denies reports the government will collapse, saying she will stay in her post. the cabinet minister decides not to reside. the dollar bull run has ended, the market pricing at a rate hike. california to the rescue. the state regulator says he cannot imagine letting pg&e fall into bankruptcy. we speak to this anova ceo on the impact of wildfires. welcome to "bloomberg daybreak," my colleague slept in until 6 a.m. the rhetoric for the open, we are in no man's land, futures down 5/10 of 1%. watch semis into the open. is pound, cable rate, 1.28 how we print. morganity intense, stanley saying the dollar bull

run is over. yields go nowhere in the u.s. crude over 1%, trying to shake off weekly losses for the commodity. time for the first take. let's get to it. brexit. vol. come inside the bloomberg. white line is volatility and blue line is cable volatility. what is the rhetoric? traders, it isth how did we get to this? how is it that we have gotten to this point. that is the main story. we're watching the swing in cable. of the pound above the ruble. we have entered emerging market status in terms of what we are expecting. traders are focused on binary outcomes. london has done good work

looking at how rates could go one way or the other on any outcome. in the interim, people are pushing out expectations for possible rate hikes for the boe, expecting a bluff. one of the most interesting things going forward will be what will a hard brexit look like? what is the worst case? planes cannot live from great britain to the rest of eu without advanced clearance? the financial sector will not have easy access to mainland? these are questions as we price in worst case scenarios that emerge. i have not heard concrete answers. there is not a consensus. alix: there are no solutions. if you go with the deal, you have another referendum or you crash out. >> we have introduced potentials. i would compare it to italy. this has been dragging on for a while.

you will not get to 400 basis points on that. things have calmed. there seems to be a struggle going on between eu and italy. why cannot the same happened for british politics? no one knows what the worst case looks like. alix: next story. the dollar. morgan stanley overnight. we knew they were dollar bulls. they believe the dollar has reached the peak, sovereign bond yields also began falling, inflationary pressure on falling oil prices. what are you hearing? why we do not go along on dollar? >> will the fed have to slow the path as a result of weakness? if they pause, jay powell did signal he is watching what is going on closely in a speech on wednesday -- if they slow down,

all of a sudden, the u.s. is not diverging from the rest of the country of -- the countries around the world when it comes to monetary policy. you could see the dollar soft and in that case. -- softened in that case. is it really going to lose momentum at a faster pace? we are seeing that. take a look at what markets are pricing and. expectations for the rate hike in 2019 is moving lower, 38 basis points lower from friday -- markets are pricing in. >> definitely. not certain extent, he is saying he is watching these -- whatlosely, is not is he doing? he better be watching. >> hold on. that is fast. >> he had a month to prepare. he is getting asked questions.

they put a script together and they are telling us what they think they need to tell us. >> he was trying to signal more a dovish tilt. >> i think that is much more reading into it. if you want the fed to signal thath, it needs to come, is all you need. the things go according to plan -- alix: i do not like conflict . >> the market read it is dovish. alix: this is why we make a market. third story. thefornia wildfires, pg&e, most exposed utility when it comes to the wildfires in california. will the state rescue it? we heard that could actually happen overnight. the bigger issue is who pays for climate change? ion dollars? gazill >> i was speaking yesterday to

the teachers retirement fund. out the window, the smog looks like beijing. they are talking about how they control the funds they oversee which is a lot of money, $200 billion, how they can make sure it goes to companies that are more aware of climate change, are trying to engage more. drives home a point for a lot of investors. there is a question. what can they do? at what point do they vote companies responsible? no more fossil fuels? alix: california's trying to. they had problems before this. -- it isdon't think fair to say it is a popular opinion -- we do not hold the banks responsible enough after 2008. we need the banks and the financial system. we're talking power and utilities. the odds of them getting held responsible are low or at least,

maybe management. what the conversation brought to the debt market, bonds fell out for pg&e, yields despite. alix: -- yields spiked. >> pg&e played a game and one. they drew down -- and won. they said we are heading toward bankruptcy. they forced california to say, of course we will bill you out. -- bail you out. we will see another move up today. general election is another situation. you have to wonder. these companies that are huge and capital intensive on the at whatjunk rating, point do investors price in pressure premium? alix: we are seeing it. thank you very much. heated debate on friday. we brought it.

viacom earnings. numbers crossing. beat, $3.49as a billion. network revenue up over $2.5 billion. solid numbers. earnings coming in at $.99 per share. up 3% in premarket. looking forward to call on competition. more on theresa may's battle to stay in power. this is bloomberg. ♪

♪ emma: this is "bloomberg daybreak," with the bloomberg

business flash. it with the crash in indonesia last month. the father of one of those killed claims the new flight system caused the crash. they will add a software fix to the 737. investors are concerned nintendo switch may disappoint. 9% of tokyo, it became the fastest console in history. a key chip gave a downbeat revenue forecast for the current quarter. cities across europe adjusting to london leaving the european union. making it clear. >> we also need a real financial center in europe. so far, it has been london. london will remain important.

outside the european union, as it stands for now. not surprisingly, there is a passionate debate about which european city should be the continent counterpart to london, new york or singapore. you won't be surprised, frankfurt should be the natural choice. emma: deutsche bank plans to move hundreds of euros in balance sheet from london to europe. alix: theresa may fighting for her life, defying demands to quit and vowing to see her brexit deal through, despite the turmoil in the government. fighting for her political life, does that get easie as the minister will not resign? >> it seems to go easier. over the last 24, theresa may

has put aside cabinet resignations. one less headache. a key figure in the brexit movement, if he had resigned, that would perhaps have encourage more members of his party to challenge theresa may over leadership. he decided not to do that. leaningexit ministers, ministers in a cabinet have decided to stay. a better 24 hours for the prime minister than the previous. be under no illusion, the challenge to leadership has not gone away. alix: that brings us to the no-confidence vote. >> where we are is difficult to say. the process is behind closed doors. if you are a conservative mp and want to get rid of the leader, you need 48 mps in total to send to the backbench committee.

