rises 6%, earnings and focus this week. talks on ice, time is running out to reach a deal before wednesday's summit before they face a three-pronged attack. deserters, more wall street leaders back away from saudi arabia, president trump weighs action against the gulf nation as an internal probe is weighed into the disappearance of a journalist. bloomberg: to " daybreak." you said it, no dramatics, but at the topline the revenue beat slightly. nice.gs-per-share simply >> breaking it down, this one .ame in a bit light equities in line, trading in line, i was interested in the trading losses at $700 million,

well below the estimate of almost one billion. again, it's like the consumer doing well, that part of a doing well, everything else in line. there may be a story there, deposits up nicely, and as you said, net interest income as well, the consumer is doing well, but at the same time they missed a bit, as you said, and that number is dealt is down significantly year-over-year. they seem to be retrenching and shaking up. in terms of investment banking, it was the same kind of thing, coming on a little bit light. the trend, right? consumer versus investment banking, it looks like that for the next couple of hours. it's a risk off feel, and we are well off the lows. that seems fishy. hold on, let me see. we were down by almost 10 points for the s&p. take up the boards, that's not sitting right here.

by futures are actually off 12. it was a lot worse, now it's not as bad. we will see how the warning -- earnings and that helping. weaker dollar story emerging around 4 a.m. this morning interestingly, the election really decimated angela merkel's sister coalition party and taking a look at the 10 year yield, jpmorgan declared oil with goldman sachs saying, look, you need to factor in the politics of saudi arabia into the oil price, even though they say hey, man, we will be doing what's right. saying forget $100 oil, maybe it's $200. yeah, you can imagine the tweets from president trump on that. david: exactly.

time for the morning brief. italy, negotiations beginning over deficit limits with a big day on wednesday and u.s. housing numbers down in the morning. in the afternoon the fed releases the minutes from its september readings and it's the same day that marijuana use becomes lawful in canada. grew --on chinese gdp growth in the month of september. we are joined by gina martin adams and marty schenker. seems like every quarter over the last couple of years, we are talking about stick, but now we are talking about core alone growth with positive consumer. think this has been a progression of quarterly events for the financials. particularly for the big banks. it's about topline growth, performance for these companies for one year running, it's about topline. frankly, so far on this scale they have been rather

uninspiring. waiting for financials to sort of take the leadership as tech breaks down here and we get a bit of value leadership that becomes naturally partial to financials with the yield curve suddenly becoming more upward sloping and we are not think it for a number of reasons. rates heading higher constrains the mortgage portfolios but at the same time you are not getting the sea and i loan growth to offset mortgage and at that part of the cycle we should start to see that and we haven't seen it so far this season. david: at the same time, the strategy seems to be no drama. is it because they reportedly want to take on more risk? david: that's the report, but at the same time that costs are down again. that is sort of the strategy. frankly, for the longer-term cyclicality, they get ahead of themselves, to risk

tolerant, loaning too much to lower quality credits and the and, creating a downdraft as the cycle ends, it's a little bit more painful. this is the financial industry that has much changed relative to the asked and they are certainly much constrained with respect to the credit that they are lending out. maybe, frankly, that means the downdraft is not as harsh or if the going forward financial system does not get overly aggressive, as it typically does at the end of the cycle. companiesthe public that we all follow. what's going on outside the public sector? could be another story. david: where there is a lot of drama, saudius -- arabia and the united states, the president talking about severe punishment coming their way if it turns out there responsible for the disappearance. at stake.re's a lot maybe especially so because this

man was a reporter. there's something terrible and disgusting about that. there will be severe punishment. this is becoming quite the international drama. the president is not mincing words. and we don't know where it's going yet. >> it's important to note that the interview was taped on thursday and a number of events have happened since that interview was taken. in some ways he has scaled back his dire consequences in terms of arms sales. there is talk of sanctions against individuals who may be involved. this is a very delicate dance that donald trump is trying to portray, here. and what he actually does remains to be seen. and the king this morning said through a spokesperson that they will have an internal

investigation and there could be consequences for people. marty: it will be interesting to see who is in the hairs of that investigation. it is the saudi's and the turks that will conduct the investigation. alix: the effect on the geopolitics and oil prices, i by the comments from india that they won't be doing anything crazy with oil prices or responding to fundamentals. in some ways that's the biggest weapon they have against the u.s.. gina: it will be interesting to see what oil does in response to this. as if we didn't have enough geopolitical concern. now with oil as well, it has been a sneaky market in oil where the prices have continuously risen over the last several months. they have held up well in the face of broader market pressures while they did certainly experience weakness late last week, but historically one oil it'ss it seller a rapidly,

one of the risk factors you want to watch for for the broader cycles. you do want to pay close attention to how oil reacts here , it will have consequences at large. david: if that were not enough, we had the brexit drama playing up. into the weekend i thought they would get to a deal and then dominic roth runs over to brussels and goes back. they will have that big summit with the council, the heads of government of the 27, quite possibly with no plan on the table at all. marty: and again, the irish border is the sticking point. stated is unacceptable for the u.k.. they are up against a deadline with a big meeting on wednesday and it's completely uncertain. what strikes me, though, is there is like no financial incentive for them to actually

get a deal done. investors are not at all trying to punish british assets. seen that ine british stock prices as well. there's been literally no reaction in the equity markets, elevated by the depreciation of the pound that we have seen over the last 18 months or so. there is very little reaction in the equity markets, which is somewhat a knowledge -- anomalous and is not in policymakers and in any way amash eight, or form. a reminder, you can find all the charts that we used and ,ore if you go to be bg tv you can even check out super nerdy ones from tom keene. breaking down the results from charles peabody, who is negative on banks, worried about bad volatility. this is bloomberg. ♪

>> this is "bloomberg: daybreak," sears has collapsed into bankruptcy, with over $10 billion in debt. their biggest shareholder stepped down immediately as ceo. they plan to stay in business after 600 million dollars in new loans. carl icahn has come out against the plan of dell to return to the public markets, he argues that the proposed transaction undervalues shares and that their $22 million proposal calls for the computer maker to buy

out tracking stock before listing its own shares on the stock exchange. there is a big merger in the defense industry in paris, technologies becoming the largest defense contractor in the u.s. a market value of more than $33 billion. it's known for communications and electronics and they get more than two thirds of the revenue from the u.s. government. that's your bloomberg business flash. david? david: bank of america, less theyhalf of an hour ago, beat on earnings and net interest income going up 6%. telephone,now on the charles peabody. ok, charles, what do you think? : well, it was a solid number in the sense that you had revenue beat. but it was a low-quality bottom line beat.

