cover, they hit the lowest close in 18 months. other stock indices go down with it. is it a correction? test,d his foot to the they meet with investors looking for some right of hope amid of hope amid the turmoil. china hang stuff. i says no one tells them what to do. they are trying to come to terms with president trump on trade. welcome to bloomberg daybreak. alix steel is off today. lisa: i want to get to some breaking news. frome getting results darden. they reported adjusted earnings $.92.are of the estimate was $.91. it is higher than estimates. comp sales at compared of stores were up 2.1%.

that's less than the estimated viewpoint. this was one of the key metrics people were looking at. is one of the key aspects here. this is going to be the cost of labor as wages rise right now, given the fact that in general people are not willing to pay up for their food. david: this comes on the heels of some downturn retail yesterday. it spread over to the united states. this raises questions about consumer spending, which would be terribly important. alix: they of seeing their shares plunge since september. one of the key issues with the u.k. selloff is it's coming from on line sales companies in addition to the brick-and-mortar. it's not just a transformation to online sales. david: even visa mastercard were

down. christmas sales were supposed to be way up, maybe there are checks and the armor. lisa: let's get you caught up on what is going on ahead of the u.s. open. the ftse is down .5%. and woes continue to weigh negative german economic data. rate closing at the lowest since -- of the year yesterday, all major indices closed at their lowest for 2018. crude continues to fall. it's the lowest in more than the year. this risk off really permeates the market. berg: it's time for the first take. we are joined by michael mckee. what happened in the stock market yesterday. in case you have any doubts about it, you can see that red

line going all the way down. 1931, the lowest since and we know what was going on in 1931. my big question is is this fundamental? peggy: i think a lot of it is sentiment. there are trying to look at the political risk. we have a potential government shutdown. we have trade worries with china and the u.s. and political risks are hard to trace. you can't really look at data. we are going into the end of the year. this is a time when a lot of people take gains or losses going into it. there are a lot of headwinds on the market. lisa: i do want to get to the fundamental. when you look at what companies are spending money on, it's to buy back shares, it is not reinvesting in their businesses. we see capital investment

decline. could there be more of a problem? mike: they are looking at several years. you would say that. there has not been a lot of additional investment that would boost the economy in the out years. the coincidence and future indicators suggest strengthening the economy going forward. if you look at the isn's and manufacturing, that's a good indicator of growth. they are at very high levels. there is a suggestion that going into 2019, growth will be reasonably good. what happens when we get further into it and the problems that he was talking about. lisa: is it appropriate for the fed it to be hiking right now given the selloff in markets yesterday. withschatzker spoke detained family office.

>> i grew up in a world where the fed did not spoonfeed you every day. they would raise rates for they were tweaking the repo rate. we did find it without the spoon feeding. lisa: when he was a child, there wasn't spoon feeding. mike: they have for quite some time. shortly after alan greenspan started publishing fed decisions, you have that stairstep 25 basis point move over the early 2000's. verythe path was noticeable. an entire generation of people have grown up believing they knew with the fed was going to do next. for a long time, the money was going to be essentially free. that has changed.

it's a painful readjustment. david: what could the fed say that might make the markets feel better? connie: that would be a big surprise. i don't know what you think, that would be a big shift. i think the market has height -- priced in a hike. lisa: would that be negative or positive for markets? fed raises rates, you will have half the people complaining that they are going to kill the economy and the markets will go down. if they hold off, people would it say what do they know that we don't, and the markets go down. david: we will be covering it on a special. we will have coverage of the fed decision coming up at 2:00 in the afternoon. that is eastern time. i want to turn to our third story, china. tosident xi wanted

commemorate the opening of the economy. he did not sound like he was backing down much. position to in the dictate to the chinese people what should be done. the position is in to dictate to the chinese people. who is he talking about? a to he is talking to mastic constituency. you wouldn't expect donald trump to come out and say he is caving to the chinese. the markets were negative because they were hoping he would announce an economic stimulus. the meeting of the committee that plans the coming year is just beginning today. there are more announcements coming about how they will stimulate the economy. we will see if that helps the chinese markets. that hewas struck

doubled down on the approach is artie taken. will this be comforting to u.s. investors that are plowing into china right now? with this be more discouraging? peggy: they are looking for a signal that china is dealing with the aging population and slowing economy. as mike said, he was speaking to party and military leaders. investors will look for more definitive things between trump after the 90 day pause. david: thank you both very much for being with us. you can find all the charts we just used by using your terminal. you can browse region -- recent features. stabilization, futures are steady this morning after yesterday's decline.

we will be joined now. this is bloomberg. ♪

about: this is bloomberg daybreak. they have authorized a record $20 billion share buyback program. they are growing dividend by 20%. the company stock has tripled in the last six years. buying atalking about texas oil maker for $8 billion. that is half of what an definite or -- endeavor would fetch. the company value has declined. they want to retain a large quantity of the mineral rights. saidhinese telecom giant

blacklisting the company without proof would hurt the industry. it's the first time they have spoken out since the u.s. persuaded canada to arrest its cfo. the chairman would not address the case directly. he wanted them to provide proof. david: the stock market is headed toward its worst december in years with the s&p down the most since 1931. is this a matter of sentiment and short-term trading or something more fundamental. we spoke with stanley druckenmiller. to createf you wanted a deflationary bust, i would do exactly what the fed it was doing. 2010, corporate nonfinancial debt has grown from a $6 trillion to $9.6 trillion.