we do not know if they have that number. locks them away in a safe. there have been 20 names in the open who said, i have written a letter. we do not know if they have the others. other members of the european research group on the brexit wing are confident they had the letters and some. we don't know. it could be they are taking time, perhaps getting things set up behind the scenes to announce they bring a leadership challenge or that they don't have the numbers. we will find out. if she faces leadership challenge, that does not mean she loses and if she is successful in fighting off competition, she is unchallengeable for 12 months. alix: unreal. exciting 48 hours. thank you. the chief from miami,

investment strategist. has your base case for brexit changed in the last 48? kathryn: the brexit deal seemed done. now it is called into question. we got a good idea of what could happen if this deal gets squeezed or canned. 2% drop in the pound yesterday reminds me of em. they tend to have volatile moves. the market would react tremendously negatively. this afternoon in europe, they will not renegotiate. there is no new deal. if this deal doesn't pass, we see brexit leave without any deal. currency,ging market i just showed a chart, look at the cable rate. standard deviation moves upside and downside, the pressure we have been under so far in the last week. i know you like emerging markets. is this appealing?

or scary? kathryn: just another reason why i like emerging markets. they continue to get hammered by exogenous forces when he and in itself especially certain countries, -- e.m. itself especially, brazil is upswing with good fun and all that complemented by favorable result in the recent elections, from an economic perspective. when you get the panic sells or markets saying, we are done with risk, brexit and the u.s. economy and china looks iffy. you get outflows. that is where i look for value. alix: mario draghi was speaking earlier. he came across the glass half-full. growth in the coming years despite headwinds. >> certainly no reason why

expansion in euro area should abruptly come to an end. normal asslowdown is expansions mature and growth converges toward long-run potential. alix: do you agree? there has beenk exaggerated pessimism with regards to global slowdown. we saw it manifest in one of your favorite topics. oil. we saw prices plummet because of overly skeptical view as regards to global growth. i have maintained a bullish approach with regard to u.s. growth, chinese growth, global growth will maintain force into 2019. there isy that view, value in some of the more battered names in em space. alix: there are better names in europe. italian banks. u.k. banks. is there any value appeal in those areas?

kathryn: you are right. i would target european banks, especially if we get ecb that by the end of next year starts to lift punitive, negative rates that have been punishing banks. i would look at banks in europe. i agree. there is value. developed markets, u.s., europe, japan, there is no place more attractive in terms of value than europe. to see a totaled rotation and value versus growth? on margin evenin though you have growth momentum still working? kathryn: value is attractive at levels. i would be in the value camp, especially europe, looking at u.s. even at chinese names. alix: great stuff. sticking with me. we break down emerging markets more, and trade. coming up, the end of the dollar bull run.

morgan stanley's latest call to sell the greenback. not everyone agrees. this is bloomberg. ♪

♪ alix: dueling dollar calls. morgan stanley out with a warning. "we believe the dollar has reached its peak." doubling down on another call. "why wouldn't you buy the dollar? the dollar will win." very clear calls. which side are you on? >> i see the dollar at $95 by year end. fed hikes are priced in. we see stability. we are going to see a stable dollar. the u.s. economy still in growth cycle, fed fund hikes are fully priced in.

i think we will see stability in dollar over the course of the next 12 months. alix: to write hikes need to be priced out? look at 2019 expectations, falling 38 basis points from last friday. kathryn: excellent. given the market correction the fed, would be reluctant to hike. i do not think they will miss the opportunity. a hike in december, january, march, possibly again midsummer next year. if i am right, we see inflation take up in a moderate fashion, there is no reason not to hike, especially when we see economic growth, even if it slows down. let's say we get 3% or 2.5% for next year. it gives the fed the opportunity to continue to normalize rates, which they want to do. alix: part of the rhetoric when

the chairman spoke on wednesday with mr. kaplan, he laid out the kaplan, he laid out the scenario about paring back rate hikes. >> challenges typical of this point in cycle, we have to be thinking about how much further to raise rates? and the pace? the way we will be approaching that is to be looking carefully at how markets and the economy and business contacts are reacting to policy. alix: slowing demand abroad, ending fiscal stimulus here, lagging impact of said it rate hikes. what do you make? kathryn: trade. let's face it. if the u.s. increases tariffs on chinese imports the 25% on half of shipments and fulfills the threat of introducing tariffs on the remaining 50% of shipments,

their debt -- that keeps me up at night -- that would be the headwind for the u.s. economy. higherd get inflation than i am currently forecasting. the fed would be forced to hike rates, perhaps more dramatic and rapid fashion, inducing economic slowdown. that potentially changes the cycle. that is the biggest risk. in that case we would see a bed far more -- see a fed far more reluctant to hike rates at that magnitude. alix: yesterday was interesting with softer equity. there was a report that light paring--, basically back. wilbur ross says, we get demands. has your base case changed?

kathryn: the probability is still for framework to be developed. something that gives president trump the space to say i am not going to hike tariffs from 10% to 25% and be so punitive in terms of the trade relationship with china and a practical fashion. base case is still, some verbal agreement is reached. last night, the negotiator for nafta, the mexican negotiator, i'm feeling pessimism with regard to guys who have negotiated with litehizer. i think it is aligned. it is not in the president's political interest coming into the 2020 election to exacerbate an already difficult trade situation and potentially bring about a worst correction in the u.s. markets.

alix: what is success? no more tariffs or a rollback or something getting done? kathryn: success if you get one of three things. joint ventures a lot in china with u.s. companies. opening of chinese import markets to u.s. cars. or a crackdown with regard to ip theft. any of those. alix: great stuff. stay with me. coming up, how the wildfires are bringing greater demand for solar products. this is bloomberg. ♪

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i love the s&p is in no man's land. it snapped the losing streak. non-follow-through buying streak. reversal. u.k. banks still getting hit, down by over 1%. barclays in particular could get kicked out of the euro stoxx 50. we are still watching cable rate. feeling like em currency with volatility. cable rate up three tons of 1%. michael grove does not resign, providing support for theresa may. euro-dollar flat on the day as well, bouncing off resistance level. points.ead is 49 basis goldman sachs says that spread will tend toward zero next year, completely flat. interesting call. crude up over 1% after a difficult week. oil looking at the sixth

straight loss weekly. headlines outside the business world. emma: the u.s. justice department has revealed prosecutors have charged julian assange. his name appeared twice in a court filing on an unrelated case. it is unclear what charges he would face. he has embarrassed the u.s. government with mass exposures of classified information. the trump administration plans to raise tariffs on chinese imports by 25% in january. the president's of the countries will agree to a framework for further talks on trade when they meet later this month. the countries are discussing the agenda for the summit and when azeris. buenos as aries -- ires.