it was made by a listserv release, the loan-loss made below the net charge-off. in terms of bottom-line numbers. david: is it encouraging in terms of credit quality? yeah, it's solid in terms of today, but there are signs on the horizon that it could take a turn for the worse next year. david: deposits are up, but cost are down. it's nothing flashy, but trying to get the job done? charles: he's espoused a theme of responsible growth. you know, it's creating some discomfort within the franchise. particularly in the investment banking area. one of the things i have been saying for the last five years

is is bank of america spending enough to grow. formhas been the challenge when a hand. he has not shown an ability to grow this bank very well. you are getting 3% revenue growth right now in an environment that jamie dimon calls the golden age of banking. you know, you got s&p revenue growth of 6%, 7%, 8%. there has to be more investment and that's hard to do when you're cutting expenses and that's what they have been doing , trying to keep their expense structure low and declining. us through what we have learned. seems like the conversation will be less about investment banking and trading and more to do with loan growth and on those numbers, bank of america seems pretty solid. deposits in consumer units were up 4%. ,f it's a consumer facing story isn't bank of america doing well? charles: actually, i think that

loan growth this quarter was disappointing. it came in below expectation and grew only 1.4% year-over-year. that has been the disappointment that i think you have seen for a lot of these banks, loan growth hasn't kept up to expectations. one last point to represent what brian would say if he were here, i think, it's not the revenue numbers you should look at, it's the profitability numbers. if you compare it to last year, it was $.49. you say it doesn't matter how much revenue is used, the question is how much profit you are returning. at this point of the economic cycle, i call it investing for end of cycle dynamics. in the end of cycle dynamics you start to realize that the upside terms of profitability is limited and that the downside risks are growing.

so you know, i think that bank of america can do a 15% plus next year in 2019, but it's probably not going to grow its tangible book value much about 19 and change. that implies a mid-to high $20 start price. you know, you have a cap now on profitability and i think that's what the marketplace is beginning to realize. you are now in an era where you're going to sell the rallies rather than by the dips. characterized through the last three years. charleshart -- alix: peabody, thank you very much. the fed report this week, all across the board, from netflix to metals and banks, joining us is the sky bridge capital senior witholio manager, along

along with -- along with equity across the board. -- megan: you don't just have to borrow from banks anymore, there are other types of lending. that is just a piece of it. late 2016,wn since actually, and it has been a longer phenomenon since her have been other forms of lending. consumers and businesses, they

are just not the pointing capital. what's going to trigger loan growth again? >> am not sure it will come back. even though everyone is going great about is, can tumors in particular don't feel that if there is a recovery it will go into their pockets because of wage growth. if we had rate -- wage growth we might see some of that come back for businesses. equally, uncertainty around policy, if there was a turnaround around that. what's left of the fiscal policy of the trump administration? is there some other arrow in their quiver? you couldonly thing point to his structure. next year there is the potential for a democratic senate, trump in the white house. structure, it's unlikely they get that done, but it could provide another boost. but going back to the previous

point, why do people talk about this like it's a bad thing? isn't it a good thing that banks are running more stable businesses? running much more conservatively? it may mean less cyclical peak growth, but it also means much less downside when the cycle eventually turns. we view that as a positive development, not a negative development. alix: the bigger part of the conversation will be margins. do you feel that that has been factored into estimates? and more importantly to company estimates? this that's not clear at point. clearly the bull market going forward, obviously the topline growth looks decent, but if you start to see an impact from tariffs with escalating prices and commodities, not to mention wage growth, it basically means that next year looks a lot like this year in terms of equity growth. it will be a volatile market with upside, certainly far less

than they had in 2017. our other topn to story, brexit. a weekend of intense negotiations that failed to break a deadlock, leaving little hope for time for resolution, the meeting was one that they had hoped to use the finalize the divorce. what is your base case on brexit? megan: i still think that the chances -- that hard brexit is still the plan, but a chance for a no deal is higher. we are all pretty obsessed with the u.k. position in all of this. there's been much more reporting on the eu position on this. they have and really insistent on this backstop deal and on it not being temporary and that's a piece of what caused the talks to break down over the weekend. the board issue is central to all of this. there will need to be a border

between ireland, northern ireland, great britain, or they will need to stay on the customs unit in the single market and none of those are acceptable to all the parties. not: that kind of scenario, in the sterling. it feels like and looks like the market is actually pricing in a rate hike from 2019, meaning that they are not seeing that no deal crash out as happening. how unprepared is the economy and market for this? vary, but i would also say it's not my base case scenario. it's been in their interest to come up with some kind of deal, everyone is assuming they will but it's not guaranteed. it's a higher probability now, but not more than 50%. the u.k. government hasn't really done any contingency planning around things like medicine and flights, so it some point in these negotiations, october was their soft deadline.

they can miss that, that's no problem. but at some point they have to start planning for what happens if they don't get a deal. david: at some point. alix: so positive about everything right now, so great. [laughter] china u.s. relations is the other big conflict we have heard over the weekend, the ambassador saying there ready to go to war with the united states and donald trump saying that he's not trying to drive things up. war, we never want to have a trade war. but if someone that's a trade war against us, we have to respond. are down 32% in four months, which is 1929. i don't want that. i want them to negotiate a fair deal with us and open their markets. david: that's what he wants, but it doesn't appear he's getting that anytime soon. it's certainly a policy

fraught with downside of. there's a possibility that this year there is a preliminary deal tensionsrked out with diffused, but if you look at all the parts of the u.s. apparatus, whether it's national security, the state department, treasury, they are all gearing up for 10% tariffs going to 25, a clampdown on the expansions of china. our base case is that the tariffs go through and that will be another area that impacts margaret -- margins and volatility. david: global growth on this wobbly basis, if you add the trade thing in, it's a real problem. clear what the chinese can do to show that they have a fair deal in the short-term. it's like turning a tanker on the media to long-term. it's not clear what they can offer up to appease the u.s., i also see this escalating. at the same time, the

united dates have been very's civic, talking about please do this, they say it should be clear to them. them aret many of medium to long-term issue so it's unclear what they can do right now. they have actually agreed to buy more of our stuff, leading for majority stakes in chinese companies, things like that, they feel like the ball is in the u.s.'s court and we obviously don't feel that way. how do you deal with that as a market participant? troy: it has unwound recently, going off more than in the s&p again, if you think of the leaders for growth next year, certainly in the united states, the question is if we grow at 2.5% or an upside of three, it will look favorable compared to the emerging markets and now is certainly not a time for investors to be dramatically ramping up risk appetites.

