fed is the source of the selloff and is crazy for raising interest rates. a global stock route, the worst a lot since february. it has spread throughout the world. the next big test, inflation. cpi numbers out this morning. will inflation justify the market turmoil? david: welcome to "bloomberg daybreak." michaelht the storm was , but it turns out there was another storm. alix: storm fed, storm trump, storm earnings, storm yields, storm what? david: storm tech. alix: good one. assets your quick cross chat. futures down after the worst a yesterday since february. euro-dollar of.

it is hard to find your safe haven. s,,be a little bit in bund but overall you're not seeing that safety in the treasury market, the dollar. fx column. some of the high data currencies outperforming. david: it is time now for the morning brief. 7:30 come in ecb account of its meetings last month. 8:30, the consumer price index data for september and weekly jobless claims. 1:00, the u.s. treasury caps off a big auction when it sells $15 billion worth of 30 year bonds. our: we are throwing out first take, ripping up the script, blowing it up. herwe will get to all the marke. we have you covered all around the globe. anatomy andugh the

the biggest rotation. yesterday, if your stock was an acronym, it got hit hard. , worst day ons record. faang stocks, worst day on record. tech stocks leading to the downside. the pain was widespread. sensitivesest rate that provided cushion. value, for instance, is outperforming growth and momentum at extreme levels. is not getting hit that hard as the rest of the market fades, so it is doing its job. alix: the russell value versus growth shows what you are talking about. the question is are we in a world of a market correction with an uptrend, or is this a

more severe rotation with legs? other front-page story, bond yields and the breakdown in correlation between stocks and bonds you can rely on. in an it hard to believe environment where bond yields are rising rapidly and we are talking about peak earnings and knowing we will get that fade next year and also worried about this earnings season, that all of that is conducive to multiple expansions them is a you see those high multiple stocks take off. unless we get that on to cushion, it is easy to see that continuing, but who knows? a lot of people are saying by the dip. david: many thanks. let's go around asia. we turn now to enda curran from bali. what happened in asia overnight -- asia overnight? >> we had a continuation of that risk aversion flow through the

region am a big selloff in chinese stocks and stocks around the region. it happened as we have these big meetings in indonesia. although policymakers were making the point that the selloff is a one-off and nothing to be especially worried about, but it is happening when policymakers are growing more concerned about growth and the impact of the trade war. i think the overall tone has been set by the market selloff, a cautious outlook for the world economy then we were six months ago. steven mnuchin, what did he have to say on the subject? he spoke to bloomberg news earlier today. economy asp the u.s. one might expect them to. he said the selloff should not be a surprise. he spoke about the underlying strong fundamentals of the u.s. economy.

those views were echoed by several others. we had fed officials come of the imf managing director christine lagarde, they made the point that the selloff in and of itself does not necessarily signal we are on the cusp of there is bigger, but caution. people are watching it and know that with interest rates rising and the trade war showing no signs of easing that this could be the theme for the coming months. david: we have been focused on equities. what about fx? longer termhows a downward trend that has to do with tightening conditions, but a lot of em did not do as badly as one might have thought yesterday. some pressure was taken off em currencies. the bigger picture today continues to be concerned on the strength of the u.s.

dollar. one indonesian official spoke about the need for the dollar to lose some dominance in the global payments system because of the impact it is having on emerging economies. there are officials here concerned about the dollar. they see some stability for em and fx in the near term, but all eyes are on the fed and the pace of increases by mr. powell. david: great reporting. turning now to europe, we welcome christina. up the imf function for european stocks on my terminal. wonder to take us through what the sectors did in europe today? >> all sectors are down, down, down. it shows how brought this route is. the bond proxies, insurers, financial services, that is all down.

also, you have cyclical sectors like technology down following the global selloff in tech. you have oil and gas names down because of what is happening in the commodities or. that -- commodity sector. that tells you how broad this is. there really is no sign of safe harbor, at least in european equities. david: automobile sold off because in part due to trade concerns? have been the battered sector for a while because of those trade concerns. those got conflated with other catalysts for the selloff today. we got trump's comments about the fed and the global selloff in the u.s. and asia. europe has been growing sensitive in the last few months, and that is all on display today. get all sectors in the stoxx 600 down today.

david: thank you. thence.us now is vince. you go into your desk today, what do you do? up the 200will open day. we have bounced off it five times since 2016. it is a line in the sand for traders. if it doesn't hold, he gets uglier. alix: what is my safe haven? >> the yen, but i would not bet on it too long. while the fed will not change policy overnight, if this continues coming you would expect the fed to back off the pedal a little bit when it comes to rates. that having nothing do with the fact whether they are loco are not. alix: this is a great tweet. the tweet.

that is raising the question, did we see some kind of capitulation? >> i don't know. i think you will see people trying to buy the debt. alix: did you feel like there was panic? >> we were just talking about 19 87. that was a panic. there was a lack of information. this is another day in another rout in another correction. it is 4% or so. this is not the end of the world. thenis continues to build, yes, it is something to worry about, but at the moment it is 4%. i am ok. alix: happy guy. we appreciate the perspective. we do have earnings coming out. the daycare earnings day tomorrow with j.p. morgan, but walgreens coming in with its full year earnings few beating that midpoint estimate, so fourth-quarter sales coming in a

little light, but full-year earnings at the higher end of that range. sales barely eking out again. david: delta be as well. delta airlines sees yearly revenue growth of 8%. in one range versus the range that was estimated. isrd quarter estimated $1.80, so good news for delta airlines. their stock is up just a bit. any: earnings important to sustained upside for equities. coming up, more on the selloff. this is bloomberg. ♪

alix: april and cocktail reeked wreak havoc on equities yesterday. guestg us now is our next , who says the current selling is the result of autumn up selling pressure. thank you for joining us. i want to bring up the 200 day moving average for the s&p. do we break below that line? >> that is a great question. nott of clients were asking necessarily about the 200 day or what the market as a whole was doing yesterday, but more concerned about individual stocks. that shows you what is taking

place in the market. they are comfortable with the market. there are a lot of of risk factors from a top-down perspective, but all those factors were already in the market, trade tariffs, higher concerns, these macro but what managers were focused on yesterday were what individual stocks in their portfolio were doing. the questions were how much before i my stock go start deploying more capital into my favorite names? what we think was happening was that over the last two weeks, there was this underlying selling pressure that was taking place every afternoon since the high on september 21. you can see the selling pressure starting to pick up around 2:00, and push the market lower into the close.