pg&e faces billions of dollars in liability if it is found to have caused the wildfires in california. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra, this is bloomberg. alix: thank you. pg&e stock up today but it has been a terrible week for that equity. wildfires ravaging california punishing utility companies. pg&e battered and bruised. who will pay for climate change? these events seem to happen more frequently. joining me now, a man in the trenches. john berger. installs solar panels, the top four residential storage provider in california. thank you for being here. >> thank you for having me.

concern, we have concern for customers, making sure they are ok and save. secondly -- safe. we try to respond to every natural disaster. we prepared every customer's system and got them back online on our nickel. we have been dealing with , the most powerful storm to hit the united states. we are responding in rapid fashion. anything we can do for customers to restore service and get them online with safe reliable clean power, we will do anything and everything we can do. alix: if they rebuild. . do you have a sense yet on rebuilding? what the longer-term implication is a wildfires? >> we don't. some fires we had in the past, customers have rebuilt homes, some have chosen not to.

it is a personal decision. insurance toy have compensate them for their material losses. you lookng in solar, at climate change and the utility how do you see model changing and evolving in the next 30 years? >> it has to involve much faster. this is the tip of the iceberg. we have an issue as far as what pg&e -- our opinion is they should be held accountable. if you do not hold people accountable including us, you will have a repeat of behaviors. alix: you think they should be on the hook? >> i think so. there has to be accountability. the state was making those points. whether they allow them to go into bankruptcy or not -- there needs to be accountability for the issues that have gone on. i am not that close to it. symptomatic, is

whether it is bailout's, other issues surrounding the u.s. power industry, the industry is fragmented. it is old, old technology and it needs to change. we need to put people first at the center. consumers need to be able to choose the clean reliable power we can provide with solar, and rapidly declining battery prices, along with all the other electronics going into make smartphones, we need to be able to have those technologies provided to all people and put the consumer first. the disruption of technology and through climate change and the political, does the cost of capital increase? how do you handle that? >> it should reflect the cost increase. i have been saying for years that utilities cost of capital is abnormally low. we're seeing that with pg&e. with several other utilities. people think it is one off. it is not.

i think we will see rising cost to capital across utility industry for events like this. no decision is a decision. when we decide not to put any price at all or structure for carbon, we will have outcomes that continue to be subpar at best and put consumers at financial damage, more than that unfortunately, personal damage. alix: in washington, regulation and oversight, we have heard about saving coal and nuclear energy. that is something president trump wants to do, saying the grid is unreliable because of solar and wind, you have peaks and troughs, making it unreliable. that is why we need coal and nuclear. what do you think? >> there is a difference between utility scale solar, somebody like pg&e, a solar farm -- and what we do. we go to your home and we put

solar panels, batteries, other electronics, generators, with your home. when you have a natural disaster. we are headquartered into houston. unprecedented flooding. there is something going on. people want a more reliable power system. that is solar with batteries. at your house. alix: when you're not using all the energy, you can store it and use it when you actually need it? >> exactly. system,est link in the when we have to deal with wireal disasters, is the in the air. that is what caused the fires here. we are advocating. let's have integration of decentralized and centralized systems so the grid and what we do -- let's integrate them. let's have open market where consumers choose providers so

that consumers can hold providers accountable for things like climate change and they can make the right choices that suits them. alix: what kind of regulation needed from bc? >> -- from washington dc. >> weenie wholesale regulation, we need to look at the regulatory structure. states have right to advocate for environmental policies, especially when it is not done at the federal level. i think it should. that would provide a level playing field for all companies. we can say -- there is a lot of waste within the u.s. power industry. why? because it is run by the government. it is not a consumer focused, consumer centric industry. we could take waste and put it back into safety and the system so things like this, wildfires, do not happen. when you have open consumer choice platform, let's have a debate on what that looks like on a national scale. alix: it is showing up in the ballot box. we saw that in nevada.

great to see you. thank you. what does this mean for the credit market? that was the conversation over the last few. pg&e bonds spiking, yields spiking, bonds falling. is this idiosyncratic or a precursor to the selloff in the high-yield market? what do you think? the harbinger or idiosyncratic? kathryn: the fact that the fed has kept rates for solo so long has led corporate issuance to skyrocket. $1 trillion of corporate bond issuance every year since 2010. rising rate cycle, you get corporate issuers low in credit quality having trouble paying obligations. you have to be careful with regard to corporate investments get,ith regard to, if you instead of a curve flattening,

you get a curve steepening in 2019, you get even worse impacts on long-duration lawns, which in many cases -- bonds, which in many cases corporate issued, and institutional investors did go long, durations. to get that yield. b's.: triple c's and it seems like you predict a bigger spread widening. how much until that reverberates in equity markets? kathryn: even if you get a couple big names having trouble, were having debt obligations fulfilled, even in emerging space we have seen it. if you get possibility of default or of restructuring. in argentina we have seen us, it a reverberates immediately to risk. there is risk off as soon as you

hear from a high grade name. off is a concern if you get corporate complications going into 2019. alix: you brought up oil. the complete destruction of prices over the last week and the high-yield energy market. what is the path? kathryn: oil has a structural path, because of u.s. nonconventional production. we have seen production skyrocket thanks to efficiency, that is despite a collapse in drills in the u.s. will keep a lid on prices. i'm not expecting them to continue to drop. they will remain stable at $65. alix: great stuff. coming up, historic week for the art market.

we look at the record price ever paid for a living artist's work. this is bloomberg. ♪