that's about a 60% increase. during that time, corporate earnings increased 27%. earningshe s&p increase 60%. all that borrowed money went to finance buybacks and m&a. dollars that to my mind were pushed were the result of investors being pushed by the fed to go out on the risk curve. that resulted in a big debt built up, it resulted in donald trump feeling comfortable doing more spending. it resulted in barack obama saying he did not want to balance the budget on the backs

of old people. essentially, the bond market that would traditionally be a vigilante from this behavior, market signals were canceled. we developed another bubble. we are in the position potentially where we were in early 2007. i'm not calling for a cut. the economict indicators, which i wish the fed did it, they all look quite good. , so forth and so on. you look at the indicators i have historically used, they are not quite read yet. they are definitely amber and they are spending off warning

signs. know is economists i the inside of the stock market. ,'m sure you've heard the joke the stock market has predicted nine of the last 11 recessions. that's better than the fed. they have gone zero for nine. is best economists i know the inside of the stock market. fed when they look at the stock market and they look at financial indicators, they are just looking at the s&p. wasdecline in the s&p, it 10. it is now 13. it's a bit of a mirage. if you look inside the stock market, the cyclical elements,

the front end cyclicals, they show a completely different picture than the defensive parts of the stock market. it is more sensitive to the economy. auto stocks are down 30%. they are not down 10 or 11. building stocks are down 35%. banks, which you think might be a symbol of credit, are down 25%. retail equities are down over 20%. how in the world could the s&p only be down 10%? staples,use utilities, pharmaceuticals are actually up. situation i use cycle after cycle. the inside of the stock market, which is the best economists i

there isis saying something not right here. of erikat was part schatzker's interview. welcome matthew slaughter from dartmouth. welcome. it's great to have you with us. i know you have a phd from m.i.t.. the best economists is the inside of the stock market. -- but we getus your take on the question i have this morning, are we just seen sentiment? is there something more fundamental. he thinks it's more fundamental. matthew: i think there is a lot of evidence of economic growth is slowing. interest rates are rising. that combination can bring bound

stock prices. question withg the fed right now is how do they implement their legal mandate. their job is to try and maintain full employment and price stability. for jay powell and his colleagues, we have one of the strongest labor markets in decades. we have 3.7% unemployment. then are more job openings unemployed people. wage growth is accelerating. the labor market is quite strong. price inflation has not accelerated. they are looking at the pce index. they are below 2%. they are slowing the rate of growth. they are trying to understand how to reconcile these different pieces of evidence coming in in

real time. accelerating productivity? that allows you have noninflationary wage growth. that's what people are looking for. lisa: i want to bring up president trump because he's been ratcheting up the pressure on the fed not to raise rates. he just tweeted out moments ago, another wallead street journal editorial. president trump is very much focusing here. is he helping or hurting the matter more? people would agree the fed should slow down and waited see some of these other indicators you were just talking about turn up a little bit to give them more confidence. matthew: the u.s. economy has

thrived in no small part because we have a fed that is independent from the political process. i think we benefit from allowing jay powell to look at the data and talk to business owners in the u.s. and make the decision they see fit. jay powell and his colleagues are looking at a strong labor market, they can't have labor force growth and wage growth be faster than the fundamentals. that's what they are trying to work through. david: is there a dilemma here in the sense that we pump money into the global economy. now we are trying to withdraw some of that. is it inevitable that we will have a slowdown and asset prices will go down? matthew: that's a great question. we will have uncertainty about what the implication is.

they wills announced taper their quantitative easing program. we don't know what that will mean for asset prices. if you go back 10 years, many voices were worried with quantitative easing taking home. it could be massively inflationary. that didn't happen. now the fed is starting to slow the rate of growth in trade the ballot -- balance sheet, that makes things more volatile. lisa: i am struck by the conflicting data we are looking at. the housing market is slowing. we see delinquencies pick up to the highest levels in years with auto loans. this suggests that the consumer isn't as strong as one would think, especially beyond the top tier of earners. what do you make of that? lower rates of not fixed that?

a lot of the economic growth we have seen in the past decade has been people coming back into the labor force and capital being redeployed in a way it hasn't been. been using up slack capacity. challenge we see is the labor market. the latter one, there has been a lot of research and head scratching about the apparent slowdown of productivity growth in america. what that might mean for growth and jobs and income going forward. we are not just building it back from the damage of the great

recession anymore. david: that we introduce a further complication, the price oil. it is below $50 this morning, the lowest in a year. i want to put up a chart that illustrates something that is interesting. financial conditions have tightened when oil goes down. they are moving together in a way that is unfortunate. what is the effect of oil on what we see in the market overall? matthew: we have had this american productivity revolution. set aside the worry about climate change, we have had an explosion in energy output in america because of fracturing and the innovations with the production of oil and gas. roil athe u.s. produces the rate of 11.7 million barrels

a day. we are the largest oil producer on the planet. have been a clear benefit. now it's more ambiguous. airlines benefit from oil prices. america wheres in oil production is a major part of the economy, lower prices are not good for those communities and those workers. it's a lot less clear than it used to be. what is the tipping point at which oil prices are perfect, lona for the consumer but high enough for the oil producers? matthew: i don't really know. it is a massive potential growth. it's a global market. it's not just what the u.s. produces.

suggest, we got increased productivity in the oil area from fracking. it raises the question of growth and where growth comes from. one of the strategies of this and administration was tax policy would encourage more capital investment in other sectors. is that enough for the u.s. economy to grow on the back of the consumer? it's about 70% of total gdp. on the question about the supply side, the tax reform on the business side was on balance good it. the global tax burden fell. in capitale increase investment. dictatet just magically

they would be more productive. how fiscaloint out policy in america, we need to keep in mind that is one of the forces putting upward pressure on interest rates and we've got gdp growth that is 3%. we are running a trillion dollar deficit. wars onoming up, trade sentiment, we will be joined by mark weinberger. we will hear what he is hearing from his global clients. life from new york, this is bloomberg. ♪

lisa: this is bloomberg daybreak. i'm lisa abramowicz. let's get you caught up on the markets. softer tone yesterday. today we are getting more of a

constructive tone. the dax in germany is up .4%. the cac 40 is coming back after further losses earlier. moreutures started with a positive tone. perhaps everything will change by 9:30. let's take a look across asset. new york crude driving a lot of price action, at the lowest levels in a year. that is driving the whole commodity lower. german 10-year yields declining. this comes as there is softer economic data out of that country. 2-year yields in the u.s. also lower as some may feel the fed will halt. david: now it's time for an update on what is making headlines outside the business world. emma chandra has more. will bechael flynn sentenced today for lying to federal agents about his contacts with russia.