that selling pressure really intensified yesterday. feel like the selling pressure is slowly starting to come to an end and we think the worst is behind us. that is not to say we are at the lows right now, but the majority of the selling has taken place. talked about rotation earlier. the best performers got hit the hardest. if you are looking at selling pressure easing, will the trade be to buy those? what is very interesting about the selling pressure is this was not indiscriminate selling. they were selectively taking profits in the stocks they had the most p&l in this year. if you look at returns from january 1 to the end of september, we saw the stocks up the most of the best-performing over-the-top 50 names, which were up 50% so far, those were

the ones hit the hardest from october 1, and even yesterday. those names on average were down 4.5% yesterday, so we see the leadership starting to falter and that induced more selling pressure, so what we are looking for is stabilization in the hardest hit names, but truly we are looking for the names you can down the most. if those names start to see inflows, that will show there is a risk on tolerance coming back into the market. thank you very much for that viable technical perspective. david: is this selloff a buying opportunity? here is what our guests had to say. >> the fact that the yield curve steepen is actually a bullish trend, not a bearish trend. the fact we are heading into a good time for equity returns, both of those probably have some element of maybe creating a by

the dip mentality. >> i am expecting this violence to be short-lived. you can wait a couple of days to catch the falling knife. the vix is that the critical point with the switch from a normal market to a risk off market, so it is short-term. >> you're going to get this back. i don't know if this will take a day or a week. i would absolutely be buying this. >> i would worry if the 10 year is at 4% and inflation is 3%, then we have problems for the equity market. >> it is about managing risk. if you are underweight risk coming you can stay overweight because it is justified based on the data. david: joining us now is our guest. you just heard a range of news.

a lot of buying the depths. by the depth, by the dip selectively come and the other is weights wait a little bit. >> maybe i can take a fourth one. it is a case of finding an opportunity to exi the markett. all the macro factors are likely to come together in 2019. alix: what areas of the market do you feel are oversold and you need to get into? , if you get tos the 200 day moving average, than i would be more concerned, but there is an opportunity to pull back. stay on the sidelines until 2019 and at some point it will get better and that is sure opportunity to get into em. david: where are the places you are trying to get out of? cyclicals, defensives.

the global economy is on the weakening trend. the markets are under appreciating the impact from trade wars, strong dollar, and rising interest rates. there is weakness coming through. even the bigger correction the comes will not be like quickly sultan years ago. it will be smaller and lower, but still coming. david: time to dial back in tech. >> every time i'm on tv, there has been a selloff in tech. is this the time? i would not have it is enough confidence to completely get out. alix: the other factor is correlation between stocks and bonds. this is a good way to look at it. the white line is treasuries futures. the s&p is that blue line. ,he correlation is now positive

.14. if you're looking at a world well stocks and bonds are selling off together and rallying together, how does that make you rethink and allocation? >> it is a frightening prospect. nevisiting we have only see it went yields have past 5%. technology, all of those things that have brought that level down. the selloff triggered the speed with which they moved. the drivers are pretty good. we were talking about better than expected data. i think those worries will come through next year, so this is too early. david: one of the questions is why did this all happened. we heard from the president. the fed's is all fault. listen to what he had to say. , wehe trade for with china

are taking in billions of dollars in tariffs from china on chinese goods. it has not hurt us at all. we are taking in billions and billions of dollars. we are making product that we were buying in china. the problem i have is with the fed. the fed is going wild. i don't know what their problem is. they are raising interest rates and it is ridiculous. understandeed to what happened yesterday and wyatt happen in order to know what to do next. the imf this week saying we are concerned about growth. it is really the fed raising. which would make sense for the stock market. if the discount rate changes, the stock is not worth as much. fact the same breath, the the u.s. economy is doing better than it has ever done. which one is it? if it is better than expected, the fed has to be raising rates. i don't think the fed rates are

the trigger. it is not a fundamental issue. i would say the u.s. trade were, some of those concerns are coming to fruition. i think it is still too early. i don't think that will come through in current earnings. i think that will come through in q2 next year. if you look at the second round effects, retaliation, and most importantly is what china does on the borders, bureaucracy, increasing red tape for american companies, and that is when you see the impact. ,lix: to add on to the why there was a great piece in bloomberg talking about the different options you could .2, like technicals, treasuries, the fed, etc. quantitative tightening rather than quantitative easing. when you look at all of this, where is the safe haven? >> yesterday, bonds did not

catch a huge bid. alix: today, same idea, and bund s, not really, so where is it? >> you have jgb's, yen, and cash. the fact is central banks will be raising interest rates at some point. increasing balance sheet, so this is not a good time to get back into government bonds. david: the fundamental question of can we go to quantitative tightening without major disruptions. take that much money out of the global economy and not have a big downturn? great point. last year, that was a concern for 2018, that pullback in global liquidity from central bank tightening, so that is the situation we are going to. when the people start talking

about when is the fed going to stop decreasing the balance sheet, that creates volatility in the markets because market start wondering will this be an active tool, and that concerns them. alix: so they got off lucky over the last three years? .here was an a lot of turmoil this time, it is different. do they need to start looking at the market in a different way? i don't think the fed is making a mistake to we are still below neutral. if you believe the u.s. economy is the strongest it has ever been, it has to be back to neutral some time soon. there is a second round affect the the fed has no choice but to take note of. david: is the question whether the u.s. economy is as strong as

it has ever been, or it will be as strong as it will be in the next 18 months or so? there has been huge fiscal stimulus, but most economists inc. that will trail off into 2019. >> i agree. it trails off, you have tax reform stimulus. you have the u.s. economy starting to suffer from a strong dollar in and you have trade tensions that will weigh on economic forecast. alix: you will be sticking with this. coming up, metals joining the global stock rout. war fears intensify. -- trade war fears intensify. this is bloomberg. ♪ ♪

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alix: "bloomberg daybreak," and alix steel. day two of the global equity selloff, chinese stocks sold most since 2016 in 1000 stocks

fell by the limit in china as futures are down another 20 points as tech got hit particularly hard yesterday continues to be off by .7%. the were sector in europe has to be technology but energy and financials not getting any love either. across assets, the question really being where is your states haven? risk on bid in some of the currency markets in the g10 space area in the u.s., not getting any kind of bid for the treasury market, yields up to basis points for the terrible three-year and tenure option yesterday, the worst since 2009. not getting that safe haven love and the vix at 23 imply versus realized volatility, volatility a short-term effect on long-term effect? 1.5% the worst two-day drop since july. david: emma chandra is here with first word news. emma: there was engine failure

minutes after launch from kazakhstan, forcing astronauts to make an emergency landing. nasa says rescue crews have been in contact with the crew who say they are in good condition. the most fell for hurricane edouard at the florida panhandle isn't finished yet. the 155 on our wind destroyed homes and brought a storm surge that turns never than the lakes. michael has now been downgraded to truck storm and is headed towards the carolinas which still haven't recovered from hurricane florence's record flooding. and president trump says when the federal reserve for the market settle, not his trade war with china. the president told fox news that quote the fed is going loco with raising interest rates. last month he said he was not --py the fed has rate raised raise rates for the third time this year. global news, 24 hours a day,

on aaron on tic-toc on twitter. powered by more than 2700 journalists and analysts in more than 120 countries. alix: copper and aluminum off, crude off by almost two. gold is up almost eight dollars. -- tonyafe haven dangue is stan dicker -- dicker. it's a historical spread between the more equal weighted commodity index versus the 10 year yield. that correlation now really popping. do you see this is a fed thing? feddicker: obviously the problem is something that selloff and auity

risk off penetrate everywhere the believed in the commodities. the commodity issue is the trade war and we have been calling bs on the trade war idea and we've been waiting at some of these things are filtering into the market. warwe have seen president trumpo to farmers and give subsidies and markets and alleys gone back looking to deliver ethanol for the entirety of the year and that's going to hurt commodities space in the oil space and so forth. he's trying to give back to some of these players some of the money the trade war is only beginning to take away as this becomes a systemic risk in the market recognizes his trade war is a systemic is that of a temporary risk, we continue to see the selloff. david: is it a trade war issue or a china issue? we are negotiating with europe and japan, it really comes down to china area. mr. dicker: of course it does. this is where commodity growth has always been coming from in middle and oil and grains.