♪ emma: this is "bloomberg daybreak," i'm emma chandra. coming up. this is bloomberg. ♪ emma: this is "bloomberg daybreak," and i have the bloomberg business flash. bank of america and deutsche bank may be john into one of the

biggest money laundering investigations in history. -- may be drawn into. investigators have asked about jpmorgan. more asset sales at general election, they have agreed to sell a portfolio of health care leases for $1.5 billion. the buyer is a florida lender. musk is coming for a visit. he will walk entire model three production line on november 27. vehicles,ry sales to all facilities need to be able to support 1000 cars made per day. that is your bloomberg business flash. billions of dollars have traded hands in the art market, culminating last night with the record purchase of a portrait.

the highest price ever paid for the work of a living artist. we are joined by the man. great to see you. >> great to be here. alix: did you expect $99? >> we did -- did you expect $90 million? >> we did. people are fascinated. joe lewis was determined to have it sold, no guarantee. alix: we have seen a ton of market money over the week. since 12 months ago? changed. haven't alix: ok. >> we have seen a strong trend. african-american artists, women artists, markets are catching up. suppressed for no reason,

essentially. we see great opportunities as well as incredible masterpieces coming to market, as great collectors in the 1970's pass away. alix: do you attribute that to the living artist work is getting too expensive? is that why we're seeing the younger artists come in and take market share? is there more money in general? >> more money coming to the space all the time. in is playing a bigger role the lives of everybody in the world. the bottom of the pyramid -- people who go to museums and enjoy learning about our -- art -- has grown quickly. the top grows with it. alix: why? >> i think the world sees artists as a model now. we want our children to be creative, original, to think outside the box. were businessmen,

firemen, astronauts. now the artist is taking a central role as an idea of what a person can be. alix: how much of that is tied to appreciation? you have low rates moving higher, some kind of capital return, this is a place to get it. how much of the art market was driven by that? >> when you have lots of good news -- the rest of today you will have bad news -- alix: that depends. if you are short today, you're feeling all right. >> when people are feeling insecure and there is chaos in the world, they turned to art. they think of this as a portable secure non-correlated asset. new moneygs are great, comes into the market and the art market grows. we suffer a little sometimes

when the market suffers but we tend to switch to hedge quickly. alix: things like cash become more attractive, yields go higher. does that siphon money away from the business? >> we thought so. we do not see it. we had a lot of challenges in the last year. we lost our 1031 exchange for some reason. our president targeted us for that. we thought that would bring sellers after the market. they couldn't exchange buying into new art without paying capital gains. we have a lot tight controls on capital out of asia. we thought that would be a problem. we came into this week feeling like it will be fine, but it would not be the same. alix: let's go forward. what are you most excited about in the next 12 months? >> the next hockey show.

no. alix: it used to be idiosyncratic. now that is not the case. >> absolutely. alix: what else? >> incredible african-american artists opening up the idea about how an understanding of the social fabric can be fertile ground for making art. alix: jacob lawrence told the businessman last night. >> $6 million. alix: real pleasure. coming up, deutsche bank, jpmorgan, bank of america in one of the biggest money laundering cases in history. this is bloomberg. ♪

♪ alix: one of the things i'm watching. the drama that does not end.

deutsche bank, bank of america, jpmorgan in one of the biggest money laundering investigations in history, the probe into the activities in estonia. lisa, what is the investigation about? lisa: money laundering through got wrapped danske up in this. it is roping in these major banks because of a correspondent banking system. circulatory structure around cross-border payment fee system that is $160 trillion worth. major banks have accounts with other banks in foreign countries that they used to transfer money in and out on behalf of clients. alix: for cash into dollars? lisa: deutsche bank and bank of america continue with these anske afterth do

jpmorgan pulled out. the investigation is not targeting the banks. it is asking them questions. alix: did you have the scrutiny? due diligence? lisa: exactly. what kind of red flags could you have gotten that you ignored? jpmorgan saw it and said no mas. alix: so interesting when you have charter fines against iranian sanctions and the issue with goldman. you wonder if this will make ceos pare back risk? lisa: i think bloated risk management teams, lawyers going over this stuff. how many layers do you need to make sure you get full scrutiny? banks,f you are european you are looking at brexit. need a real financial

center in europe. so far, it has been london. london will remain important. the european union for now. not surprisingly there is passionate debate about which european city should be the continental counterpart to london, new york or singapore. you won't be surprised, frankfurt should be the natural choice. lisa: what? alix: exactly. lisa: are you thinking frankfurt by any chance? alix: goldman has a presence. lisa: frankfurt has been a beneficiary as well as paris. amazon headquarters? they debate. this even bigger. whoever becomes the next center will be attracting all the high-paying jobs. alix: david westin talks to michael corbat. he said he was preparing for a

hard brexit. if there is none, can you reverse the offices? he said, no. we will stick to the changes. lisa: it shows the reputational and structural damage these things can cause. alix: thank you. chief up, jim polson, investment strategist, will be joining us. utilities versus tech. duds and studs. tone and the market even though the s&p broke the street yesterday. no followthrough yet. this is bloomberg. ♪ [ phone rings ] what?!

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see the grinch in theaters by saying "get grinch tickets" into your xfinity x1 voice remote. a guy just dropped this off. he-he-he-he. >> theresa may fights on.

the prime minister denies reports the government will collapse -- saying she will stay in her post, deciding not to resign. morgan stanley says the dollar bull run has ended and markets are starting to price out, rate hikes for 2019. hedge funds face a reckoning. $11 billion from hedge funds before they fall into the red for the year. the market weights to find out more they want back before the deadline. it is the post snow haze in new york. i never thought we would see that much snow before thanksgiving. it's a beautiful shot, welcome to bloomberg daybreak. david westin has the day off. we had the s&p, break five straight down days, s&p futures off by about 16, down .6%. i want to come to cable, up .6%,

a volatile trading environment. we willty picking up, be watching that throughout the next 48 hours. yields in the u.s., buying on the margin, but not a lot of movement. 2%, stilly almost looking for the sixth weekly loss, but a dramatic reversal from what we saw earlier in the week. let's get an update on what is making headlines outside the business world. u.s. justice department has inadvertently revealed that prosecutors have charged julian assange. as name appeared twice in court filing on an unrelated case. it is unclear what charges he would face. he has embarrassed the u.s. government with mass disclosures of classified information, hold up in the ecuadorian embassy in london for more than six years. tariffs on