it is likely he will walk out a free man because of his extensive cooperation with prosecutors. still, his lawyers wrote a sentencing memo where they were critical of fbi sentencing measures. russia is rejecting a report that it was behind a disinformation campaign in america. a kremlin spokesperson says the report is trying to blame russia for social tensions in the u.s. sky andr eyes on the there has never been as a likeness or commercial space exploration. if all goes right, four companies will be blasting off today. all begins a little after 9:00 new york time when spacex is set to launch a falcon nine rocket from cape canaveral. 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. david: business leaders and investors around the world focus on every detail in the ongoing dispute between the u.s. and china over trade. overnight, president xi added one more piece of data in a forceful speech of a gathering of chinese leadership. >> no one is in the position to dip eight to the chinese people what should and should not be done. david: we welcome mark weinberger. matthew slaughter is still with us. welcome back, great to have you with us. you have a truly global business at ey. on behalf ofng thosewn clients, but also in the sea suite. how concerned are they about the u.s.-china trade problem? >> businesses who have to look

long-term, bringing dividends were down the road, have to look individualtweet, comment, and see if there is progress. on the downside we have seen atte-owned enterprises grow the expense of the private economy. the government is stepping into undo some of the reforms. that is not a president. companyre you seeing start to reroute their supply chain to go around the trade problems that we anticipate? >> most of our clients are looking at backing up their supply chain. it is a little early to get the we were on your investment routes. tax reform will cause a lot of ships in the supply chain over time. it takes a while to change your supply chain. your take on love this given the work that you

have done on globalization, how it has failed on a number of issues, are we seeing an unraveling of it, are we going to see a backtracking? can that happen? >> slowing growth in china is not great for globalization in the sense that china's fast economic growth has spurred a lot of cross-border investment, so something that really matters. the ongoing trade war between the u.s. and china make clear that in the u.s. and other advanced countries, china's ascension to the global economy has been great overall for china and other countries like the u.s. on average. it has not benefited every worker in community. domestic politics in china play out will be an important question for what inolution there hopefully is 2019 to this trade war, but we will see. me thathis reminds

business is not all about business, there are other factors such as globalism, populism. you have a new venture called epic involving banking in london. codify what that is, to some of the other intangible factors that can affect a business. >> thank you for asking about it. pulling together as it owners, managers, corporations together to say that we know ocus is notf what every investor should be watching. over the long term, whether andorations are returning minimizing risk. ownersset investors, want to offset their long-term liabilities with long-term investment, not short-term. this is trying to say what are the long-term value drivers businesses look at? the four orentify

five biggest areas that provide long-term value. and then how you measure that. with financials, it is easy to look at numbers. but when you talk about talent, innovation, governance, societal impact, how do you measure those things? this group is coming up with some metrics for that. thesethinking about initiatives that mark weinberger and others are talking about, a way to make the economy better, create more innovation. how much does a possible economic slowdown stymie those efforts? looking at manufacturing globally, the u.s. is the only bright spot. otherwise we are seeing signs of a slowdown. >> one of the biggest concerns is those long-term investments that this epic initiative seems to be focusing on. investments that firms sustain year across year because it builds there sustainable competitive advantage. investment in early research and

companies, in the talent for their people, those other things that tend to generate sustainable returns for the investors. consistent with that initiative, one thing that's interesting, the number of publicly traded companies in the u.s. has fallen by about half over the generation. where we see innovation happening in the economy in america, it's important not to e private capital market, where entrepreneurial activity may be growing. these initiatives how companies think more broadly about heyday sustain competitive growth. david: mark, you mentioned measuring. i used to say if you cannot measure it, you cannot manage it. you don't have general exceptional accounting principles here. >> matthew is spot on. the average life of an s&p 500

be 23 years.to now it is around 15 years. if you are not watching, the chance of you being here is decreasing. to go against our long-term strategy. with all the data and technology access yourou can culture. i call all of our managers every year and ask about their engagement scores. we can correlate engagement scores to retention, margin, and overall revenue. these issues are much more measurable today, we have the data to do it. technology to do it. the real point is whether we can standardize it across industries. in the 1970's, when everyone was reporting financials, before standard accounting, everyone was reporting what they want. today we are trying to

standardize those ideas and how to measure them. dean slaughter mention the increase of private companies and a number of public companies in the u.s. is shrinking. do you think there will be more fraud, more financial malfeasance that a rep from these companies that don't comply with public standards but have gotten billions of dollars over the past decade? >> i'm not sure i would jump right to fraud. lisa: the reason i ask, at this point in the cycle is when you would see -- i don't know about fraud -- but financial shenanigans, massaging. there is not as much oversight from a regulatory standpoint as to where there are investing. i think you will have greater risk to get higher returns, and they are looking hard to take that excess capital that is out there and invest it.

maybe more increased risk and perhaps more health reasons. you said,m what matthew, it sounds like you are open to the things that epic is doing here. should the sec require disclosure of these numbers in their regular filings? the structure for companies, having transparent information to investors and broader stakeholders is always important. having the sec and other regulators be on top of the nature of how companies and their business structures are evolving is important. i cannot emphasize enough, one of the things that we here at tuck, the companies with which we have great recruiting relationships, say the scarcest talent they are taking right now are mba candidates and others are individuals that can defend points of view in disrupting environments.

for the long-term growth for the u.s., china, for the global economy overall is what kind of innovation these companies can create that is sustainable, will create new jobs and businesses. regulators try to support that but that is the most fundamental challenge that faces businesses and more generally countries like the u.s. >> we love your students, please keep giving them to us. at the conference, we had a coalition where we talked about epic. he had the chairman of the sec there, talking about what they are looking at. they absolutely get it. looking at quarterly reporting, whether that is appropriate. istainly, quarterly guidance more the issue, rather than reporting. they are also looking at talent as a particular issue. it is not about more reporting, but reporting on things that matter. perhaps looking at some

standards and recommendations for businesses to report on those things. fascinating. we will have to watch that as it develops. mark weinberger, always great to have you here. matthew slaughter, thank you for being here as well. having a busy is 2018. we look at the actions of pershing square and more. this is bloomberg. ♪

emma: this is bloomberg daybreak. coming up in the next hour, michel gerard. this is bloomberg.