sure, we may deals with mexico and canada and that's been great in the market has been expecting some motion with the chinese but we haven't gotten and i think some people are starting to realize maybe we won't get it. alix: barclays saying they are going to dip their toe in gm on the selloff and more into crash. at some point, the valuations and technicals are going to be enough to compensate for that deterioration fundamentals that we see. we are the annual client conference this week with many investors from asia and the general feeling was they are worried about the trade war and the feeling is going on for a long time. and deleveraging and problems and there's a couple of different factors going on here.

david:david: the trade war happs when china's trying to make some major transitions and there would have been difficult to do anyways and his trade war as we call it really inhibits their ability to do that. it's hard to do those two things at the same time. ms. shah: it's extremely unsettling and we see currencies at 6.9, how much further can we without orit weaken trouble from the u.s., this when we prospective trump and they are in a very difficult position. if there's any fx currency measures in conversation , that puts pressure on deleveraging the ramps up capital flows so that is the macro and in the microworld of copper, in say like london this week, everyone was bullish copper from a fundamental supply and demand perspective, totally different than the overall sentiment. mr. dicker: in the entire commodities space across the board from a fundamental part of you, we are in a great place. this has been a great ride for commodities this year for the

first time in many, many years it has been short-circuited for the most part by what we hope this is temporary trade issue. the fundamental space and copper in oil looks terrific but we have to get past some of these blockades first. from a $70 will perspective or $100 oil perspective? ceos were talking about the oil price. >> i would use the phrase we are well off the fairway of what should be oil prices and i think you volatile, next 45 days of 30 days there's the potential for it to be up and down and it could be sharply very the fundamentals remain the same, demand stays about the same. >> not have a supply squeeze, there's plenty of oil around. >> is trending higher for a bunch of reasons i don't think it's going to help. >> the tightening of the oil markets towards the end of the inr is unfortunate

materializing. i can tell you that it looks like expensive energy is back. >> forecasting brent is a difficult thing to do and it depends on what happens in the economy and a lot of what happens with political disruption and part of what you see in brent today as little disruption around iran. on where that goes. i would bet more towards 70 that i would towards 100. mr. dicker: i kind of laugh because the two biggest cash market players in the world, vtol is at 65 and the other is a hundred 10. it should you know why the spread is between what people are feeling. we'll be opec report that came out looking for an average of 1.2 million barrels a day of growth every year up to 2023. never problem and supply in terms of the investment that's gone into the marketplace over the course of the last several years but i'm with the guys at

trafalgar a time i think we are going for triple digits. opec producing the 20182013 demand for us on weaker economic growth. how do you factor in a potential role in oil demand? mr. dicker: how is a problem. we are part of the global marketplace and we have to wonder if there is a recession in the offing, if something comes in to short-circuit the fundamental picture in oil, obviously, everything changes in the right now, all the projections to me look like we're headed for triple digit prices. alix: in theory if you have rate hikes, you want to buy energy. i think if you really believe the global growth story is going to be negative for next year then you have to be concerned. in oil pricesse this year, energy stocks have not done that well that because they've seen growing concern has continued fed

hiking and against appointed at some point it's going to start weighing on global growth. for five months ago was all about someone as global growth and you don't hear that much anymore. you saw the imf say we are not sure this growth is going to go so well and they took down estimates going out into 19 and beyond. where are we on global growth and tenant come back -- can come back? it shah: --mr. dicker: relates to emerging market growth but i saw at least four all these problems that are of the sector rotation backed into the energy world where it had not been there for several years in terms of the catch-up where the sectors was to make his move compared to everything else that been flying, tech in medical and all that stuff, i thought there was a lot of room to run before all of these blockades hit our subsector. my guess is that most of these things are temporary and as they clear we continue to see that i think it'senergy inflation want to be.

right now it's a little shaky because is a lot of short-term reasons not to be energy, a lot of traders have been long energy and that usually leads to a selloff trade and the flattening of the curve that always leads to a selloff. alix: did you buy it today? mr. dicker: i did not. i'm giving it a couple of days. we've been buying the debt for 10 years and you have to be wary as these big drops come in. alix: what's on the list? to stay away want from things that are globalized right now and looking at the natural gas which is strange. lng seems to be a place to move some money right now, we had a nice run down to the 50 yard line on short-term shale players and others that i think a rotation is something that hasn't had its day yet like natural gas, and maybe time for something like that now. when you take a look at the next six months, for you,

when you have to talk to clients, what is the biggest risk that you see? if the market underappreciated how much of an impact at trade war can have on the u.s. economy. everyone knows what china emerging-market there is still too little appreciation of what it can do to the u.s. -- seemaphen shaw shah, we are doing a technicals because i love them and also on it is appropriate to look at the technical damage that's been done to the commodity markets. david: you don't have much to talk about today. tell you how even many times i've gone to this run down. there 17 stories that is relevant alix: the 24-hour programming of commodities. david: the ecb account came out that we were protecting would come out and basically they say the risks broadly were balanced though they saw some deflation

and they thought it was destabilizing and they are very concerned about protectionism. the growth moderates europe they thought was a return to normal an interesting, one of the things they said was the euro has gone up because of turkey. they talked a fair amount about turkey on the risks of turkey. the euro has gone up against the dollar. coming up, we take a look at how hedge funds may be holding up following yesterday selloff. this is bloomberg. ♪

emma: this is "bloomberg hunter, theonstant kpmg chief economist. hunter, kpmg chief

economist. david: wall street beat, we cover three things wall street is buzzing about this morning and the only they thereby by the about is the stock market being down. first of government hedge fund hindsight and how yesterday selloff may have impacted the portfolios of some very big fund in the selloff wears prada. luxury goods tumbledown. china, they are getting tough on customs and the world's richest lose $99 billion, this illustrates the pockets of the world's wealthiest from jeff bezos losing $9 million in a single day. joining us is lisa abramowicz. we want to talk about hedge funds if you go 13f filings you can get a sense of what they were in and what might have happened. moment of looking at the

q2 holdings, the biggest holdings, facebook, alphabet, which stock got crossed -- crushed? microsoft, amazon, facebook, a thatset or 6% decline from affects people that are big and facebook. they boosted stakes in macron which also fell. notice are thinking that -- i was is going to rearrange the landscape and a lot of these big hedge funds also piled into the hottest rate of the year which has been the big tech names. gotd: at least one of them smart and went short and is going to make out like a bandit lisa: this would've been a great time for soros and paulson does not necessarily going to help you. sharesater to decrease