chinese imports -- president trump and xi jinping will agree to only a framework for further talk when they meet for further talk. the agenda for the meeting at the g20 summit in buenos aires. theresa may is defying demands to quit over her proposed brexit deal, fighting to keep control of her government long enough to deliver an agreement. battle with members of her own conservative party and could soon be fighting a formal challenge to her leadership. if she is forced out, the u.k. would be four months away from an exit. global news, 24 hours a day on air and on tictoc on twitter. powered by more than 2700 journalists and analysts in more than 120 countries. alix: thank you. for hermay fighting political life, and markets hanging in limbo. >> i guess you have a worst-case scenario until we see some

clarity in terms of the political future of theresa may. >> i think most people are actually out of the market. i think you really do have to be brave to be involved with sterling. >> i think yesterday was a bit exaggerated, and we are seeing -- exaggerated, and we are seeing -- >> when we look at u.k. assets, equities in particular, we can't ignore the brexit risk. we would much rather have exposure in large caps of ftse 100. i think the longer this gets drawn out, the more we will see pain in sectors like that where probably the uncertainty matters the most. i'd like to think the banks are incredibly cheap in europe and the actual impact is measurable. is theing me in new york founder of the benson air group, and help create the bloomberg terminal. can't polson from minneapolis. thent to kick it off with

standard deviation move, how extreme it has been. even today, one standard deviation move after yesterday's three. rick, this reminds me of emerging-market currencies. >> it does. the marketplace doesn't really know what to do with the u.k.. just looking at the british pound, it is holding a base at 128. if it gets to 127 and change is below for the year. if you break underneath that, it's kind of a crapshoot to the bottom, suggesting the marketplace has little confidence in what is going on brexit is. about if going to occur, and how, if ,here will be a true break off and if the true attachment to the eu will continue or not. still isof clarity

keeping this close to 128. trade lack ofyou clarity and political uncertainty in the past, you would not have made a lot of money. what do you do with these kind of headlines? >> i think it is difficult to trade this, it is so uncertain how it will come out. on ald not venture that short-term basis. but i think it is also important to understand, ultimately, that this will get done one way or another. whether with brexit or not, i think there will be reestablishment of relationship to u.k. and the european union, and will get back to what it has been. it gets bad in terms of selling, in terms of people wholesale dumping sterling assets. i think that could still be a buying opportunity for those who can have a more of a one to two

year horizon on this. alix: fair point. the other part is what has been happening to the doe, -- the boe. hike --see the price despite the fact that mark carney has said that if you crash out, we will have to raise rates because of the weaker sterling. is there a guilt play here in the shorter term? well, as i say, i think it is going to be very difficult much would not want to do with that. i think i would let the volatility play out. the good news is there's a lot of markets that don't have to deal with the uncertain volatility. certain markets are not going to have much fallout from this, i don't believe. trashed, iy gets might get more interested, but i would stay away.

alix: we had two interesting calls, the dollar has peaked and you want to sell it, and -- saying, why would you want to sell the dollar, america first is still awesome. in the lastlients couple of weeks, even before this morgan stanley call, to .ighten up dollar longs we actually have several indicators that think we could be close to a top. i can't make the call that it is but it is certainly the place and if we get there earlier in the week, you want to lighten up dollar exposure. strong, but are some of the work we do that is ward, 97.5 and above, is a place to take it off the table. alix: is there a currency that would benefit the most from that? , because it is 55% of the dollar index.

has been kind of based on a straight level. , i think, that8 is the area it would kick in. think, when i look at the dollar share, the dxy or it was falling from 17 into early spring this year. when it went up, it was because the u.s. had a blowout growth year in the second and third quarter. we grew so much faster than the rest of the world, it gave a bid to the u.s. dollar. , think that will start to fade the u.s. growth rate slowing down compared to the rest of the world. the world has already slowed down, and i think the u.s. will catch up. it will take the bit out of the u.s. dollar. returning back down to lows we

saw in the spring again. if i point out right now, one of the reasons the emerging markets of late have been doing very well, relative to the u.s. stock market, and the dem has performed well in the last months, even though we had a correction, is primarily because the emerging-market currencies have quit weakening against the u.s. dollar. you might be seeing cracks of dollar weakness already starting to play out against the emerging markets. i think it will advance into the developed markets as well. agree, we have a market. coming up, facebook under fire yet again. an explosive new york times report with criticism on how they handled fake news, election meddling. we will break it down with brian wieser, next. ♪

>> this is bloomberg daybreak. yourmma chandra with bloomberg business flash. shares of the largest electricity producer, pg&e, are soaring in premarket trading. -- can't imagine allowing the company to go into bankruptcy because of deadly wildfires. aliens of dollars of potential liability if it is found to have caused those blazes. viacom has reported earnings that beat estimates. networks mtvcable and nickelodeon, shares are higher in premarket trading. facebook is once again dealing with another corporate scandal. according to the new york times, sheryl sandberg try to prevent the company's board and public

from understanding the full extent of russia's misinformation campaign on the social network. mark zuckerberg denies the allegation. >> to suggest we weren't interested in learning the truth or wanted to hide what we knew or try to prevent investigation is simply untrue. that zuckerberg says sandberg will continue to be an important partner. with facebook,g shares were down in premarket after the latest challenge. not feeling any better after that conference call with mark zuckerberg yesterday. wieser.me is brian what does facebook need to do to stem the tide here? oh, boy, it is not an easy fix. there are massive managerial and cultural problems with the company, and i don't think they have fully acknowledged the

scale of the problem at the top of the company. what do they need to do? open our eyes? alix: what would that be? a different board, regulation? what would that need to look like? >> it is hard to say, it is so comprehensive of a problem. they clearly haven't done a top to bottom review of what they stand for, culturally, ethnically, morally. i mean, it's foundational, if you will. it's not that it can't be done. it's not that individuals can't do it, but i don't think they appreciate the scale of the problem, and i think it is pretty comprehensive. 100%. what struck me the most about that new york times article and the response from facebook is that to me, it shows just how viable regulation might actually be, and how much some of these