the aware that there will be continued volatility. both of you will be sticking with us, so coming up, stephen schwarzman pulling out of a conference as wall street continues to abandon saudi arabia as tensions between the u.s. in the gulf nation heat up. we will be speaking to jim smith , former u.s. ambassador to saudi arabia next as markets try to digest the weekend of geopolitical risk with s&p futures off by seven points, off the lows of the session as the dollar rolls over against the big ten currencies. this is bloomberg. ♪

alix: this is "bloomberg: daybreak," what i have for you right now is that we are less bad than we were. how about that? getting hammered at the lowest level since 2014, the dow jones

futures were off by 200 when i got in this morning, that we are now paring that lost down by about 50. italian banks, wouldn't you know it, pretty much flat, budgeting to the eu not a lot of chances you will like it very much. similar stories, headline bad news with the euro higher ,gainst the dollar, the weakest despite the fact that angela inkel had a tough showing bavaria so what that means for her power going forward, same thing with out,, the eu might crash lower by one basis point, up by 1%.ith cruise -- crude up by 1%. david: that is one where geopolitics drive it up higher. alix: it is what it is. now, anaudi arabia,

investigation being ordered into the journalist at an istanbul consulate, people could be held accountable. president trump says that there will be severe punishment for those found to be behind the disappearance. >> there's a lot at stake. maybe especially so because this man was a reporter. you will be surprised to hear me say that, there's something really terrible and disgusting about that if that were the case . we will have to see. we are going to get to the bottom of it and there will be severe punishment. president trump says severe punishment, in the meantime the kingdom has come back to their press association saying that they reject the threats and attempts to undermine it and say's that if they receive any action, they will respond with greater action and the kingdom positive economy has an influential and vital

role in the global economy. welcome now from dubai, our bloomberg government and economy reporter. thanks for joining us. explain to us what's going on in this investigation? >> this is the first sign that the saudi leadership is starting to cave in front of international pressure, perhaps, and that the investigation the king ordered is going to be separate from the investigation being done by the turks and in the committee. now we don't know what they will come out with. might come out with a partial admission of guilt or they might come back to say that they investigated and found nothing. this is a stark difference from what they announced yesterday, where there was a meaning they might use oil as a bargaining chip here if they were sanctioned by the u.s.. david: we have security camera

video of charles peabody going and -- of jamal khashoggi going into the consulate. it's not lost on anybody that they are talking about oil here and they are talking about maybe $200 per barrel oil the kingdom wants to distance themselves from that, is that correct? theab: the statement on saudi government owned tv station, on their watch site a came out with these 30 steps that they said they would use that included threats about oil, oil prices could hike up, go up to $200 or even double that. doing certain things, like we may also allow the russians to build a military base into a bull we may become friends with iran and has bella. .- iran and hezbollah this was a weird statement to

begin with, but a lot of us don't think it will have anything from the government owned approval. but somehow the saudi embassy in bc, they came out and said this is a columnist, this is the writer's opinion. much, thank you so terrific reporting. that's bloomberg's zainab fattah . over the telephone we welcome jim smith, former u.s. ambassador to saudi arabia. thanks for joining us. >> good be with you this morning. david: it's the first step by the kingdom to say that maybe we can reconcile this. is that have you read it? clearly, there is a shortage of facts. if we could possibly have an investigation to find out what

happened, that would be the first step in resolving the issue. david: there are various reports floating around, audio tapes, video tapes. is there any question that he didn't leave of his own volition? amb. smith: it does not appear that he left. again, the turks appear to have more information than they have released publicly. but somebody knows everything. between the saudi's and the ofks and the investigations the intelligence community, hopefully we can arrive at some sort of consensus as to what happened. there are reports again from "the washington post" that they were planning this mission in advance.

amb. smith: that does appear to be true. my experience with that community is that they know more than has been released publicly. if i was eu is ceo looking to make investments in to saudi arabia, what would you tell me? to be careful. don't look at the incident in isolation. there has been a ratcheting up of a crack down not on dissent, but even opinion. even though the kang a loud driving, women were arrested. the arrests of economists are saying this aramco thing. thewhat appears to be .ilencing of jamal khashoggi

this is all of a pattern. the challenge here is that if you are a western financial or and you areity inecting transparency investing in the kingdom, you are likely to be disappointed. what is interesting is that this ifsuch a disappointing move the saudi's are behind this. thethe simple reason that success of the mom and bid and some on vision -- mohammad bin through 2020, if you take it away and you run off that private-sector economy, you run -- you have undermined the success of the country. alix: excellent point.

in your experience in dealing with the country, how willing is the crown prince to weaponize oil? well, there's only so much they can do. the emergence of shale in the united states means that saudi arabia is no longer the swing supplier. it's a shale economy that is the swing supplier. i don't think that the saudi's have the leverage of oil as a as what isly as much perceived in the media sometimes. as you say, there's a lot left to be learned about what happened, but at this point what does this do to the trajectory of the crown prince? until now he was the darling, the young progressive farseeing reformer and at this point, does this damage him with the other

princes? potentially even undermine his relationship with king saul month? -- king solomon? amb. smith: clearly, no one individual represents the thinking within the ruling family. much about issue so how much of damages his reputation but how much it damages the vision of where he and the king have set for the future of the country. i think that, again, the saudi's andne hand want to open up privatize their economy. but at the same time they want the levers of all of that investment, and the discussion internally. and i'm not sure how you do that. the dilemma they are going to if they sincerely

want to continue to control everything and all of opinion with an iron grip, they are very likely not to be able to open up successful,and be you do as far as liberalizing and modernizing the infrastructure. thank you so much for your views today. that was jim smith. are taking aif you look at the global economy and factoring in the middle east and the west, how do you need to think about that now? megan: a lot of that fits into oil prices. for the global economy think that that is a really benign, dovish picture, suggesting that