in the gold etf's and they cut their stakes in the s&p 500 etf trust, so they did seem to be positioned in a potentially more harvard's way then endowment was took a new stake in facebook which seems to be a bit of a problem down another 4% after a lot of lost already. david: the selloff wears prada? alix: that was great. we are not that smart. david: i'm not that smart. alix: we are not that funny. saw versus lvmh, but in terms of product, they got really hit and it turns out because china for whatever reason i decided to be tougher on people bringing luxury goods back into the country. lisa: the amazing part of the story is how human it is. goingthe chinese tourists overseas to europe and america and getting all of these luxury. x and stuffing them in big suitcases so they can avoid hefty local sales taxes that they otherwise have to pay if they were to declare these are

import them from overseas and all of a sudden now, chinese authorities are saying over those two cases where a declare them available sales taxes is eventually going to slow growth for the luxury market. they: it might be because need the customs money in a mighty because this is one way in which china can really clamp down without imposing a tear. what i find interesting is the spotlight how big a role play in the luxury market. chinese consumers account for two thirds of the growth in the luxury market worldwide was and really has been a driver and it highlights how much the money is coming out of there and how much is a force for the global economy. alix: oh talk about amazon attacking retail, when area they can't attack is luxury. you can't get a luxury item on amazon so in some ways, they were amazon proven this an interesting involvement in that story. lisa: it will be interesting to see how this unfolds.

is this a trade issue or something else? basically, when we have a selloff like this, the most fun thing to do is a look where the richest people in whether fortune did based on the market route, all hypothetical because they have to sell stuff etc., but 9 million dropped out and jeff bezos got it the hardest. there, $4.5tt is billion he lost yesterday. lisa: the fact that $99 billion came off of the fortune of the world's 500 wealthiest people on wednesday to me indicates just how much money the 500 wealthiest people have. if you think about this, almost $100 billion was taken off because of the climate was not one of the worst in history, we are not talking about another 2008, we're talking about a selloff, a bona fide selloff for the first time in a while and this just shows how much money they've accumulated. a cumulative of building

companies like amazon. and successful companies have a goes companies have gotten, they had a toulouse, which is good. jeff bezos is that wealth billionred to $145.2 just the lowest since july appeared to give you some perspective and what kind of numbers we are actually talking about here. david: if you change the world, you might be worth the money. david is like a make that kind of money, go change the world. david: i can't begrudge him. any thanks to bloomberg lisa abramowicz. michaelst on hurricane as it slices through the southeast and that's what i'm watching. we talk about next. this is bloomberg. ♪

david: hurricane michael crashed

on shore with the strongest wind that area had ever seen and we go now to maggie really on the ground in panama city beach florida. good to have you. you were there at the time, tell us what you saw on what you heard. ashore that eyewall came hard and fast in panama city beach in the wind was unlike anything we've ever heard. and we been through quite fewer gains. when topping 155 miles an hour, media at a russian side and a measure of you can see right behind me that sign used to say exxon mobil but during the high wind, it ripped off and flew down the street and that is when we knew that this was a storm we had to take seriously or started broadcasting from further inside the hotel and now this morning we are waking up to witness the extensive damage that hurricane michael has caused and we don't really know the extent of it yet and that is what scaring -- what

is scaring many first responders and authorities. we got a glimpse of it in the aftermath yesterday, drone footage and put it on the ground came in showing this widespread , buildings that crumbled, schools that were toppled and even hotels that route torn off of them, the storm surge is another major problem in addition to the high zee, ourger meteorologist saw on, the foundation because the storm surge and we were warning about storm surge in high wind yesterday it was just as disruptive as many people feared. today now the sunlight is out we have been seeing first responders and national guard driving behind us, if you'll take her coming through try to get resources to all those people in need and first responders are assuring people they are on the ground here for them, trying to get to them but they warn it's going to take some time and people have to hunker down, many of them without power, have to boil their water so the just have to

wait and stay safe in the meantime. david: alix: apart -- david: apart from the damage, and the money the maven lost, do we have any sense of how people came through this? there was a lot of evacuations. maggie: that's the big question right now. there was a massive push to evacuate, the governor asking nearly 400,000 people to get out but michael came on hard and fast and some unexpected so there wasn't much time to prepare. one of the major concerns this morning is did people heed evacuation orders? many people it seemed like they were getting out of dollars for we will really know until resources get into hard at those today until we can tell firsthand did people leave or are they trapped in the rubble? is the big fear is we are uncovering these hard areas this morning. david: that's abc news correspondent maggie really reporting from panama city beach. at theaking a look

commodity reaction, you have decent amount of supplies, 720,000 barrels of oil shut-in, over 800 million cubic feet of gas a day, so there's a substantial information here, but you are not seeing the kind of spike we would've thought coming soon but there were other disruptors in the commodity market were much more significant. it mightna davis said just thread the needle and while they shut that in how those prophylactic and maybe didn't do the most damage. we will find out. alix: how does $156 million money manager view the market selloff will we get that answer joined by brad mcmillan, commonwealth financial cfo. ♪

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the worst u.s. selloff since february spread throughout the world well bonds in currencies and calm. logo,says the fed is president trump says is the fed not china triggered a selloff in you that the is crazy for raising interest rates. the next big test, inflation. cpi numbers could provide the next direction for investors. will inflation justify the market turmoil? david: welcome to "bloomberg daybreak," i'm david westin here with alix steel. the big question is what happens today? alix: it may follow-through selling but what happens where? take a look at across asset check, s&p futures closed the session still off by 12 efforts worst day since february the dow dropped yesterday by 800 points but however, if i came in and was at the currency market i would say it is full on risk on in the currency market. the aussie dollar, new zealand dollar, because gainers against the dollar.

the dollar-yen is only slightly negative, against the dollar, that's a really interesting session happen -- happening in the fx market. something similar is happening in the bond market where you see a little bit of selling on the long end with yields up to basis points and we didn't get the kind of safe even but you would've thought yesterday in the bond market and even over in europe you are seeing some buying and german bunds, yields only down to basis points, not the kind of risk off feel you would expect from with the equity market is telling. david: so far, that lack of contagion. they were saying this is not panic, they are not crashing into swiss francs which you expect it is really going to risk off area alix: the aussie dollar is not where you would think. david: internet was going to happen in the markets. time now for the morning breeze, betty: 30 in the united states, the labor department will release consumer price index jobless claims.

what ought this afternoon the u.s. treasury caps off a big auction read when it sells $15 million in 30 year bonds at 1:20 this afternoon, kansas city fed president speaks to economic forum in tulsa, oklahoma. a potential cocktail of rising rates in trade fears for the equities yesterday. is the selloff of buying opportunity? it's a case of fighting opportunity to ask the market. i think there is going to be a pull back at some point it's going to shorten the correction but there's a big one coming because all the macro factors are looking to come together and 2019. >> on the debt buyer not expecting this is to be short-lived. the knife is still falling should wait a day or two or three to catch it. liv-exstudy shows the 22 is the critical point where you have that switch from going to a normal market to a risk off market. i'm looking at short-term. >> there is no new news here.