this is bloomberg daybreak. shares of oracle are higher in premarket trading. the world second largest software maker is out with a strong sales forecast signaling they expect greater customer demand and its transition to cloud-based computing. they say revenue will increase 4% in the current quarter and sees higher growth in the second half of the fiscal year. t-mobile has cleared a regulatory hurdle for its takeover of sprint. a security panel has approved the combination of the wireless carriers. t-mobile still needs approval from antitrust commissioners and the federal trade commission. the cbs board has denied $120 million and to its former ceo. nvesatement says moo flouted company policy and

failed to comply with an internal investigation. this could set the stage for a lawsuit. that is your bloomberg business flash. david: starting to wall street beat, where we cover three things wall street is buzzing about. activist investors active year. the number of activist shareholder's hit a high in 2018. stanley druckenmiller is not surprised by hedge funds poor performance because he predicted it. .he economic opportunity gap knowledge of the global gender gap has improved, it will still take women 202 years to earn the same as men. just be a little patient, lisa. lisa: so kind of you. collins.s now is peggy let's start with this activist investor activity. one thing that strikes me as coincidental is that billionaire

carl icahn came back to washington, d.c. where he was a special advisor to president trump and then, boom, activism surges. carlrtainly was not all icahn, but this was a fun story from our colleagues. it walks through a number of the reasons why we are seeing a big jump in shareholder activism. essentially, there are valuations in europe, where a lot of u.s. activists are heading. another interesting point was, mega companies in 2018 were actually spared some of the biggest proxy fights and shareholder activism fights. looking toward 2019, the report is they will not be spared essentially. be helping that phenomenon is what they call a wolfpack. butan individual investor they get together in groups now, let's go after a company together.

you get more capital that way. our second story is about stanley druckenmiller. he spoke to erik schatzker yesterday. one of the things he talked about was hedge funds. all bynot surprised at the hedge funds not doing well because, to be frank, i kind of predicted it five or six years ago. certainly, this environment is aggravating it. said is there are about 10 or 15 that will do well and then there are a lot that cannot possibly justify 2/20. the greatestof hedge fund investors of all time and essentially he is saying that too many people have gone into the business. also he said that one of the reason hedge funds are not doing well right now in terms of all of this volatility -- and you expect they would be into trade off of it -- it is not volatility tried to any trend.

funds the problems hedge are having is they are not able to trade a trend. lisa: just bad volatility for hedge funds. that is unfortunate, a lack of volatility, women's wages. an interesting report showing that it will take 202 years on average for women to bridge the pay gap with men. this is the chart i found most interesting. north america will take my hundred six two five years versus 61 in europe. >> definitely not an uplifting story to read. it didn't seem to span all developed economies. iceland seem to come out on top as a great place for women. the philippines seems to be doing well comparatively. one thing they pointed out is because of the access to is one of thet

ways that women advance on pay equity. david: one place where they are apparently not doing well is on twitter. you found this and i cannot get past this, amnesty international supporting the work environment. lisa: they were talking about women in prominent positions, governmentally or journalistically i get a lot of negative feedback, abusive feedback on twitter. talking about how women of color also get a disproportionate amount of that abuse. you don't want anyone to i amused on twitter, but thought they done with political prisoners around the world, people losing their lives. listen, it is terrible to be abused on twitter -- lisa: but if you think about how much political and her parents there has been on twitter, this >> is a new political tool. they were trying to create some algorithms to try to spot the abuse, whether that would translate.

you still need human interference in terms of identifying abuse, which amnesty has done for a long time. togree, it was an eye popper see them come out on this issue. how: if you think about much twitter has dominated the political sphere and the maybe it becomes more relevant. david: i am persuaded. thank you to peggy collins for joining us today. coming up, we don't like your leadership. civil rights groups call for management changes at facebook. that is coming up next. this is bloomberg. ♪

david: alisa, this is what i'm watching, facebook. yesterday, there was a report that came out that the senate intelligence committee came up with a report to review the russians use of social media. it was fascinating. much more extensive than we knew. one thing that was interesting was the role of instagram which we had not heard about. they said instagram was a significant front in the ria influencing operations, something that facebook executives appear to have avoided mentioning in congressional testimony. lisa: this goes to the heart of the problem. we continue to get this drip of news out of facebook that is negative. we don't get the sense that they are being fully transparent about anything when they have the opportunity to do so. why didn't this come out earlier when they knew it? david: you can see the extent

that instagram was used by the russians. they went into detail about how they tried to discourage democrats, and part of it was targeting african-americans to say nobody is listening to you anyway. now they have areas groups coming out and saying, facebook, you should change leadership. it seems hard to imagine zuckerberg will step down anytime soon but there is a boycott occurring. david: developing story. coming up, sebastian page, t. rowe price head of multi-asset. we are talking about what is going on in the markets. this is bloomberg. ♪

running for cover. the s&p hit its lowest close in

14 months. the other stock indices go down with it. is it a correction or something more? test.t to the the fomc meets today with investors looking for a ray of hope amid the turmoil. china hangs tough. president xi says no one tells the middle kingdom what to do, as economic policy comes forward, and trying to come to terms with president trump on trade. welcome to bloomberg daybreak. i'm david westin. subway?ake the lisa: that or the city bike. evidently the semi will be getting more expensive. they said we need $40 billion or we will go into a death spiral. by the way, they do need a little bit of fixing up. lisa: one place the mta wants to get money is from uber and lyft

drivers, so both of them will be raising their prices next year. they will charge nearly three dollars to go into some of the most congested parts of the city. it is sort of adding pain to misery. it will be more expensive to go into some ways, and if you want to take a car, that will be more expensive. david: if it gets you across town faster, i might be ok with that. lisa: congestion pricing. incompletelyigh but there is something to it. brexit weighing on concerns in the market today. economic data coming in soft. crude very much down, new laws, lowest levels in more than a year. 10-year yield dipping lower ahead of the federal reserve meeting tomorrow, where they are

expected to perhaps give some dovish indications next year. david: u.s. stocks continue to sell off yesterday. the s&p 500 reporting its second-worst december in history. in an interview, stanley druckenmiller explained why he is long treasuries, but is not shorting starks in a bear market. >> when we talk about how well i have done in bear markets, i would love to sit here and say i made it shorting stocks. that is always difficult in a bear market. rallies,hese vicious you get squeezed out of shorts, people play all sorts of games. i always made it in treasuries. would go drown dramatically. not so easy this time. one of my biggest hits was in two years in the fall of 2000, 6.04, fed funds were 6.25. they went down to 1.5 or 2.