this recovery can come for that longer. you are hearing talk of , it istion pressure something that we could see depending of how the fed reacts to it. david: on capitol hill they are taking a different point of view. troy: the biggest impacts our oil and the defense industry. they have been very wealth producing for them. of instability going forward, however it looks like the trump administration is saying don't harm ourselves. whatever steps we take, let's protect the defense industry. to us that what the saudi government is stepping back to now is to find someone in the government to blame to really isolate this incident as . sacrificial lamb

it seems like the rhetoric is heading in that direction. alix: either way, how do you handle that in the market? troy: in europe they have been giving up on it. they had outstanding growth with all strategies doing well and for ther you have seen growthlity -- have seen, like that is in the end of the world, but it is further confirmation that even in investments, they have a hard time with changing the percentage. economists have a tough time pricing this in, but economist are divorced from it given the path in trading, they

don't care about an announcement from trump over the weekend. i think that that is a piece of it as well, there is some kind of divorce between the fundamentals and how investors are behaving. of you,- alix: both great to see you, thank you so much. coming up, desert deserters. that's coming up next. wall street titans abandoning the conference. this is bloomberg. ♪

>> coming up in the next hour, gary gansler, former cftc

chairman. alix: now, let's get your bloomberg is this flash. disney has made some concern -- concessions the european union regulators with their acquisition of 21st century fox assets. they haven't said what the concessions are, but they will promise to divest overlapping units or change the way that they operate. a new report says that more than 60% of businesses plan to move research and development facilities out of the u.k. as they prepare for brexit they have surveyed more than 2000 business leaders and found that more than three quarters expecting no deal brexit an icon for generation of american shoppers filing for bankruptcy protection. sears became the victim of too much debt and too few shoppers.

eddie lampert has also stepped down as the ceo, but the company is negotiating a financing deal while discussing purchasing a large portion of the stores. that is your bloomberg business flash. three things that wall street is buzzing about, the plunge, their largest outside investor comes under fire and an icon opposes the dell deal. taking on the return to the public markets. and the new rainmakers, a japanese bank stepping outside the box, thinking of new ways to move the investors. david: joining us now is jason kelly, the new york bloomberg business cheap. softbank has had a couple of weeks you would not want to have. jason: people may not know, saudi arabia is the biggest

outside investor. david: it was a big who when they announced that. jason: this is the biggest pot of money and i think we will be talking more about why the who are supposed to be going aren't going now, but speaking specifically of softbank, this is the big patron and he is already announcing that he wants presumably mbs with them in their. --x: an elon musk was like cool, they didn't want to take me private. jason: right, elon musk, feeling better. [laughter] alix: maybe? david: just this morning with larry inc.. all falling out. jason: it is safe to say a lot of emails were going back and forth over the weekend. remember, a lot of these people,

thanks to schwartzman, they were there in many cases not once, but twice last year, first with the president, remember president trump as you talked about on your show, went there? david: his first big foreign trip, right. jason: the reason that they were there is the same reason that they were interested in saudi arabia, the money. the public investment fund is and ito get the proceeds will be the largest sovereign wealth fund in the world, arguably one of the most sought after sources of capital. but now they are not going. it throws into question really a cornerstone of the sovereign wealth market at this point. ok, here's a complicated one. carl icahn, donald dell, they had this tracking stock and now they are going to try to go public with the earnings and they have a value placed on the shares that mr. icon doesn't

like very much. it's very complicated, but it comes down to michael dell wanting to do something and carl icahn, who has been a burr in the side of michael dell since the initial deal, saying that there's not enough money. same: it's always the thing, lowballing. 94 or something like that? jason: what's interesting is that there are really two things are ultimately much cleaner, take the whole thing public and see what the market is willing to pay for it, which is carl icahn saying that they are just blowing smoke if you think that that is an actual option, this is what they really want to do. and silver lake is involved as well.

they want to cash out. jason: first, understanding this whole thing, he says he prefers peace to war, but sometimes you have to go to war. does he, though? i don't know if i believe that. by far this is my favorite story of the day. they are trying to change how people interact with their clients, they want to hire flight attendants and television producers. what? last time i was on a plane, it was like, you are out of peanuts, you don't get pretzels. jason: i think they might be imagining like flight attendants from the 1960's, pan am, when they were nice? what's interesting about this is that this is an offshoot or unanticipated effect of the separation of research, making it much harder to make money

from trading, so they've got to find different ways to woo clients. i guess they're going to hire some tv producers? i don't know. talk to the control room, i guess. see if they are asking for resumes. [laughter] suggest more like waiters, frankly, they are much more choosy in some restaurants. david: well what clientele are they going for? but trying to get situational investors? no offense, control room, but they're probably talking about a time producers? jason: the mark barnetts of the world? maybe our shots are not good at all. [laughter] david: many thanks to jason kelly, you can tune into him every day from 2:00 to 5:00 on

bloomberg radio. coming up, the european union will get their first look at the budget drafted by populist leaders. you have the bloomberg terminal, go to tv on your terminals. check it out. this is bloomberg. ♪

>> the european commission says that it welcomes the initiative, that with copy at's. our priority at the moment is to make sure that those potential projects have the playing field of financing that comes from the normal competition that is the case here in europe.

david: ok, this is what i'm watching at midnight, tonight, finally italy submits its edge , waiting for it and waiting for it, the big issues of horse, limits on how big the deficit can be and italy saying they don't care, they ran on this and can show the bar chart of what they are protecting. 2019 is where it leaks the highest. the one problem even with this chart is that a lot of people don't believe the numbers. alix: it assumes a certain

growth perspective. 2% number is the magic number, being over that. what's interesting is that there isn't an urgency to greece default thing. there isn't a financial pressure that would make italy do something different and that in essence is the problem. a trade surplus and can pay their debts. well, coming up, bank of america delivers solid core loan growth as the fix meets estimates. this is bloomberg. ♪

comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?"