it is back, i don't know if it takes a day or week and i would absolutely buying i will worry when the 10 years that -- is four. >> it's about managing risk and if you are underway at risk just moderately, you can go overweight and stay overweight because it's justified based on the data. joining us as brad mcmillan, commonwealth financial million dollars under management. to get your perspective we're going to talk all day long on to you by the depth and what do you do with volatility, as you are going to be a longer-term investor, how you view yesterday? mr. mcmillan: yesterday as noise. certainly from a headline perspective, it was a scary day if you look at the point several lost, i get it, really do. you go back and look at the percentage losses, this happened on average every three to six months. in aabsolutely normal

scary is that is, is nothing to worry about. david: yesterday was noise, when will you know it's noise? at some point, there's one bit turnaround it going to start with something like this and you have some fun a mental, whether it is trade war real yields going up, there are some fundamentals that are making stocks of a little less attractive. mr. mcmillan: you have to look at the fundamentals but historically when we see sustained pullback, real grizzly bear markets, couple of things happen. the first and most important is, you have to have a recession and of economic indicators we have are indicating a recession. none of the other indicators that are out there that good pictures of grizzly bears are there. a confidence pullback, not a fundamental pullback and that's a big difference. was: that really echoes steve mnuchin said, he said the fundamentals of the was economy continue to be extremely strong

and i think that's why the stock market has reformed gas performed as well as it has come a effective there is somewhat of a correction given that the market has gone up is not particularly surprising but in the same breath you have president trump speak on fox there was a trade war that wound up hurting the equity market. you can't have both, how do you look at it? mr. mcmillan: i would go to january and february of this year. we saw a significant pullback, but the fundamentals were solid so the market caught in off and again, i now we have a situation where at some point, it's very likely the trade war will have an impact. but the way that people are reacting in the way the market talks about it is as if that's a cliff. it's not a cliff, it's a headwind. it's a headwind it's going to get worse from right now, it's not that bad, so i look at confidence. people are more confident they have been in 18 years. i wouldn't business confidence, pretty much the same thing. not quite as long, but very

confident. it's a risk, but it's not a risk today. net, i would say in the sheet of the 10 year treasury yield, that's a reflection of a stronger economy rather than a mistake by the fed so you disagree with the president, the president said it's because the fed is raising rates too high that make sense for the fed to keep raising rates. a. mcmillan: if we have normal economy, which have normal interest rates and we don't. release, we haven't. ago, we were at levels does interest rates dropped to all-time lows in about 2011 and stayed there. right now we are still in the post crisis interest rate range from 2008 to 2011. you do just rates are higher than they are still where they were after the crisis at the lower end of the range. we are very stimulative. i have tickets about the fed at all, i think the fed is doing the right thing.

abnormal and been you take it back to normal, that value has to come out of the stock market, does not mean that some of the valuation the stock market was built in because of ?he low rate mr. mcmillan: there's true to that mathematically, but stocks have to be worthless, we look at the reason for rates going up, it's because growth has accelerated. 25% lastgrowth about quarter and looking at 19% this quarter and what should multiples be? some point, investors are going to reassess valuations. i don't disagree with your point, but where we are right now is probably not that time. alix: since great perspective, brad miller, commonwealth for -- commonwealth perspective cio. mark howard us is

from bnp paribas. russell growth versus value and growth really rolling overvalued, trying to hold up. is this the next leg we are going to see here in the selloff selloff? mr. howard: this reflects complacency. afflicted some complacency in the growth space, not just tech, but in venture capital and other areas where the system has this dash and straight of elevator now the market is reassessing because there's always elsewhere is causing people to rethink risk broadly. david: does that lead to a sector rotation in the sense that is that right, he moved to the fences? mr. howard: in the near term, part of that has happened but people are going to trim their

sale into the of the year because we have some big geopolitical other uncertainties. broadly i think people are trimming themselves a little bit. david: mark howard of bnp paribas will be staying with us. is the next bond prices going to come in triple b's? we discussed with admiration. -- adam richmond. live from new york, this is bloomberg. ♪

alix: the corporate credit market potentially coming under pressure. in and equity selloff surging big outflows in the high-grade market. this take a look at the etf's for high-yield and the one-day outflow we've seen in terms of

dollars and you see junk getting hit particularly hard. joining us is out of richmond, morgan stanley and of u.s. mark howard ofnd bnp paribas is still with us. or 40 basis points for high-yield seems like nothing but that was a big spike mr. richmond: it definitely was, volatility is definitely back. we have been broadly cautious on credit markets for a while, especially this year and i think it's important to think about what's been going on. the key theme we have had all year that liquidity conditions are tightening as central banks pullback after years of substantial stimulus which was very supportive of credit markets for a long time. in the process is going to be bumpy. what you just over the course of this year we've seen weakness in investment great credit in the first half, weakness and emerging-market credit, weakness and european credit and just over the last week, we got a

reminder of what is likely liquidity conditions tightening with u.s. high-yield potential the next shoe to drop. the important point in our view is that financial issues are easier to hide when liquidity is flooding into market and it's not anymore. and with important to us is that this process of liquidity withdrawal is only going to accelerate from here. we think this remains a headwind and continues to expose some of the fundamental challenges and all of this while we are very late in the cycle in with credit markets seem to be telling us that. and valuations are pretty rich. looking at triple c and high-yield is where you want to focus to see some big shakeout but i also want to bring out triple d's. 100 41 basis point spread, when we going to wind up seeing the shakeout and triple d's where all the issues and demand has really been? mr. richmond: i think the

process is starting, it's just happening slowly, which makes sense as the u.s. economy has generally been solid and earnings growth has been solid. we have seen widening and credit spreads out we argue that the types we have is your investment great credit in february of this year have been the types of the cycle and we have seen spreads drift wider over the course of the year with a widening has been manageable, which is often how is it first. we have done a lot of work on the triple be part of the investment-grade market evidence growing massively in the cycle, about 3.5 times as big today that it was in 2009. when we think about broader implications, in credit cycles there are always different parts of the market that are impacted from one to the next but the consistent rule of thumb is a leverage, follow the debt growth, and often lead you to the right is along those lines week that triple b's will be not the only one but a stress .1 the cycles really does turn in the

form of elevated downgrades and we think the markets will slowly price that in well ahead of time. david: is there an indication already of some weakness? have our best companies borrowing at triple b? you have general motors of this world who are buying triple b, what does that tell us about the leverage state of the u.s. economy? simple cap it is and, companies have been replacing equity with debt in their capital structure as long as the tax shield is confirmed by the former treasury, companies have been invented both by activist shareholders and their own managements to take on more gearing. i think it's a simple capital asset pricing theory. but it's worrisome. it makes sense that they are doing it, but what are the consequences be? one of the things