companies might actually need it. how strong is the case for some kind of bc regulation -- some kind ofdc regulation? >> i've been more concerned about regulation outside the u.s. the u.s. is more of a follower than anything else, without the appetite or capacity to regulate facebook and a way that would resultsully impact the of the company. the bigger result is something like in a country like u.k., or in europe or other places. limiting facebook's ability to target, obliging them to have not just tens of thousands of content moderators, but hundreds of thousands. these aren't unrealistic outcomes. but it's not any come from the u.s.. think the bigger problem, the irritation that senators have commented on, the issue may suggest that they will begin in no quarter, will not be given the benefit of the doubt

next time they are brought in front of congress. will it have a tangible effect in the u.s.? we don't know. with that having implications for the tech momentum, this is the same trade . we are now in a death cross, the shorter-term moving average goes under the longer term, which tends to signal more downsides i'm here with rick benso -- jim paulsem.r and there are price compressions and we will continue seeing it. if we see the chart, notice that the bottom we have here is similar to the bottom we had previously this year. even though we had the step cross, we haven't really broken to new lows. that would suggest there's probably more followthrough, tech going into 20, price compression on the multiples and

more realistic type numbers. to 250 these names got to 300 times earnings, and we are seeing the compression. alix: if the technical picture is telling us that, what leads the market? jim: i think right now, i wouldn't be inclined to be overweight in tech until the overall market is bottom tier. i don't think it has, i think we will have a deeper correction. i'm not sure you want to be hanging out in tech, let alone fang like tech. i think leadership for now will be more of the defensive sectors. i know they've already done well, but i think they could do better in terms of -- you might say that is more value oriented, but it is really just defense, whether it is utilities or staples, dividends or aristocrats for low volatility

investing. if we have a bigger rush out, then at that point there might be some excellent tech companies that will be with us long-term that could be an excellent buy-in if people are selling in a panic, for that low. but for now, i think there is more downside for tech and the overall market. alix: one of the big downsides has been semis. it, we've seen it. even apple suppliers. what is the bottom for these guys? oflook, we actually got out the amd at 31, with a bulk of the high. we got back a couple weeks ago in 19, then went a couple bucks again. micron inu can start, the mid-30's is a place to consider. is a tougher call. i think it has more volatility

than some of these other names. but if you look -- was trading to$10 a year ago, then got 31-32. there is opportunity. if you can tie the markets, that's what we do. is certainly opportunities there. i can't tell you any of these are long-term investments yet, but you can certainly trade and pullout 15% to 20% with some regularity. alix: that just shows the short-term versus the longer-term. i want to get into the utility conversation again. we stole this from you, a studs conversation. looking at the blue line, tech volatility until 2002. we are literally close to following that exact same pattern. cane in the utility markets they provide that kind of value, and if we are looking at the same kind of washout is back in the day. the magnitude, i've been

saying, alex, that we've been running a half of a.com in this era. dotcom in this era. all of the investment flows have gone to this number of tech, consumer discretionary stocks, if you will. it is unraveling in a similar pattern as people start to exit, utilities,e panned the boring, not fast-growing, high dividend protection stocks. i think it might continue to play out along those lines. we won't fall as much as we did in 2000, but the character of it is going to be similar, and we are only part way through. further, iif we fall think you will see more assets come out of the high-octane growth parts of the market and go to sort of the defensive low growth, high dividend yield protection parts.

i don't think that trend is over yet. i want toe from tech, hit other company news. shares of pg&e, soaring ahead. the california public utilities concernsn -- investor over bankruptcy. it has still plummeted 64% since the california wildfires. joining us on the phone is the argus research analyst, a just lower price target of $36, yesterday. before news broke in california, i said i can't believe it still has a buy rating. what makes you stick with the stock? >> i think the reason i stuck with the rating was because we the stock reflecting the fear of a worst-case scenario versus a real liability. liability,illion of

could be higher because only 30% of the fire has been contained. the worstthink that theind of over, and bankruptcy possibility, but overnight, the idea kind of changed. longer-term, what is the business set for a company that may have to be on the hook for climate change and revamp its modeling, and the cost of capital will keep rising. >> it is very hard, and you have $15 billion here, $15 billion last year. the company certainly won't be able to survive, as a going concern, if it is going to be responsible for $15 billion each year. legislators realize that the head of the california public

utility commission admitted that they are going to take control and step in. in terms of pg&e's operations, they are doing fine. all of theseng fines and penalties, but operationally, they are doing well. , they are doing everything right, they are just in a bad market for wildfires, and we feel that if they just keep on doing what they are doing operationally, the stock is going to get to $36, if not more. alix: what was the price target before you cut? >> $54. that was based on other utilities which are priced at about 18.9 times forward earnings. if i look at edison

international, yesterday, it was , 8.7 times earnings. right now, there is an overhang. , but id be semipermanent think 36 is a pretty conservative estimate. thank you very much. the effects were really felt in the corporate bond market as well. you can see what happened to fiji and use that yields, raising question about the health of the ig and high-yield market. jim, what happens to spreads? jim: spreads have been tight on investment grade and -- i think they are starting to widen out. it's concerning, making you wonder what they are picking up in terms of recession risk. when you look at the spread with

the tremendous collapse in technology,cks, financials, then you put that together with a 10% to 15% june in industrial commodity prices, a lot of the are now suggesting that there is at least a big economic slowdown coming, if not something worse. so, it's concerning. continue the slow economy, and i think we will, we will see wider spreads. >> i have the same thought. we often look at the -- no real concern in the corporate spread market yet, when we look at charts of this, we actually do see concerns. ,e are seeing an arrow price corporategh-grade

versus u.s. in 10 year. to us, there is a massive wall above current price action, which suggests there is no way this is per year. we aren't going to go get this into better condition, a source of concern. we broken down some key levels, a triple top this year that we broke underneath head and shoulders. i think they are coming in and it means that the spread market is indicating some issues out there. right, you both are sticking with me. coming up, we will look at how hedge funds fared. columbia business school adjunct professor, what kind of redemption will we see. ♪