"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. alix: bank of america says we can do better.

andbank beat on earnings the cfo says they can do better on that line. brexit talks on ice. time running out for the u.k. in the eu to reach a deal before wednesday's summit. deserters. away -- street backs david: welcome to bloomberg daybreak. big earnings week. alix: huge earnings week. it is the conversation with banks very much, look at the loan growth and the consumer lending versus the investment banking. david: it feels like no big misses but no big hits. alix: we will discuss that throughout the next hour as well. s&p futures off by about two points as it looked like it was

going to be a big risk off move. enough, the dollar rolls over, euro-dollar up by 2/10 of 1% despite the fact that an election was a big blow to angela merkel's sister party. 3.16 is how we print on the 10 year. goldman sachs saying me talk about geopolitics, you have to include saudi arabia in the oil price. david: coming up this week, by midnight tonight, italy has to submit its budget to the eu. a big day on wednesday with u.s. housing numbers and then in the afternoon, the fed will release its meaning -- it's minutes from -- the minutes from its september meeting. we will turn back to earnings. bank of america came out with

results earlier today. the company beat on earnings. net interest income rose 6%. joining us now is leigh drogen, estimize's founder and ceo. leigh: bank of america, came in a little bit late on investment banking revenue but we are seeing bottom line beats across the board. the market is looking at this and saying sugar high on aps maybe over a little bit. tax cuts are priced into this and we are starting to worry about rates and the rest of the economy. i don't know if you are going to get too much move off of this. david: this is what i am puzzled by. if you go back not too far, it was all about the steepness of the curve and bank of america said if you give us more interest rates, we will make a lot more money. where is that money? leigh: i don't know if they have

the leverage on that like they used to. you are seeing other financial technology companies eat up what would have been slack that is becoming more efficient for these banking services. i am not sure if they're going to get that boost they are used to. david: where does that leave bank of america? is it basically banking, taking deposits, making loans? leigh: this is a straight play on the american economy and it has been pretty good here, but the question is as we start to andthe trade war kick in rates rise and the economy may youlowing, is that where want to be levered to? alix: which sectors do you feel best about in terms of revenue and sales growth? leigh: this is going to be an interesting earnings season relative to the last three or

four because we are starting to see the market please -- market cleave. industrials, materials. enterprise tech which we saw some stock last week square down 30%, names we have liked because of revenue and earnings growth. those mid-cap enterprise technology names. we are seeing upward revisions to revenue and aps while retail as well is doing really well. the consumer is still strong. alix: at least not sears. leigh: sears has been a problem for a while but you look at home depot which has been an interesting story. the growth is good but profit make it hit because of this trade war. walmart is the same way. what thisking at fourth-quarter and calendar year 19 guidance is going to be. guidance is not been that important for the last couple of quarters because we knew the economy was going to be strong.

this is going to be really important quarter for what we will see impacting profit going forward. alix: is the market hip to this? leigh: we saw that last week. here is the old saying we like to use, it does not matter until it matters. the trade war stuff and rising rates have not mattered until literally the last couple of weeks. when these things matter, they tend to matter in a big way. while you will still see 20% eps growth, versus .5% and 30% sequentially, it is down a bit but that is still strong eps growth. average pebelow the from the last 80 years. while everyone is going to cite that this week because of the , forward earnings estimates

are going to come down across the board over the next three to six weeks as we start to get that guidance. that pe is going to come back up. that could be a little bit of a trap. alix: great stuff. leigh drogen, very good to see you. very different sectors like banks, metals and netflix and png. turning us now is anastasia now is -- joining us anastasia general -- joining us now is anastasia amoroso and lori calvasina. laura, i want to start with you and this is a story without the updated guidance, without the latest round of tariffs. walk us what you see. lori: what we have seen is that earnings growth and revenue thanh are set to be slower what we saw in the first half of

the year. what has me concerned is over the last few months we have seen slower growth expectations slipped a bit. acceleration and slipping expectations of the same time. alix: and a stronger dollar. lori: and i think investors have been complacent about the impact on corporate profitability. lori has been saying do not buy this debt because of those fears. anastasia, how do you feel? anastasia: for the next three months, i am a buyer of the dip because i think the positioning has cleared out quite a bit. sidenality is on our because 80% of q4's typically end up being up. on the rate side, we do need to see a rate pause for the equity markets to stabilize and that is our expectation. we are at the top end of that rates range. david: that sound like a three

month view. let's do a 12 month view. a 12 month view is about where we are in the cycle. we do expect the yield curve to flatten and invert in the second half of next year. we could see the yield, the 10 year yield go to 3.5% by the same timeframe. case, we get into a territory where we start to question a bond versus stock allocation and we are going to be favoring bonds at that time. david: lori, where are you on that? lori: when a look at my drivers of market performance, they are fairly balanced. we have an extreme crowding problem that was not washed out last week. i would pushback on the valuation comment little bit. we look at a much larger -- longer history on valuation.

i actually don't think you have a compelling valuation story yet. alix: the question is in what happens to tech. wednesday, but thursday though, that was a confusing day for the market. in theory, they should have market resilience. they may not get as -- get hit as hard as they had. anastasia: we still think there was a lot of risk in terms of valuation. the software area is where the margin expectations have been so high in the valuations are flat out frightening. i am also concerned about the fact that when you look at the broader tech sector, we found that in september you saw slightly more negative revisions to revenue estimates. i actually think tech is no longer special, just a question of catching up. david: anastasia. anastasia: i would agree that tech is no longer special because you do have certain concerns about the internet and semiconductors but there are aspects we do like.

i agree the valuation has been frightening up until last week but we have seen a massive correction in some of the names we like. some of the data privacy related software names we have identified as the next thing we want to invest in, they were down 25% come us of this is a great opportunity to be stepping into some of those names. david: what about health care? there is no place you can go to get some upside. lori: i still love the health care sector at this point. the valuations are still very cheap. they have been down around financial crisis lows relative to the broad market and there is margin resiliency here as well using -- resiliency here as well. use to buy-- we will as we move into the later parts of the cycle. alix: why is value still not the trade?