that is interesting about the corporate sector in general is that they refinanced so much debt but going forward, they are not going to be able to refinance economically. that was a tailwinds earnings in the past over the uptick in rates, we now can refinance any debt and reduce the cost of capital. alix: a large part of the amount of issuance we've seen has come from m&a. talk to us about what sectors have the most leverage and what and thens for a monday corporate bond market going forward. mr. richmond: sure. part of the point we made in the work we have done is that this really isn't confined to a single part of the market. our view is we are late in the cycle and we have seen plenty of excesses in the cycle is always the case, those excesses will be much more appreciated after markets turn, not before. to the point of following the leverage, last time where were the problems? they were in the financial , on consumerusing

balance sheets, surprise, surprise, those are the problems this time, and time it's been nonfinancial corporate balance sheet and the should not come as a surprise, we've had such low rates for so long and that led to a debt inch and it's really across sectors except for financial given financial regulation in the cycle. really, we don't think there is one glaring sector that stands out, you could point to help care, we could consumer discretionary, is a lot of the market. adam richman, of morgan stanley in chicago and mark howard of bnp paribas is staying with us. coming up, president trump points the finger at the fed for the selloff, but our trade tensions also to blame? we speak with ronald and senator rob portman of ohio. this is bloomberg. ♪

david: we all know that equities plunged yesterday, and we are

not quite sure exactly why. was it a trade war with china or concerns about growth? republican portman, from ohio was the budget director in trade representative under george w. bush and sits on that finance and foreign relations committees. you are particularly well-suited to answer this. welcome back to bloomberg. we heard from president trump yesterday on fox news, he was emphatic that it wasn't a trade war with china, it was the fed. trump: the trade war with china, we are taking in billions of dollars in tariffs from china, from chinese goods and it hasn't hurt us at all. we taking in billions and billions of dollars and we are going to make product year and we are now buying in china. that wasn't it. the problem i have is with the fed. the fed is going wild, i do know what their mobile ms., but they are raising interest rates and is ridiculous. david: is he right?

sen. portman: first of all, nobody knows, but the commecial factors and with regard to the fed, there's a concern about highridge afraid, that's been true the past few months. i there is a rebalancing going on here. the dow was at 26.3, near record levels, so we have seen the markets go up and up and has you are acern that little overheated so i think there was some of that and i also think the tech stocks took a particular hit and probably there's a little concerned the tech community was some overheating and it finally, trade uncertainty. entrée you would think there would be more certainty with the so-called usmca, the new nafta an having been completed alliance between the europeans, as, japan, and now, mexico and canada vis-à-vis china, and other words, more unity trying

to deal with some of the structural deficiencies in the chinese trade relationship. david: the president also yesterday said he thought it was a helping correction, the maybe it was overheated and there has to be a healthy correction. we hear from a lot of companies like ppg has taken a hit this week because of china problems and we hear companies that are really hit but as you point out which amatrice with some of those countries now. sen. portman: the limits real progress in the last week or so, now is again trying to ensure that the rest of the world of the free market-based economy is with us with regard to our concerns about china and specifically the theft of intellectual property. concerns,are broader structural concerns about the chinese approach to subsidization, the selling of a low-cost and you saw the general assembly this all happened in the last couple of weeks, countries across the board, the eu, japan, us, the biggest economies they wage war together

to ensure that we get china playing by the rules. his of undoubted relationship with china, not just a good trading relationship, but for geopolitical reasons that we need to be sure that we're looking for a more level playing field, not just on how much they buy in terms of soybeans or other things, but in terms of the structural deficiencies in you look at the 301 petition, this is the was approached china is not based on national security to 32 as it is with steel aluminum, and it is unfair trade and the unfair trade petition, the 301, talks about the structural changes very specifically. we now the better situation because china knows what we are looking or. is not just the united states, europe, canada, mexico, everyone is concerned with how china handles electoral property the same time it looks like this isn't going to get resolved anytime soon with china. it may go long time. does that mean -- should we'll be prepared for extended tension

could reallyhat affected businesses and markets and maybe the president should be warning about that but it's coming down the pike and is the right thing to do but is not going to be all easy. sen. portman: i think you are right, it's going to take some time having negotiated with the chinese on various issues why was the u.s. trade rep, agents is required in some time. i think we can get to the right place because we are now laid out our objectives more clearly i hope the administration continues to communicate clearly on it. for a while was confusing for china because some of the administration was just saying buy more of our stuff and try to change the balance of trade because we do have a huge trade deficit with china but that really is not what this is about. it's about ultimately them having a more level playing field on the balance of trade and it's about the structural changes, the licensing agreement that are required, joint venture agreements that are required of the electoral property theft and other ways, those issues new to

be resolved and i think that's what it take a little time and we have to be prepared for that. question coming in from a viewer who asks whether you believe in independent fed which leads to a question about the fed. the president has appointed you on this, should he be expressing that point of view, is that healthy? and is he right? if the economy is going so well, does that make sense for the fed theaise rates sen. portman: independence of the fed is important and you don't want to have little pressure. second, to the president's point about the economy, the fundamentals are really strong right now i'm back home in ohio the biggest issue i'm hearing is workers, how do you get enough people in the workforce to help with a growing economy? more investment have a lower unemployment, all the right things are happening right now. i do think you have a situation where the fed can create a little space so that when there is a recession, which will

happen at some point in light of the gets happening anytime soon, the economy is on a good trajectory right now, but you need to have a little monitor is to be able to deal with it. to beittle monetary space able to deal with a very the market is going to go up and down for various reasons, interest rates for china may be part of it, i think the tech issue maybe a little their factor but the point is, fundamental are strong. from ohio, senator rob portman. on priceslatest raid -- on constance hunter, coming up next. this is bloomberg and. . ♪

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other asset classes, this is where you want to be focused on to get the cpi number, because if you look a risk on bit in currencies, even though the dollar is weaker despite the fact that equities fell out of bed. the 10 year yield in the u.s. up by two basis points and you still see selling in the next is kolmar. commodities keep rolling over and that's when we instructed when it comes to the cgi. energy, backup food on missing estimates a little bit, 2.2% on a month by month basis, just eating out a gain of .1%. as it also point out that average weekly earnings coming 1.1%, sequentially coming in stronger and shocker, still like a multi-decade low. but that is a steady as she goes situation i should point out the s&p futures are now completely a neutral. some really rebounding off the lows of the session and now they are climbing at a positive territory. the dollark look at

i would assume at a big drop down and yes, it did you the dollar index down by .5% and i would think you are seeing a little buying coming in the bond market. still up by one basis point on the 10 year yield, however, you have to worry about inflation, we're still in goldilocks scenario. -- you don't have to worry about inflation, we're still in the goldilocks scenario. inflation reinforce what president trump was saying, what is the rush, fed? you don't have to get the rates up to high, and certainly this does not indicating you have to go faster. it doesn't indicate that. alix: also in part to do with used vehicle sales and those costs fell in housing cool as well. trailing estimates there are some of those big items. to your appointment means you don't really have to play that much catch-up right now. joining us now is constance hunter and also with us is mark howard of being

