked a few weeks ago where he mapped out how they could go vehiclesto two to 5000 , model threes per week by the end of june. i think he will elaborate on that and that is what investors will be focused on. david: his tesla and investment right now or a religious experience? in company investors would have gotten skeptical. gene: i understand the religious experience perspective. is -- ashat it is, it

fun as it gets for someone who is an analyst covering the space , because there are strong arguments that are different. one is this company will go out of business. the other is is going to the moon. i think they are both solid arguments. is a religious experience? i think there are some avid he canrs met believe scale model three production. yesterday i was in a chevy volt. it was $38,000 he paid for that car. i could tell you the model three is a substantially better vehicle in the chevy volt for essentially the same price. i think more people have viewed tesla as a religious experience once they get into these model threes alix:. i want to drill down on the model threes. what is your expectation short-term for production and for how many reservations there still are for the car?

car? car? you have this massive interest in buying it when they can't produce them. what happeneds to when the iphone came out when you could not get a hold of them it shifted a different price point. alix: great to get your perspective. my favorite thing he said all that -- with everything thing you said all day. the religious experience. results are on deck over the next couple of days. plus, a member of bloomberg plus, a member of bloomberg

users who interact with the charts we've shown all show.

alix: i know, no surprise with oil -- david: i would be disappointed if it weren't. alix: they start reporting this morning. today we will get pioneer and eog. pioneer is one of the pioneers in the permian basin. we'll get a lot of color. there is all the oil but you can't get it out or you will get a good read on what that means. david: or because a pipeline problems. alix: they're using a lot of the pipelines already. not enough capacity to move the oil and natural gas out. owns their own pipeline. the own a lot of their own services. it will be a good view as to the issues surrounding execution in the permian which

have been a big key for players moving forward. david: everybody is clamoring to get more built? alix: it is not going to come in until the back half of this year or early 2019. the market prices these in advance. you want to tell me a $72 bread you will not be a little pensive to ramp up production? david: oil companies in the past have been disciplined. never over invest. alix: so much after the closing bell. --e schumacher and george joining jon ferro. this is bloomberg.

>> i am jonathan ferro, 30 minutes until the start of trading, this is the countdown to the open. ♪

coming up, the federal meetings two day concluding, economists waiting until june for the next rate move. apple crushing pessimistic views once again, delivering a monster share buyback program. seven minutes from the opening bell, futures softer by .1%, down two points. in the fx market, dollar stronger than everything. above 120 atetting 1.2011. investors are looking for hints about the timing amid rising inflation rat -- inflationary pressure. >> interest-rate increases this