i know you like value. it was a trade for 24 hours last week anastasia:. -- last week. anastasia: they were not the market leaders. financials, it is make or break time but there are two pieces of the value trade. there is financials, energy and sense ofl and also the value, utilities performance has strengthened the lot. anastasia amoroso of jpmorgan and lori calvasina, a lot more coming up with these guys. this is bloomberg. ♪

alix: -- taylor: this is bloomberg daybreak. it was once america's biggest retailer and now sears has collapsed into bankruptcy. the company filed for chapter 11 protection. their biggest shareholder step down immediately as ceo. sears and their kmart stores plan to stay in business with help from more than $600 million in new loans. activist investor carl icahn has come out against -- he argued the proposed transaction would attract a stake in bm where. there is a big merger in the defense industry. agreed to combine to

become the sixth largest defense contractor in the u.s. with a market value of more than $33 billion . more than two thirds of the revenue from the u.s. government. that is your bloomberg business flash. david: thank you so much. we entered and of the weekend expecting a deal on brexit anytime soon and ended it with an impasse as the british brexit secretary made a last-minute meeting to meet with his counterpart and came back and the handed. so what does is anastasia amoroso of jpmorgan and lori calvasina of rbc capital markets. you cannot know what is going to happen so if you are positioning yourself as an investor, what do you do? anastasia: there is really little chance that the crown sterling is going to stay where it was back then. the reality is it is very much a binary outcome because it is

either a soft brexit are a hard brexit and to position for that, we have looked at implied volatility on pound sterling and we positioned ourselves by buying that volatility so that the payoff would be there whether it is a hard or soft brexit. as we move through the headlines today, theresa may is in a tough spot because we are approaching crunch time. david: she has been a tough spot for a long time so why haven't the markets already priced that in? anastasia: the markets have oscillated around it. i think there has been plenty of volatility and if you just look at it from an to end, it would look like we are at a standstill. i say she is in a tough spot because on the one hand, she has thehard brexiteers in administration and also the europeans trying to push her and

there is not a lot of room to maneuver here. plus add a deadline -- added deadline. some -- add a deadline. something is going to have to give. alix: lori, if you are going to hedge certain risks, you might that of gotten paid for it. lori: -- throughout the last few months we have been moving underweight back to neutral. we like health care, utilities is the one we have an upgrade watch. even staples. it has been so the risk -- de-risked from an earnings standpoint, those of the areas that are going to do well in risk off environments and there are morning -- there are many reasons to buy them anyway. david: do you go overseas? anastasia: that is another call we made over the summer. this is an environment that is clearly advantage with any type of environment and i don't see that changing because if the economy recovers or if the global economy picks up, there

were different ways to play that global economy and if the global economy does not recover and the u.s. slows down and 2019, then the u.s. is going to be the lower way to position for that. the way we have been thinking about hedging in addition to the low-quality high risk stock is heading very tactically. in early september, we have talked about hedging technology because we saw positioning starting to get stretched and tech being the most forward exposed sector is quite susceptible to trade wars and margin pressure but now we are on the other side of that at the moment and i think most of the washout we have seen has happened in the technology sector. that is the first one i would be looking to. alix: a similar question for broader europe if you are looking for value, italian banks potentially, european banks. how do you distinguish between value and value traps? anastasia: i think the italian

-- i think italian banks are a very interesting idea. we are looking for some move on short-term rates. i think italian credits that -- a tying credit spreads are really not sustainable, so if that is the case, what is the best way to play spread compression in europe? it is through -- i do see that as a value opportunity. alix: anastasia amoroso of jpmorgan and lori calvasina are going to stick with us. we discuss what happened -- this is bloomberg. ♪

david: time now for the bottom line where we look at three companies that are worth watching this morning. sears has just declared chapter , they say they have $10

billion in debt. who has beenht backing this thing forever is no longer ceo although he is still chair. they're going to close 142 more stores. alix: and they have some good assets like kenmore and their auto centers. wonder whether you get a better price now? david: another complicated location is a lot of transactions with the fund, a back and forth between sears and the creditors. alix: this is a bankruptcy that was coming for years. softbank here. softbank stock got hit really hard because saudi arabia is a huge investment -- investor in softbank. that was a good thing when it happened.

it was going to be a good thing if saudi arabia was going to end up helping tesla. ,ith all the geopolitical risk how do you assess an investment like this? david: the investment went both ways. softbank was going to turn around and invest in saudi arabia in the new city they were building. can countries like china come in and fill that void? david: in the meantime, we will welcome to the wind -- brooke sutherland. good to have you here. can we talk about this? is this valued properly? brooke: carl icahn is coming out of saying he does not believe del's bar it is the proper value for the shareholders.

bb&t is the tracking stock that was created as part of del's bar just of emc. it is meant to track the volume .f the yen where -- of vmware you have a very big gap and shareholders were told by the advisors that the discount should be something in the range of 5% to 10%. the other complaint is that because delta kbit is both stock and cash and the stock comes from a holding in the combined dell company once that because public, that dell is placing too high the value on its own stock and that it is not valued nearly as highly as dell says it is. you can see in the share price which is trading well below the one dollar nine send -- $1.09. now they are saying you are overvaluing dell in exchange

for my tracking stock. brooke: it is more of a moral corporate governance battle than about the money, it is just about what is fair and he does not believe the shareholders are being treated fairly in this process. there is a nice soliloquy about war and peace and needing to fight a the sake of shareholders. diagram.o i need my lori calvasina is still with us. buybacks, or that type of growth. lori: on the m&a side, we continue to get deals in place -- places like aerospace and defense but you want to watch the cheap stuff. i would keep an eye on the staple space in particular. alix: anastasia, the you agree? m&a hasa: broadly,

stepped up this year and a lot of activity out expect to see happening in tech and software space, some of the smaller places -- players could be absorbed. we are in the buyback blackout period. , theally speaking percentage of buybacks that were announced and were so far executed was actually pretty low . alix: in the meantime you have carl icahn with his white horse and all about. and lori amoroso calvasina are staying with us. this is bloomberg. ♪

alix: this is bloomberg daybreak. s&p -- s&p futures off the lows of the session. thank earnings coming in now. -- bank earnings coming in now.