prepared us. -- of b.n.p. paribas. ms. hunter: we were expecting a pullback from august and we saw that i think in terms of how this impacts fed policy, the fed has said they are going to do one more this year or less than three next year and i think that is completely on track and remember the monetary policy happens with a lag, the fed also needs to think about concurrent data that is coming in with this data. i will be data about what companies say they're going to do with regard to wages, that would be data with regard to where wages were in the last jobs report, so they are taking all that into account when thinking about how to move forward with policy. david: the president commented again on the fed even though senator portman said he shouldn't, he said the fed is getting a bit too cute. mr. howard: this is a bit of a breather for the market and the

bond market is taking a bit of a reversal here and i think that is a good sign for some stability in the market and of itthat will fix some and require the president not to tweet as much if rates come down in the fed has put back in the box. kaplan spoke earlier this week and raise worker reaction when he about neutral and how they are going to hike area here is what you have to say. mr. kaplan: once, we have to assess whether we go further or should we sit tight for a while? i don't know the answer yet and so we will have to see spring, summer of next year. this is what -- this is the question that we are sort of debating, trying to figure out. alix: when you get a benign inflation rate, which ones that support? hiking above neutral or hiking to neutral? ms. hunter: i would say hiking to neutral. if the economy is doing well at

should be a list support a somewhat normal fed funds rate and hideaway and they should also be able to afford bund yields that are higher. a month ago, the panic was the yield curve is inverting is telling us we're going to have a recession and now that we have a pickup in 10 year yields some people saying great, the recession signal is an so strong people are saying oh no, we can't handle higher rate so it's like you are having your cake and eating it too. i think if we are seeing higher bond yields of the results of a stronger economy, that's actually a healthy sign. it's not just bond yields, but the curve. rates went up, but the curve steepen which might reinforce what constance is saying is we are not seeing a recession anytime soon. it's a healthy letting air out of the balloon. the bond market driven for a while and is the center said it is the normal when you have a ore run-up in market complacency, putting some spread back into the high-yield market

and letting some air out of the tax sector is healthy. the question when we saw yields punch higher is a didn't have to do with inflation. to go look at cpi and breakevens versus yields, there was a big gap between the two. what is it? ms. hunter: i look at a longer-term continuum, bonds started selloff when we got the august payroll numbers and we got that increase of 2.9% on wages year-over-year and then they held above 3% for all of september. and then the week that there was a big selloff in bonds was a week right before we got the jobs report again that sort of solidifiedand then the week thas a big selloff in wages 2.8%, wee holding in an average hourly earnings a number of hours worked it was considered to be a soft report in part because of the hurricane and expected to be revised higher. think one has to look at this not my day-to-day basis but as part of a continuum of what's happening with a variety of different data points. alix: to that point, it shines

the light on earnings season because of we learned anything in the last 24 hours in the reaction to the cpi number is how vulnerable the numbers can be to rise in yields and they have a lot to prove organic growth as yields continue to rise and the factor rotation we see. mr. howard: one of the things are looking closely at the disparity between companies that can pass along these price and cost increases and the wage increases that are in the cpi number today and that's going to delineate winners and losers around earnings season in my mind. something pointed that i find interesting, real yield, they are raising rates when they just rate is not required. what is the practicalities of a real yield increase on the equity market? lagsunter: this issue of is really important. we don't want the fed to get behind the curve where they are catching up with the inflation in raising rates to play catch-up. it's much better for them to be a little proactive and be

raising rates than playing catch-up. certainlyy they are in a good position with regard to that in real yield are historically low. yields are at absolute historical lows and i think the ifnomy can was scanned -- the economy has -- is as robust as people think it is, it can withstand some normality in real yields. david: should we agree with the president? the presence of is a question that's being built in my the third even though he thinks they're going to far in their logo, and so there's a cushion. is that what they are talking about how a cushion that actually healthy for us mr. howard: maybe in terms -- it's healthy for us? baby in terms of being able to respond, but you have to be looking at them in hand in glove area alix: and what point might president trump be right with regard to the fed

being crazy? which particular thing we discussing? that behind the local part, being too aggressive, raising rates that's when wind up hurting -- it's missing a progrowth agenda, the was economy is doing well because of tax cuts and more you like without wind up hurting. historically the fed has not been successful in engineering a soft landing and what we look at that, the question then becomes is it the fed's job to engineer a soft landing? a necessary cycles part of capitalism, do you need that is started stretching and need to fail so that stronger, better businesses can evolve and grow and be generated, right? so you're saying we don't need to have a business cycle anymore, that's a very different sort of perspective than we have had historically. nobody wants to be on the losing side of that or the down term of

that business cycle but overall, we believe business cycles are healthy. i guess that answers your question, i don't -- i think the fed is taking a very cautiously and again, we have some reason to think inflation will pick up. i think they are doing the right thing. president trump is saying the fed is being too aggressive, is also saying that the terms with china have had a really big effect i think he means that because we are getting them a i'mof money off of tariffs, assuming he's not saying is have a big effect on the stock market. unclear.r: david: he says it's a big effect. alix: constance hunter and art howard, thank you. tune in to "bloomberg commodity edge of one of the unused in time we will be talking how the selloff in the commodity market

could read bigger into the global growth and what that means. david: an important day for "commodities edge." alix: he mocks me. david: that's not true. what's with the headlines at the the business world government chandra with first word news. emma: genetic moments for astronauts, there was engine failure minutes after nor -- launch from has asked on, forcing astronauts to make an emergency landing in their caps off. rescue crews have been in contact with the crew who say they are in good condition. the sparkle hurricane ever to hit the florida panhandle isn't finished yet. a 155 mile hour winds destroyed homes and brought a storm surge that turned neighborhoods in the lakes. michael has now been downgraded to a tropical storm and is headed towards the carolinas which are still recovering from hurricane florence's record flooding. opposest trump says he

blocking arms sales saudi arabia over the disappearance of the saudi journalist. the president told foxnews the movement hurt the u.s.", we have jobs, we have a lot of things happening. it took us official says authorities suspect he was saudi complexthe in israel. -- istanbul. global news, 24 hours a day, on air and on tic-toc on twitter. powered by more than 2700 journalists and analysts in more than 120 countries. alix: our small caps signaling an upcoming in deeper market correction? you break that down with friends and scanning -- with francis gannon. used car prices falling as well housing rents cooling and that having a market affect, as of the futures inching into positive territory in the yield

on the 10 year off the highs of the session in the dollar rolling housing rents cooling ad that having a market over. it is definitely a game changer inflation isn't the goldilocks kind of scenario. this is bloomberg. ♪

emma: this is "bloomberg daybreak." of economic head strategy. this is bloomberg. ♪ now to your bloomberg business flash. ubs warns that general electric mainly to do more to close its balance sheet gaps. a new report says ge may need a steeper dividends cut of more than 90% plus a one-time equities raised. shares fell in premarket trading. tesla and the sec have put aside