now i'm starting at 2.68. treasury, 2-year, five yada yada, and 10-year. i have been for a bit. i don't like to level but because of everything we've been talking about, i like the risk reward. if the fed makes a policy mistake, it is not inconceivable to me at all that the 2-year is back to 50, 60 basis points in a couple years because they are doing all of this crazy nonsense. of the whole gambit, rates zero. yields, i like treasuries. within the stock market. and i have held a seat for several years, and it was ok until recently. i love the secular growth stocks. in a period of slow, muted

growth, if you can find a 20% to , it is like a long-term cash flow. in some ways it is better than a bond. that trend got severely interrupted about six months ago. ,he tax cut and the economy going to the extent they were, created a lot of cyclical companies whose earnings grew at 30%, when they were nine times earnings. having thes were same article growth. those companies became in favor. see, if wefor me to don't go into recession -- which i don't think we will go to -- and growth slows to 1.5, and the fed changes -- let's just take these cloud companies which to me look sort of like mobile 10 years ago.

maybe in the second inning of a corporateg game as america and everything has to convert to the cloud. i'm talking about microsoft, service now, workday. >> these are companies that you still like. i do like them. salesforce. that kind of thing. they are very high-priced. to me, if we are going to go to a 1.5, 2% growth rate, and interest rates are benign, they are worth more in that environment then they are at a 3.5% environment because they will grow the same way. you could argue if we had a mild recession, demand for their product goes up because it will cut costs. trade moving into the cloud for employment. by the way, that view worked out beautifully, and was really bad in october.

i was between 20 and 30% short the stock market the entire month of october, managed to lose a percent. you would think it would be mathematically possible -- impossible, but these names have such beta. when you go from nine times with to seven times sales, earnings not missing a beat, it's a problem. i look at them now and they are selling for quite a bit less than they were in, say, september. i just described to you why i think they'll be ok in the long term. >> what about a stock that has had the crepe kicked out of it, like ge? >> that is a difficult one. i just don't know. i will say this. immleelt.t big fans of we made good money shorting that stock.

coke looks impressive on paper. he was in there if i were six months, i don't think he was looking for a job. i assume he knows where the bodies are buried. i just don't know. i sure would not be shorting it at 7.5. what i be taking a punt on it here? not in the environment we are talking about. david: that was stanley druckenmiller. we welcome now from baltimore sebastien page, t. rowe price global head of multi-asset. great to have you with us. let's go to the heart of what you do. assetlocate different classes. i will put up a chart that we have been showing quite a bit illustrating the s&p for sinceer is at the lowest 1931. that is just december.

but at what point does this tell you that we are better off putting money into cash or the wayy into t-bills that stanley druckenmiller said, than in the stock market? sebastien: the fact is we are in a higher volatility regime now. if you look about this year, cash would have been a good asset class. it is unusual but stocks and bonds have gone down. in our portfolios, we play offense and defense these days. we have the wrist the portfolios on the margin. we still like stocks in the long run. a 60% stock portfolio, we would be running at 57% stocks. we have started to add back because stocks have become attracted in and out of the u.s. in particular. there is some defense being played. at the same time, we look in emerging markets, u.s. small-cap

stocks that are becoming more and more attractive. so it is offense and defense in these markets. lisa: where are you going with respect to emerging markets? cash has been the big winner. emerging markets, which ones? we like emerging markets in general as an asset class. we think china is a risk. when we look at styles within emerging markets, we like large tech companies. -- acrossular countries in emerging markets as well. i would take a broadly diversified -- david: we are taking some digital hits here. sebastien: trading at 11 price-earnings issue. we think it is a relatively broad-based opportunity. going back to druckenmiller, where are you on

treasuries? sebastien: treasuries historically have been a safe asset. the only market where they are not is when you get unexpected spikes in inflation, unexpected increases in interest in the current environment, we think treasuries have an important role in investor's portfolios because they will provide the diversification in a volatile market. the fed is expected to be more measured, the 10-year back to 2.8 and change. generally speaking, investors should hold stocks and bonds into 2019. lisa: a pretty sanguine view. thank you, sebastien page. stay with bloomberg for special coverage of the fed decision. really great guests, alan greenspan, scott minard of guggenheim. that is tomorrow at 2:00

eastern. coming up, oil closes below $50 a barrel for the first time since october 2017. we discuss crude's three-day slide in next. this is bloomberg. ♪

emma: this is bloomberg daybreak. boeing does not continue to plan to quit sharing cash with investors soon. the directors have authorized a $20 billion share buyback program. they also boosted the dividend by 20%. the company's stock has tripled in the last six years. is in talks toll buy endeavor energy resources for $8 billion, half of what endeavor was expected to fetch when it put itself up for sale.