in other asset classes, a weaker dollar story, the euro continues to climb higher. yields go nowhere here in the u.s. and oil pumps by about 1% over geopolitical risk in saudi arabia. retail sales, if you backed out autos and gas, coming in flat. sequentially. basis, youon month are actually lower, down 1/10 of 1% despite the fact that empire manufacturing comes in small. these retail sales numbers don't make me happy. david: it is only one data point but does not say good things about the consumer. the headline overall is actually a 10th of a percent relevant 6/10 of a percent. -- rather than 6/10 of a percent. flipside, the

retail control group which may be more pivotal rose by a 10th of the major 13 categories, you did see an increase in u.s. sales, it is a have in a have not but a steady consumer, you argue about better gdp with mortgages rolling over so how do you continue to have economic growth with those sectors? david: it always comes back to wage growth. still with us is anastasia amoroso of j.p. morgan private bank and lori calvasina of rbc capital markets. could this be the hurricane seasonality, food services and drinking sales actually fell the most since 2016? is this just a blip? anastasia: i don't see this being a major trend.

we see this in credit card data, loan growth is continuing to grow -- is continuing. anything that is going to be interest-rate sensitive whether it is housing or autos, we would expect to see weakness there but outside of that there is broad strength by category that i am seeing. on top of that, the empire statement of factoring being on top of expectations is a positive development. lori: where do you see the u.s. consumer right now? lori, where do you see the u.s. consumer right now? lori: we need to keep an eye on this but we need to stay vigilant. alix: lori, how do you reconcile growth that seems solid with the weakness in the housing and auto sector? when you read through the homebuilder transcripts and the earnings calls, they are full of excuses and good reasons but those of us who sort of lived

through the financial crisis, we heard a lot of excuses heading into that and a lot of good reasons that did not pan out. we are keeping an eye on it. david: when we talk about housing, we talk about interest rates. to what extent is that shoot up in the 10 year last week, will that reflect to the consumer at some point? anastasia: it is starting to. the 30 year mortgage rate is just shy of 5%. on top of that, you couple that home prices and that makes it a little bit more challenging from a consumer standpoint. from a builder standpoint, lots are increasingly expensive, so it is difficult to buy a lot and than expected sell to consumer when rates are rising as much as they are. i do think that slowdown in housing because of that is starting. david: we had a $1.5 trillion insertion of fiscal stimulus into this economy.

what comes next? that is a good question and the jury is still out and getting back to earnings, i would say with this -- what this fiscal stimulus has done is massed a lot of the pressure starting to build the corporate margins. input costs are rising as well and all of that has been masked by the corporate dropping interest rate. alix: they totally agree. david: anastasia amoroso and j.p. morgan private bank and lori calverley -- and lori calvasina of rbc capital markets, thank you for being with us. now we turn to taylor riggs with "first word news." arabia has opened an investigation into the disappearance of journalist jamal khashoggi at the consulate in istanbul.

people could be held accountable if the evidence warrants. the king ordered the information -- investigation probably from information received by turkish authorities. questioning their place in the cryptocurrency dollar peg. tether has broken its historically tight -- with the dollar. it has been trading for as little as $.95, fueling a rally in other digital currencies including bitcoin. former trump economic advisor and goldman sachs president gary cohn has a new job. he will serve as an advisor to blockchain technology startup spring lab. the company wants to use the technology to allow lenders and data providers to obtain credit and identity information more efficiently. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists

and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. alix: joining us now is another wall street player turning his attention to cryptocurrencies, gary gensler, former cftc chairman. gary: great to be with you. what does that tell you about the validity of this going forward? gary: i think the technology, watching technology which the public knows his underlying bitcoin has a real chance to be a catalyst for change in the world of finance. that is because it moves data and also applies code across a decent -- a decentralized network. we see the likes of sheila and gary cohn and i am teaching at m.i.t., and the class is crowded.

a lot of people want to know about this technology. alix: how do you regulate it? gary: if it gets broad adoption and you really the crypto world is going to be part of the future, it needs to come inside of public policy. we need to guard against illicit activity and we need to protect investors. exchanges, exchanges like coinbase need to come .ithin sec or the cftc inside of something to protect investors. david: we are seeing cryptocurrency and blockchain because the currency may rely on blockchain but you can do things with blockchain that you don't do it cryptocurrency. do need to regulate blockchain? we don't normally regulate computer programs. gary: i could not agree more. we need to be technology neutral not regulate the blockchain technology but ensure that its application like euro

currency -- like cryptocurrency, investors are still protected. do not suffer from fall -- from fraud. david: -- seems to be moving very fast. do we have the personnel within the federal government to be able to understand this enough to know whether there is fraud going on? gary: it was always a challenge, that is true. i don't think that means we give up. we should still try and protect investors and then there is more confidence in markets and where there is confidence in markets, the more people can participate. we already have something called a bitcoin future on the chicago mercantile exchange. there is even a futures on other contracts as well and overseas markets. you are asking whether it be an option on that future. it is in our future but in the

next 16 or 18 months. alix: how relevant will that be to help form regulation? what is the feedback loop? gary: to the extent that international regulators can assure for more confidence that the viewers of this program can say i am comfortable, i can do this and big asset managers can invest, you will see more potential adoption. technology has to have a place in right now, it is more hype than reality. the technology is three years, maybe five to 10 years away from really being able to be scaled. visa moves 25,000 transactions per second, bitcoin moves seven to 10 transactions per second. i think scaling issues will come. david: assuming we have the

regulation you describe, where should that regulation come from? but maybeom the cftc there is an entirely different realtor a body. regulars --d be regulator neutral as well as technology neutral. cashnk of pure cryptocurrency like bitcoin needing more protection, more than even the oil markets or corn and wheat. i think the cftc has good skills. i think crypto assets called initial coin offerings, like the old duck test. these things are like initial public offerings. alix: what do you feel like is the appetite for other exchanges, other countries like south korea to regulate as well? gary: you see a lot of country

saying we have to guard against illicit activity and ensure our tax base stays strong. alix: sounds good. gary: the reality is it is hard to implement. it is really hard to implement. the investor protection side is all over the lot. small population countries want to attract and say come hither. ceos and the jobs, the in some countries like china and india are very hesitant and officially they ban initial coin offerings but underneath, the economy still has a lot of people trading in that point. -- trading in bitcoin. david: this is really in the early going. a lot of people involved in blockchain would say don't hold us back. gary: they would. you want some form of regulation. you want traffic lights and speed limits because than the

public is confident to drive on the roads. i think the two can coexist but it would take a number of years to sort through. david: gary gensler -- alix: gary gensler, former chairman of the cftc. david: it element from saudi arabia. president trump put out a tweet spoke to the king of saudi arabia who denies anything happened. apparently secretary of state mike pompeo is on his way to meet with the king. oil is up now by 7/10 of 1%. is, is thisquestion a conciliatory conversation or is there going to be a big push back? question is a great but from what would -- what we saw in the weekend is a quickening pace of the story, going faster and faster.