and insulting tweet my elon musk and they asked to accept a settlement. must consult of the agency on twitter, tesla and must have agreed to pay $40 million to settle claims that he misled the public by tweeting about plan to take the company private. must also step down as chairman. and billion or tech investor reid hoffman says there are two sides to elon musk. he spoke with david westin. >> we might have a pirate admiral. he's obviously ordinarily good at taking it very hard problem of building a new car company from scratch with the new software platform on top of it, doing but the luxury end and the mainstream ends and actually doing more than anyone would expect you could do. there's all the admiral side. on the other hand, he occasionally also makes pirate declarations and edit the reason

he is doing it as is trying to change the status quo and they were should focus on five years and 10 years versus the now and people bringing them back to short-sellers make some irritated. i think focusing on the final 10 years is the thing is doing in which all want him to be successful there. emma: you can watch all of that interview on the next episode of bloomberg decisions on december 7. and that is your bloomberg business flash. he has this theory that there are pirates and admirals of name is. startups start out as pirates but sometimes you have to make the transition and the question for elon musk is he is sort of in between. he hasn't quite made the transition yet. alix: startups start out as we were first talking about elon musk with said like is the kid, but he's 47 years old. zuckerberg whork you needed to have a sheryl sandberg, grown-up in the room. david: he talks about sheryl sandberg and how much he helped

mark zuckerberg and he has two theories coming either evolve or you need to replace the people. you need new people can be admirals rather than pirates. alix: turning back to the markets, looking at small cap signals, because small-cap stocks genetically underperformed and some major asset manager saying the reason -- the reason outside losses is a possible sign of an upcoming deeper market correction. , francis the man gannon. good to see you. : the russell 2000 as a benchmark for small caps even with a 9% correction is a risky index. we've been talking about normalizing environment based on higher rates and higher volatility and lower returns. one of the more testing things today is that as rates back to my view that as a positive thing. talking about tesla is a great

example. i know it's been a small-cap company but think about the frustration shareholders had the summer when they were actually asking questions on a conference call about earnings, not cash flow and the russell 2000, 35% of the companies have no earnings. at the end of the third quarter. so higher rates are going to be important i think is a distinguished are and cause active managers to outperform because you have to be increasingly more selective in this environment. david: sort out the sheep from the goats. unless ago we talked about small caps said they are in better position, they get more benefits and tax cuts because they didn't have as many ways around the taxes to begin with and they are not as susceptible to trade wars, so why doesn't it overall help? overline fundamental to positive in the index of his increasingly more risky and you have to be increasingly more selective in this environment. think about that either we did have 18% plus earnings growth going forward in the underlying fundamentals are quite positive. you just have to be increasingly more selective and that is the environment we are in.

you take about 50% of the debt in the russell 2000 today is floating-rate debt. think about how that's going to affect these businesses. small cap businesses are affected by these interest rate payments, 20% of the russell 2000 today is what i would call zombie businesses, that should of gone out of business coming of the great recession, 20% of those companies need to borrow money to finance debate or interest on the current debt load. alix: take a look at the russell versus the s&p in the earnings forecast and profit growth, you can see how they are underperforming expectations for the s&p. however, within that, where do we see earnings growth and where do we see profit growth? mr. gannon: the market has been skewed towards the growthier part of the market. alix: within small caps. mr. gannon: is economically sensitive and cyclical areas of the market they continue to perform quite well even in the ,idst of this decline we are ok

and i think the point is here in this market, market is shifting. shifting away from what has worked in the past to what i think is going to be a market where is more economically sensitive and cyclical businesses are going to do well going forward. david: is there increased risk and increase opportunity as you look at the russell 2000, as all those who are not making money. is there a concentration of the ones who are making money so there is more upside with a handful of companies? what has worked in the russell is the non-earning portion of the market, it's been health care, the sexy part of technology, internet related software, etc. and is these boring old economically sensitive cyclical businesses that we think are the new interest in part of the market of people should be focusing on at this time, even from a valuation perspective. gannon, thank you for being with us. alix: how markets poised to open

after the selloff? it looks like a goldilocks scenario for the fed, s&p futures off by two, clawing back some of the recent losses we saw earlier in the session and dow futures down by 73 voice after an 800 plus point dropped yesterday. more on volatility, this is bloomberg. ♪

alix: what are you doing in the market today? , iting me is scott bauer seemed like about an hour ago was a little clear and you have to come in and hedge al lawson equities. -- hedge a little in equities. >> there is so much fear of missing out and that to the downside. everyone who didn't get out last week, two weeks ago that didn't by volatility when it was down 50% from where it is right now, best the pylon trade we really

saw yesterday and overnight tonight and even this morning before the cti number. volatilitylix: ticked up to 20 and now it's coming down, how do you hedge? mr. bauer: your to look at the term structure. the near-term volatility index futures is actually down. yesterday, the further going out in november and even further obviously didn't rises much as the near-term. i think the market is just digesting every single little report that comes out. cti is a big one and that's why we saw this major rally the morning but i think that in an hour or half an hour when the market opens up, we're going to see a lot of volatility i'm saying by the end of the day today, we are actually positive. david: we have any sense of what happened yesterday was forced selling? mr. bauer: i think a lot of it was. you saw big firms piling up. i mentioned earlier, that foam mo.-- fo

they are not trading on the fear of missing out, but you get the human part of it as is i miss by volatility when it was down the low teens i missed selling this markets when rates were 2.9 is that of 3.25 and you get this piling on, the initial gutwrenching reaction rather than this thought out methodology. and today, you see cgi that shows much weaker than expected inflation. i think the economy is really running along well here in the next big thing for the markets right now starts tomorrow with earnings reports we're going to see coming out of the big banks. it's a little rough wait to report the way the markets have been treating. do you feel like -- what are you going to see to know if you are in a correction, in an upmarket trend, or if it's a real, real downshift and you really have to rethink your hedging and portfolio? mr. bauer: i watch for extreme

volatile moves. i'm talking about a stock like amazon trading at a $15, $20 gap. i'm talking about s&p's trading at 10 to 15 point cap. that to me signals fear. if i see a sustained moved to the downside, that's going to worry me. if i see these big gaps, those at times where i look at it and want to take advantage of that. alix: scott bauer of prosper trading academy. "bloomberg daybreak." that does it for"bloomberg daybreak." -- that does it for "bloomberg daybreak's america." , with the market selloff means for faang stocks. this is bloomberg. ♪

♪ jonathan: from new york city, i am jonathan ferro. the count off -- countdown for the open starts now. ♪

jonathan: coming up, the s&p 500 coming off one of its biggest drops this year, the stock wrap -- route going global. president blaming the federal reserve saying the fed is crazy, the fed is going wild. in a market that is 30 minutes away from the opening bell, futures now unchanged. -- and the one point yield for -- the stock rout going global as investors look for answers. >> there is some nervousness in the leadership stocks. >> feels like a risk off trade. >> euro is a timebomb. the escalating trade war between the u.s. and china. >> i am a buyer here. >> i am worried short-term. >>