>> this is bloomberg daybreak. happy friday, we've got a bit of a relief in the equity market, snapping a five-day losing streak. but not today, futures resuming the downturn, down by .8%.

digits, onee hundred 74. european stocks moving lower and -- brexit drama continues to unfold. classes,asset unfolding, yet you have a stronger cable rate, which is why you are seeing the ftse struggle, .3%. but the volatility has been so extreme with lots of questions around the survival of theresa may. , is thepeaked conversation at morgan stanley. they say yes, sell the dollar. i want to jump onto something unique230. spread, goldman sachs say they see that going toward zero. and crude getting a nice relief rally, up by 2%, but still looking at a sixth straight weekly loss. let's get an update on what is making headlines around the business world.

emma: let's start with the wildfires in northern california. the death toll keeps rising in the state's deadliest wildfire ever. 63 people have been killed, and they have raised the list of missing people to 630 one. survivors have questioned the warning system. some say that by the time they were alerted, the flames were already close. others say they got no warning at all. north korea's leader, kim jong-un, as sent a pointed message to the u.s. and south korea over the stalled nuclear talk, a new advanced tactical weapon. the news agency didn't say what kind of weapon it was. no response from the u.s. yet. earlier this week, president trump suggested negotiations with north korea on denuclearization were still on track. the acting attorney general apparently won't shut down special counsel robert mueller's investigation into election meddling. told senator lindsey graham

that he will continue -- will let the probe continue. global news, 24 hours a day on air and on tictoc on twitter. powered by more than 2700 journalists and analysts in more than 120 countries. chandra, this is bloomberg, alex. funds facing a potential reckoning. yesterday marks the deadline for investors to request some or all of their money back from managers before the end of the year. might beof the exit swift with clients already pulling $11 million with funds pulling into the red this year. joining us for more insight, fabio salvodelli, columbia business school adjunct professor, and rick bensignor and jim paulsen. >> typical december redemptions run around 3% of assets. is no reason -- there is no reason to expect it not to be two different things,

repositioning and doubling and taking to 5% to 6% of assets. and you can see a greater level of disappointment, october arriving at the wrong time for people who have, as many people may know, a hedge fund, you can't put a redemption on any day. october happened at the wrong time for redemption, happening the wrong way. you can underperform, that's one thing. but in the portfolio to do something specific, and you fail, if you are a convertible bond fund and convertibles are supposed to do well, market neutral, we hedge out all of the factors, convertibles had a horrific month. market neutral was down. he will aren't going to question, they are a little under the s&p. rather, should we be in the sector? macro put in, systematically -- got slaughtered. and i do think that all of that will weigh immensely on the

table in october. wondering, theas decline in oil was so fast and furious, and the decline in tech. do you feel any part of that was pre-redemption selling, like get out while we can? tech, notink yes for for oil. oil came with this 20% drop out of left field for people. we warned clients when oil was in the 70's, you won't see $80, $90, $100 oil. only a month ago, you had people talking about how we would see $100 oil pretty quickly. i think there will be a significant, fundamental shift in oil, relative with fossil fuels and alternative investments in what is coming forward. this is probably the first leg of what is coming in the future. long-term, i think oil is going lower. sorefore what we saw isn't

much hedge fund dumping to protect profits, but more so because losses are like, let's run for the hills. might take the other side of that at least in terms of the 1% decline. ,he trump tweet comes out calling for decline, then people , whichanctions on iran took some of the heat off and infuriated the saudis. an important perspective from the hedge fund -- months in the energy space. long oil, short natural gas. natural gas went up 47%. it might be a cold few days, but that is not what is causing those things. it is caused by an insane amount of short coverage. the only thing that will drive that up, and simultaneously, you see oil tank. i think the whole tesla moving

away from oil, but this kind of violent movement usually has real money flow on the wrong side, behind it. not impinging on your central thesis. look at oil futures since may, it has actually been declining even though prices have moved up. it suggests shorts were covering to prior longs. that's not what a bullish market looks like. that's part of the reason we were warning clients. my guess is that oil doesn't get back above the mid-60's for a couple years to come. we looking at fundamental shifts or positioning and the need to hammer out positions to the end of the year? jim: i think on oil, i agree with the comments, but i also think a big factor is the elephant in the room, to me, the u.s.e 10% rise in

dollar in spring. to me, that is what killed oil and commodities in general. when you took up the dollar and set these higher levels for a while, i think it eventually takes the bid out of oil prices overall. so i think if the dollar breaks again and weakens, you might see a revitalization of crude oil overall, i kind of anticipate that over the next six months. on hedge funds, i just threwhout, alex -- i just this should be the sweet spot for hedge funds. positive returns, don't share onlyownside risk, long positions that portfolios have. ,ow those long-only positions

that's where they should shine. i think the move to exit these has been remarkable disappointment at a time when hedge funds should really be helping us, they're not. i can see why that disappointment would lead to big liquidations of hedge funds in general and allocations, because they didn't do what they are supposed to do, so to speak. i have to agree. particularly in some strategies, you look at some situations. the guy will sit down and tell you, our stocks are so different from the market that we don't need to hedge. so you don't have to worry about the little betdata. -- 6% in the top-performing strategies last month were on the order of 45 basis points, and the worst were double digits. i get that in some strategies, but when we look at the equity long shortsighted, -- --

long-short side, there is an vipx called the goldman index, it has outperform steadily in the last three to four years. all of the other performance is just gone since september. in of that outperformance the last years of buildup has been wiped out in a month. some managers are doing well. there are guys in the mortgage-backed space that read -- profit off the volatility. 25%.al is up there are smart people trading as well, but in the general case, too many sheep and too much herd mentality. alix: jim, you were nodding with that. jim: i agree. when tech stocks are going up 20% to 25% per year, we don't

need hedge approaches. the reason we put it in his for the environment we witnessed in the last several months. to the extent that they fail that regard, i can see why there would be a wholesale run from the asset class overall. i think that's been the problem with hedge funds is full-time, even prior to this last crisis. leading up to 2008, we found out , not were beta augmenter's reducers. that, we areing back over 10,000 global hedge funds, which is kind of where we peaked in 2007. we got down to about 6500 and made its way back up. is problem is also, there just too many hedge funds. mathematically, it's impossible for every hedge fund that says they create alpha to do that when you have 10,000 people

trying to play the same game at once. a washout like this could potentially washout the number of hedge funds. you need to see closure, take a couple thousand out of the a viableor them to be asset class, to do what hedge funds are expected to do in the first place, which is actually hedge. it has become a generic term for anybody who speculates on the market. >> what we've seen, beyond capital markets, jason karp was co-chief investment that carson capital, he shut the firm. they do really intense focus. an incredible job of taking out the risk factors and looking at the fundamentals. if the fundamentals are paying you, you give up. highfield in boston, another firm. multi-billion dollars. they shut down, traditional value firm.