alessio -- it is moving along very fast. alix: we just talked about crypto. coming up, the case of going cashless. we will speak with the founder of a restaurant chain about his decision to stop expect -- to stop accepting cash. ♪

taylor: this is bloomberg daybreak. hour, -- in the next managing director. david: today we are beginning a new series on the future of money.

we're going to be covering a different aspect of the new digital world and how it affects money with subjects like cybersecurity, the use of blockchain and new payment systems. we will and analyst covering digital payments. good to have you here. tell us about where we are now and where we are going. >> globally, we are about 40% penetration. that means 40% of consumer purchases are made using a card or a digital form. 40% can but 40% of purchases are being done cashless? >> that's right. david: we are showing a chart you created for us by country on how it has grown and is projected to grow. lisa: it varies quite a bit by country. the u.s. is about 60% penetration. countries like canada are in the mid-70's.

we are expecting -- but the new see places like india is less than 10% and over the next five years we expect card penetration perontinue gaining at 2.5% year and we should be up in the mid-70's in the u.s. within five years. alix: fast-forward the distinction between card versus digital. i have forgotten my wallet so many times and now i am paying with apple pay with most of my purchases. make a distinction on where the growth can be for those kinds of payments. lisa: the best majority of the growth is on card or some sort of card-like vehicle but it is not a physical card. you have a prepaid card on apple pay and there is little variance on that in some places like china with alipay. they are not like cards, they are more like a stored balance, a digital bank account.

occasionally it is something different but the best majority of them are some kind of -- the avast majority of them -- the vast majority of them are some kind of card vehicle. david: assuming if i go to some other merchant online, e-commerce and they asked me to put my card information in, that counts. lisa: exactly. david: a lot of this could be growth of e-commerce, period. huge oneommerce is a because it is growing 17% globally and is virtually all cards like 100%. alix: let's talk to someone who decided to go cashless. good to see you. if i go into your restaurant and want to pay with five dollars i cannot do that. >> that's true. alix: why did you decide to do that? >> we are looking for any way to save time that we can.

time is a finite resource, especially for earlier -- our leadership. cash becomes a diminishing total of transactions -- diminishing percentage of total transactions. it takes so much time to count after each lunch shift and in her shift and setting up the drawers and getting and armored cars and writing the wrong number on deposit slips. we save that time for our and spending that time interacting with the team and guests and delivering more hospitality. do you get younger people coming there? >> it is a pretty mixed bag. we follow their lead. we are already at 10% in terms of 90% cards, 10% cash before we made the switch. of that 10%, effectively everyone was just kind of using cash from force of habit because

it is a small transaction and people do that automatically. david: one of the problems -- alix: what are the problems you notice? >> there were not a lot of problems with that. people don't agree with that is good -- with the decision and say you have to be thoughtful and if a couple guests don't have the cash, you treated as a place of generosity and try to explain everything. david: as you look at this movement you are tracking globally, beside armored car companies, who are the possible losers as you go to this cashless society? lisa: armored trucks are certainly one of them and any company printing physical checks is one of them -- is another. generally speaking, payments is one of those interesting global trends that is generally good for society. generally we all win. it is useful, it drives out

corruption and drives up tax revenue and helps with financial inclusion. it is a funny secular trend in that there are winners and losers -- there aren't winners and losers so much as we are all winners. david: but it makes us prone to hacking for example. it seems like every week, we see a new story about a hack. lisa: that is true. security is the biggest concern when you move into a digital payment world for sure. is on the payment system to continue to raise the bar. the security parameters they put in place our military like in nature. alix: you don't have armored cars that you are saving on that but you have another type of security breach. how do you prepare yourself against that? leo: we have an awesome director of i.t. and he is on the ball. immediately, we don't

hold onto anything. in terms of pci compliance or credit card data, we are as good as you can be. david: you have any overall sense on how many of your purchases are made with a physical card as opposed to apple pay or some other form? leo: we actually don't accept apple pay yet, but we are working on it. we are figuring out integration. we are all cards. alix: at some point you are looking to get into the other types. what do you feel would be the most efficient for your business? what would be something you would be looking into? leo: whatever the guest finds the best for them in digital form. ideally we are agnostic. as long as we can be digital about it. alix: the guy who is doing it and then you have the growth we can see. great stuff.

thank you both very much. coming up, we'll bring you the latest headlines from the bank of america earnings call. more on what i am watching next. this is bloomberg. ♪

alix: the bank of america earnings call is underway, that stock of i 1% in the premarket. what is the latest? taylor: we are hearing from the ceo and cfo. we did hear from them at the top of the call, just about an hour ago, highlighting earnings at a record of 32% this time from a year ago for net earnings and then obviously cost-cutting. it is such a thing we heard about with bank of america, 2018 is the eighth year in a row that bank has lowered their expenses. 29 expenses will be right in line with where they are this year as well. always about the consumer as

well. year for your revenue for the consumer is up 7%. higher deposits and interest rates. they were saying they feel good about the consumer, business and 2019 19, feeling good about the economy, talking about the consumer checking deposits. alix: thank you so much. on the heels of the cfo saying we can do better in investment banking. david: i did not hear anything about investment banking there. alix: that does it for bloomberg daybreak: americas. coming up, bloomberg markets: the open. this is bloomberg. ♪

>> account of the open stance right now. that starts right now. -- starts right now.

coming up, the global equity market rebound following a weekend of warnings of the annual gatherings. you can now add tension between america and saudi arabia to a growing list of investor concerns. in, bank of america result in line with estimates. 30 minutes away from a brand-new trading week this morning. this monday morning features negative by around about a 10th of 1%. a weaker dollar story. the bulk of g10. euro-dollar claiming 116 handle at a very little bit of treasury. yields low basis point points at 315 on a u.s. 10 year. equity markets, friday's rally you losing some team -- steam this morning. welfare currently experiencing is a correction within the bull market. >> clearly, there was a lot of polarization in the market. >> the key thing is whether the opportunity