bloomberg has learned the company's value declined because the company's founder wants to retain a large quantity of its mineral rights. telling cease is climates to consider moving assets out of the u.k., according to the financial times. the lender cited a lack of clarity around brexit. wealthy clients were advised they may want to move assets before next week's vote in parliament on the brexit deal. oil is falling below $50 a barrel for the first time since october of 2017, complicating the global economic picture. still with us is sebastien page of t. rowe price. one big question i have about oil is is it a leading indicator or a lagging indicator about economic growth? we seem to be having some technical difficulties, we cannot hear you. let's try again. something i've been wondering

about oil with respect to growth is some is it a forward-looking indicator in terms of, if you are not getting the demand, oil prices will fall. we have seen the manufacturing indexes fall pretty substantially in china and europe. also when we are worried about in put prices, transportation and wages, falling oil prices could help. transportation, shipping, airlines. i remember in the 80's when it almost crippled the economy because oil was so expensive. is it a were talking, benefit or detraction for the u.s. if oil prices get too low? on the money and it makes it cheaper to travel, great, but we are now in oil-producing nation now in the past --where we were not in the past. david: saudi arabia coming out with their budget today. there is really a constraint about how much money they can spend internally depending on oil price. it is coming back down some now.

it will be fascinating to see what it means for the future 2030, those plans from mohammad bin salman. lisa: we are watching expectations for future inflation decline pretty dramatically. bank of america put out their fund survey for their managers and it showed the second-biggest reduction in inflation expectations -- third-biggest reduction in inflation expectations going forward on record. people piling back into bonds. david: one of the indications will be housing starts. looking at them and about 14 minutes from now, housing starts in the u.s. from last month. live from new york, this is bloomberg. ♪

david: it is time for the bottom

line, where we look at three companies that are worth watching this morning. isll is reported -- shell reported to be buying in denver, -- endeavor, in the permian basin. this was talked about a while ago, shall said it was too expensive. it is roughly 50% of the price was back then. looks like they were smart to wait. lisa: part of the issue where you see oil prices putting downward pressure. people talking about $30 a barrel oil again as the u.s. ramps up production. smart andnitely was we have seen this play out with respect to exxon and its competitors. whichever one invested most in shale benefited the most. more andale has become more efficient as a practical matter. the price of getting it out of the ground has gone lower. lisa: another deal we have been watching is the t-mobile-sprint i have.

cifius has signed off on this. this is coming closer to becoming the third behemoth in the mobile phone industry. i find this interesting. when you think about the investors, the reason they had to sign off, we have deutsche telekom investing, and softbank in sprint. softbank is tied up with huawei. after the u.s. goes after huawei for certain things, we have this interesting web of relationships. they said it was fine. do with 5g,s to which is a national priority. the bad news is, they have another hurdle, antitrust. a lot of people questioning that. lisa: as a lawyer, do you think that will become an issue? david: on its face, you would say it's a big issue but there is some speculation that this is innovation and we needed in

order to have the masses go to 5g. apart from that, you would say it's a real problem in terms of concentration. number two and number three merging together. the third company story, we are looking at packaging stocks. is oursutherland bloomberg opinion columnist and joining us now. explain packaging to us. >> the recent source of pressure is from the november data that shows we continue to see this week domestic demand. you didn't see the pickup that you might have expected heading into the holiday season. inventory levels are up more than you would think. this sort of goes back to what we are seeing in retailers. thend at certain points of retail industry has not been as strong as what you might have expected going into the holiday season. there were some sales data in the first week of december that showed apartment stores were seeing a decline, not a pickup in traffic.

that may change as we get into the final days of christmas, but those tend to be more -- lower margin sales because you are offering the discounters to bring the shoppers in the door. abouti never thought boxes as being a leading indicator. in the age of amazon where everybody gets things delivered, , ineople are not ordering those retail companies are not ordering boxes, that's a bad sign. how bad is it, can you put that in perspective as to how much the paper demand has waned ahead of christmas? brooke: it is still a fairly strong market but not quite as strong as what we were expecting. as you look at the people are market, the big talk right now is will there be a price increase, will they be able to raise their prices to offset these costs that we are seeing throughout the economy in terms of higher labor, higher material costs. if you don't see these things pickup to the amount expected, that limits the ability to push

through those price increases. it isnot all is lost but a number of other indicators that raise questions about how strong is this economic growth cycle we are seeing. david: exactly. as you point out, this is a larger story, how the economy is doing underlying. 70% of our gdp is consumer. did we get spun? we were back here index giving saying it is really looking good for christmas. lisa: it is always looking good for christmas. david: and then maybe not so good after all. did something change? brooke: part of it is different parts of retail. department stores you are not seeing strong numbers. at this counters like tj maxx, you are seeing that spike. others are doing well. it is that ongoing trend in retailers. some are figuring out and finding ways to draw in

shoppers, others are not. , about amazont and all of these packages coming to our doors, amazon is increasingly trying to put more goods into one box. you don't want to be spending as sending itemsfor to people apartment. that is another trend to watch. sort maybe amazon is just of shifting it supply chain in the way it does business, and that is a part of it. when you talk about tj maxx, the discount retailers, is that come in and of itself, a sign to david's point, if people are looking for discounted clothes and goods, is that a sign of a slowdown as well? sorte: i will say tj maxx of hasn't figured out, they have that treasure hunt element to their stores. there is more than just shopping and buying, it is sort of an extended experience that draws people in. the other thing i wanted to bring up in relation to the

package industry here, china. it is not just weaker domestic demand but also the export market. china has cracked down on imports of recycled paper. that has thrown a wrench into the market in the u.s., the biggest exporter of recycled paper into that market. you also have the tariffs involved here, and that is factoring into the considerations of these companies. david: so is china buying less paper for packages? brooke: right now they are not really buying any recycled paper. they say they want to improve the quality of the delivery. they are trying to step up their limits on contaminants in paper but they have set a level that is essentially unachievable. for all intents and purposes, the u.s. is not shipping much recycled paper to china right now. the thinking is that will evolve d, and more formal ban local producers have been looking at ways to meet the local demand there.

david: thank you for being here. really good to understand that a bit that her. lisa: i never going to see my amazon packages the same way again. david: i just know that we have a lot of them. if our house is any indicator, they are doing fine. brooke sutherland, thank you so much for being with us. coming up, the latest read on the u.s. housing market. we will discuss u.s. housing starts with michelle girard. live from new york, this is bloomberg. ♪