you do all of your analysis and say this company is cheap and is getting cheaper, and you short a company that is expensive, and the momentum grade crushes you, you are done. down thinking these valuations are bananas. it's no fun for these guys, not getting paid. alix: thanks, fabio salvodelli, paulsen.on, and jim coming up, how mexico's incoming president could affect the country's oil giant. and what is happening with the s&p and dollar, breaking into the lows of the session, the dollar rolling over as well. the vice chair speaking at an interview, saying that being neutral would make sense. he says there is some evidence of global flowing and the fed

has to factor in the global outlook. so, interesting comments coming up. warning of a global outlook, echoing fed chair powell's q&a on wednesday. a list of things that could go wrong in 2019. ♪ ♪

alix: this is bloomberg daybreak. you are looking at the hewlett-packard enterprise -- includes an interview with joe 11, ia ceo. joey levin.

mexico's central bank raises key interest rates and gives a hawkish warning about rates ahead. could facekforce and pay cuts and more management changes. ,oining us from mexico city mexico's -- and amy stillman -- administration could cause another brain drain for pemex. walk us through the outlook next year and what will be the big hurdles for the company performing? : right, thank you. the next administration will take office on december 1, and

what we've been seeing is that senior officials, all the way down to middle management, are leaving the company, some of them have already left, others andresting until manuel -- fairly normal process in mexico leavey officials to public entities when you have a new government coming. however, this particular time, we are seeing more people leaving. one of the reasons for that is there is a lot of concern that salaries will be reduced, a law put into effect that will come into effect in january which reduces public service salaries to be below that of the president, which is 108,000

pesos per month. while it's not clear if that will apply to pen a it's possible we could see changes across the board in terms of its board.s in the pemex going forward, we are seeing people leave the company that have talent, experience. that's going to be tough. pemex is been -- has been seeing declining crude production, and billion right6 now, so it is certainly facing a difficult time ahead. alix: and that really plays into what you look at. you've already issued a warning on pemex's outlook, in part because we are dealing with so much debt. what is the biggest risk? >> in the short-term, the biggest risk is we have about 4.5 dealers maturing next year,

2022,om then on, from another close to $30 billion maturing in that. this is, alone, the biggest risk in the short term. the long-term and medium-term, the risk is that the company changes its business model toward more refining, and weakens the cash flow and ability of the company to raise its own expenses and pay taxes. this is the biggest two risks we see right now. alix: i'm glad you bring that up. at the end of the day, what does amlo want? in terms of creativity. refineries have been operating at a very low level for a long time now. right now, they are operating at about 37% of their capacity. this means mexico has been forced to import more gasoline

and diesel, mostly from the united states. it's not great for the company, certainly at a cost. so what the next government would like to do is raise that capacity and build another refinery. the economic sense of that is certainly questionable. a new refinery would cost billions of dollars, it is not clear where that money would certainly, there seems to be quite the need to focus on the six refineries that are currently operating at such low levels. to yourir, and nymia, point, we have a bar chart production versus capacity, there's just not enough to satisfy the needs. what are the longer-term implications for? could, andcompany the country itself, could --

exports about 60% of its production, helpful to the government finances pemex's as well. they need those dollars to face those amounts of debt that amy was talking about, $106 billion debt.t, to service the ex, which iscap small, 60% to 70% is in dollars as well. so, the increase in refining would mean that they would torease the exposure revenues when they sell fuel in the local market. they would be selling it in pesos. eventually, if they would be a net exporter of fuel, which would be the case in the business model, the controls over the prices of fuel is very

refiners, a huge amount of efficiency, which is -- publicely not companies. the levels of efficiency would not be ideal enough for those cash flows to keep coming. about the very long-term, but it is still something concerning. alix: i appreciate this, amy stillman and nymia almeida. we are looking at value taking a hit, worth staying more than a year? ♪ ♪

alix: here's what i'm watching,

part 2. looking at value, and joining me is the bloomberg asset -- >> we have a chart of our bloomberg fear factor for the portfolios, and it had its worst day in over a year. interestingly, in the long-short portfolio, -- did well and you can thank nasdaq for performing, rather than the lungs doing especially poorly. especially the fact that retailers had screened on those metrics fairly well. taking a longer review on the factor rotation that we wanted to have or have been looking for all-time s&p 500's high in september, we've seen value do worse than momentum and growth over that stretch, a bit surprising i think to a lot of people. what it is doing worse is leverage.

i think we are seeing russell underperforming, more floating , and just the idea of cracks starting to appear in the credit market. >> i wonder how much of that is oil. large caps, small caps for the s&p. a lot of it is part of the russell story. our fear factor portfolio should -- as much as possible. leverage and profitability good. alix: that's it for bloomberg daybreak americas. coming up, bloomberg markets: the open, with jonathan ferro. ♪

jonathan: from new york city for our viewers worldwide, the countdown starts now.

counting up, and equity market revolt of a trade headline, speculation mounting ahead of the g20. the latest high-profile name warning about potential trouble in the credit market, and more pain for the chipmaker. week forecast from nvidia. 30 minutes from the opening bell . futures, -13 on the s&p, went down .5%. the fx market, euro-dollar about atreach 114, currently 113.91. treasury yield -- by two basis and for the equity market and investments of the markets more broadly, seemingly at the mercy of the next trade headline. >> i do expect an escalation of the tariffs, and i expect china to retaliate. >>