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leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. ♪ there's no place likargh!e ♪ i'm trying... ♪ yippiekiyay. ♪ mom. ♪ this is bloomberg daybreak. today.eel is off i had at the u.s. open, we are seeing a little bit of greenback as germany has been up. fromts some of the losses

earlier, s&p futures building on gains. jones -- let's look at boards and get a sense of what the markets are doing. leading the entire commodity complex down, yields in germany and in the u.s. are lower. right now, we are getting data on housing starts, david. david: they missed estimates. 1256 compared to 1228. revision,ht downward 1217 from 1228. a slight miss, but building was up above the estimates. so u.s. new home construction rebounded the best since august. little bit of positive news there. we are seeing that perhaps there is a bit of stabilization there if not a recovery from what we

have seen. but definitely looking at possible slowdown -- at a possible slowdown. to one point 26 million versus the estimates of 1.20 3 million. million. david: and from princeton, drew redding. michelle, we like to look at these housing starts. what do you make of the numbers? michelle: i think that it is a back fornder, stepping just a moment. i would argue that it swung a little bit too negative. a reminder that not necessarily all the news is bad. i actually think we have bright spots with today's housing numbers suggesting the housing straightn't in a

collapse. we have seen moderation, but the numbers are softening. saw posting like we housing crisis in the mid-2000s. we have strong consumer spending, businesses still engaged. there is so much pessimism about the u.s. economy and i feel it's a bit overdone. lisa: let's bring in drew redding from bloomberg intelligence. we did see us home construction rebounding at the best pace since august. i have to how much this comes from the fact that interest rates have come back down and we are seeing expectations with rate rises get ratcheted back. good question. from our checks, we have seen a pretty sharp deceleration in demand for new homes in october and november. we expect that trend to increase as we head into early next year. we don't think we will have a

good read about if this is a positive cycle or a turn in the cycle until next year. we don't think the cycle has peaked. see modest growth next year, looking for 2% in total. we think the single-family market can expand about 3%. the cycle hasn't peaked, but things are slowing down. lisa: i would love to get your thoughts from a region perspective. we have seen a disproportionate areas from sann francisco to new york -- do you expect that to continue as foreign money leaves the united dates -- states, particularly from china? michelle: you always have regional dynamics. but i want to touch on what drew was talking about. think, the story we are following here. as interest rates have moved on and prices have moved up and

affordability down, what are the prospects broadly for housing? i would echo what drew said in terms of the fact that the fundamentals are relatively positive. housingexpectations of starts up modestly again in 2019. we don't see over building, we don't see home buying to rent numbers that look as worrisome as we saw when prices were running up during the housing boom. even with affordability having come off of the highs, we're looking at fundamentals that are for housing. we never saw the overbilled that we saw that would suggest a pullback. ishink the over story fundamentally you have things going on with foreign money. but we want to understand what is happening more broadly.

i think the prospects, despite the move up in interest rates, they are still fairly positive, suggesting we can see growth as we look ahead to 2019. david: what about the quality of the credit being extended? has that changed at all? not the major banks, but other lenders are starting to lend on much more liberal terms then we have had after we tightened up after the financial crisis. michelle: we have seen that trend more broadly. there has been a bit of easing in lending standards as we see some demand slow. i think that household fundamentals are really solid. you have an environment with a very strong job growth. are very strong. overall debt levels are serviceable. extent, we don't have

credit being extended in a necessarily weakening fundamental environment for consumers. i think it is something regulators are watching. notfed is focused on getting back to a situation where credit is being extended where it shouldn't be. but it doesn't feel like we are looking at a trend that is worrisome, that sets up for some sort of financial stability concerns as we look ahead to 2019. the concerns people have had about the housing market is affordability of homes has becomes out of reach for a growing number of americans. plays as it isat getting more expensive to build homes. the higher-end homes is less in demand. entry point homes are the ones most needed. are we going to see more building for that entry level point? topic of affordability

is the most pressing one within the industry. we have had several years of robust home price appreciation. think we arey we heading for the entry-level we think that heading for the entry-level market will show the most growth. you have the largest portion that is starting to reach the age that has become the new normal for first-time homeownership. segment, weove up think demand will suffer more from a rise in interest rates. if you look at the composition of outstanding mortgages in the u.s., 50% have a rate below 4% and 80% are below 5%. we think it will start to move to the 5% range and above in 2019 and 2020. it you will have buyers that will be unwilling to forfeit the mortgage. that is the -- that is one of the key drivers. david: on the subject of

affordability, how much our wages a constraint on how affordable prices can get? trouble getting skilled workers to work and they have to pay a lot of money. is there any relief in sight for that? at alle: you are looking situation where wages are finally beginning to move up more appreciatively. we are seeing wages rising and we see it rising across the income spectrum. that is very important, that wages are up. and more broadly, income growth is up. when we talk about housing, the number of people that have jobs can therefore apply for a mortgage and take advantage of the fact that the housing sector, where there are opportunities into an , they now havee

the ability to take that. drew makes a good point when we talk about the entry-level, that is where the supply is when we talk about construction activity. again, we have an undersupply at that end of the market. but the broader story i think here, is an ongoing positive economic outlook. including still healthy job growth combined with better income growth more broadly and wages moving up. it is all very supportive for housing and affordability. david: michelle gerard -- girard, and drew, thank you for joining us. chandra.urn to emma emma: president trump's former security advisor michael flynn will be sentenced today for lying to agents about his

contact with russia. a is likely he will walk out free man because of extensive cooperation with prosecutors. memo was critical of the fbi procedures. the kremlin is rejecting reports it was behind a political disinformation campaign on american social media. reports suggest that moscow's efforts to help donald trump and chainede more widely than originally thought. and there has never been a day like this for commercial space exploration. companies will launch rockets today. , origin, and a joint venture between boeing and lockheed martin. it begins when spacex is set to launch a falcon nine rocket from cape canaveral. global news 24 hours a day on the air and on tictoc on twitter, powered by more than 2700 journalists in more than

120 countries. coming up, a turning point in the credit cycle is a "top risk for borrowers next year. outlook withat the barclays. this is bloomberg. ♪

emma: this is bloomberg daybreak . a coming up later today on bloomberg markets, an exclusive interview with galaxy digital founder and ceo. now to your bloomberg business flash. shares of oracle are higher in premarket trading. a strong sales forecast signals a transition to cloud-based computing. revenue will increase up to 4% in the current quarter and expects higher growth through the second half of the fiscal year. there is a sign that banks are pushing ahead with preparations for a no deal brexit. and 16 other lenders recently tested moving interest rates from london to frankfurt. dry run thatt could leave trillions in derivatives from london to frankfurt. a high-profile case involving

sexual harassment and a giant severance package, les moonves was denied a payout. he failed to comply with an internal investigation. moonves'lawyer called the conclusion without merit and could set the stage for a lawsuit. lisa: this has been the worst year for credit markets since the 2000 a crisis. for a look at if the pain will continue, let's begin the barclays managing director. megan, i'm sure you have not been very relaxed these days. so far. intense here are things poised to get worse? it is certainly not an uneventful quarter by any stretch of the imagination. it is not just the continued debate about where policy is headed but what that implies in

terms of where we are in the credit cycle. and the pain of an uptick in volatility is really reallyrated -- has reverberated through the investment grade corporate markets. it is not surprising we have seen issuers and investors repositioning. and tactically cautious as we approach the turn of the year. from barclays vantage point, it has created some potential near-term opportunities as we move the volatility into 2018. it might distract from some of the longer term headwinds that we face. lisa: your role is talking directly with company cfos on how to bring bond offerings to market. have a lot of them pushed back their planned bond sales to the first quarter of next year? meghan: yeah, it's a fair point. supply-demand is really the underpinning of performance in a credit market. we are coming off a fairly anemic fourth quarter. we are looking at december at 8

billion, the lowest month on record since 1995. and even at the height of the credit crisis, we were able to clear 18 billion in issuance. 8 billion is low by any historic measure and follows october and november to the downside. it has been in direct response ofissuers self-selecting out the market or in some cases, sidelining the function of widespread widening. spreads points of widening on the year. but to me, the more important factor is three quarters of that have come since october. 24 basis points of the widening has come since the midterm elections alone. you're talking about issuers evaluating at the expense of coming to market at a time when demand is starting to lead the market given the uptick in volatility. david: it is more expensive and effects demand.

also, is there less demand because people run-up substantial credit? particularly, longer-term credit. or pretty balance sheets are highly leveraged at this point. we are seeing buyers step in, given the erosion of spreads that have played out in recent weeks. the spread is widening and issuers are seeing value stepping back in, albeit situationally. ata macro scale, you look outflows on the here and it is fair to say that the caches leaving the system. much of the departure of that cash has also been from foreign demand, downsizing as hedging goes higher. lisa: one thing people have been concerned about his downgrades as well. we have heard a lot of warnings about bbb credit being

downgraded to junk. how concerned are you about this? meghan: it is something that has gotten press. we talked about it last time i was on the show and the concern was about disproportionate growth of the bbb component of the investment-grade market. the real story this past year is the focus on fallen angels as you approach the end of the business cycle. at barclays, our concern is intra-ig downgrades. abmbev, looking at a has broughtrades $235 billion of new triple b three downgrades alone. two you look at 2019,

agencies take a stringent few around leverage targets and meeting those leverage targets in a timely fashion? david: there was a piece and bloomberg of week or so ago that suggests a greater divergence in ratings. are you seeing that? what does that tell you? meghan: it says to me that they are concerned about where we are in this cycle as well. it is indicative of that and you look at the relationship of a to bbb names. we were at 50 basis points and that spread is closer to 70 as we stand right now. the differential and the tiering of credit will be front and center for investors and for the rating agencies as we look to next year. lisa: earlier you were expecting a 5% to 10% decline in issuance for u.s. investment-grade bonds. how much of that stems from a lack of participation from the foreign buyer that you were talking about, whether due to

hedging costs or retracted evaluations at home -- retracted valuations at home? meghan: it is looking more attractive to yield investors. where we were when we started the year, 3% of the market is looking at the u.s. credit index yielding greater than 5%. market now 1.1 trillion of u.s. dollar debt in the index is now yielding more than 5%. for insurance companies and pension accounts, there might be near-term opportunities worth considering. lisa: if a corporate borrower came to you right now, would you tell them to wait until next year? meghan: yeah, i think the line in the sand has been drawn for 2018. but in january, it is likely after a month of no supply, we are likely to see it climb. january could present an opportunity for issuers and investors. lisa: thank you for being with us.

ofing up, china's holdings u.s. treasuries. a lowest since may of 2017. more on what we're watching next. this is bloomberg. ♪

lisa: here is what i'm watching, holdings of u.s. treasury in china fell since -- to the lowest since may of 2017. china is the second-largest holder and could potentially sell some of the debt as a negotiation in the trade war. i do not think that is what is going on here. i think they need to cash. they need the money to help support the economy as they inject more stimulus. they try to slow the pace of declines, if you will. exchangeheir foreign reserves fell in october by the most in almost two years, dropping 1.1% to a little more than $3 trillion. you saw them trying to perhaps get some cash to pump into the economy. david: it is consistent that

what we have heard from other people, that -- that the bigger problem is the economy. lisa: we saw buying from other foreign entities. we saw buying from the likes of drunken miller who said they would be buying across the yield curve. nothing interesting to watch more as a look at china's economy down the trade war. lisa: coming up on bloomberg markets, fixed income senior portfolio manager will be right here, live, in new york. this is bloomberg. ♪

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tom: federal reserve's decision is getting a lot more contentious just as the meetings , others president trump calling for chairman powell to hold fire. leading stocks -- uncertainty of the s&p 500 coming in at 2018 lows. interesting nuances over the morning. futures lift up 14. i'm going to call that a churn the yields come in area the 30-year-bond. 48 .77.ude, a shock of where we were 90 days ago. investors, debating if the market route will keep the fed. will they keep it from raising rates? >> the fed i