planes, beams, automobiles. china promising to buy more goods from the u.s. orms out. st the president walks out of a meeting with meters in the latest -- with leaders in the latest negotiation of the shutdown. thejay powell speaks with economic club of washington today. fed they get the patient chair or the one on autopilot? david: welcome. i am david westin with alix steel. reporters with the meter or something until they can get the funding? alix: did you know in the d.c., you cannot get married right now? david: in the district itself. they had money.

ofx: saturday is the big day your david: it marks the new record. alix: in the meantime, markets looking at the china and u.s. trade costs. butmarkets taking a pause, most of prize, we had a monster rally, the biggest rally we have seen since 2009. euro-dollar down slightly by .1%. mixed dollars story. brca through key levels -- breaking through the dovish levels. 10-year looking down by one basis point, $2.70. you end up having the 10-year bid to cover, it is pretty good, like the three-year, which was pretty dismal. crude is now back in the bull market. it is a little bit of a pause in the risk-on rally we have seen. david: such a nice warm up.

time for the morning brief. at 8:30, weekly jobless claims. enjoyingthe president force base andrews for what he has called the national ms area crisis. -- national humanitarian crisis. on stagel will speak with david rubenstein in washington, and we will bring you that live. at 1:00 this afternoon, the 30-year will auction bonds, so we will see what the day holds. now it is time for the bloomberg's first take, joined luke.hel and they were maybe coming close. alex already said the president stormed out, but afterwards, it turned out that they could not even agree on what happened in the meeting. schumer: he sort of slam

the table, and when leader pelosi said she did not agree with the wall, he walked out and said we have nothing to discuss. pence: the president walked into the room and pass out candy. i do not recall him raising his hands for his voice. david: this is getting to be serious. luke: it is getting to be serious. since the market shutdown, we the markets are up 7%. the markets saying we don't care. a bloomberg contributor says the intransigence on both side is such that you worry about it will take a disaster, and how bad will that be. what kind of catalyst will be so big to bring the sides together and end it. not a market is

concern, however, it does hold downside risks over whether this figure into battles over the debt ceiling, if legislation can take that card off the table, or if something bad happens. alix: the debt is what a lot of agencies are running on. fifth said what it shows us is it is no easier today for congress to make these funding decisions and work together, obvious downgrading the u.s. credit rating, but the idea that if you run out of extraordinary funding in august, this does pose a risk. are we seeing more flows in money market funds? guest: we have seen them for the last three months or so, just because people really like that short-term debt. are actually seeing a push into quality. hit was a really badly factor last year, quality got really slammed. this year, it is run into quality, considering they will

what a $.5 billion in total. we saw last night international qualities, diversifying away from the u.s., got 200% more. it is a small fund, but people are looking for that more reliable company as you head into earnings season, which is just around the corner. goingk what it could mean forward, it is starting to loom large. david: the other big story is our second story, china trade relations getting better. hopes got up, and then a statement coming out of the two parties after the fact, that is not what this is spirit we are somewhat less enthusiastic than people expected. on the one hand, there were substantive discussions, but the aoject should include meaningful outcome. china come on the other hand, said they were brought, deep, and detailed.

we are expecting something wonderful, and boy, we are getting there. they agreed there were serious discussions. is this disappointing pr?eview luke: -- is this disappointing? we were could be heard looking at the trade truce that took the tariff rates and pushed it back to her to stop disclosure to china, and it pushed the s&p 500 to one day. all of december up until yesterday, it has been trailing, performing again over the stretch. it seems like we just started to get this idea that the trade truce is really happening, really causes impact that will measurable and reflected. if we have to push that back again, about whether that is the case, i could sleep market being disappointed on that. markets being disappointed on that. "daybreak chinese markets --

david: chinese markets are taking a hit. achel: they have really been pushing into the market over the last three months or so. the shanghai composite fell about 20% or so. we did see six point $5 billion or something going into china last year. i was really scrapping around this morning to try to find one way to show this, and the largest indices have not had slows this year. if you look at small cap, again, it is a very kind of in-out. we have not seen a persistent derisking or people getting more cautious in the short-term. find interesting is the topical the rallies and how good it has been, then when we take a look at who is by income a great article said it is not etf, maybe it is shortcoming and company buybacks. luke: i think what has rally

this year, and you can take one thing or another out of it, one thing that does show a recovering is it has been the high beta names. they are of over 6% this year alone. your low volatility, where you were really hiding out last year for safety, they are flatti sh, up less than 1%. we really expected to get hit on the back of market angst, a slight into the bear market. those of the ones having second thoughts about coming into the earnings season. david: now let's go to our third story, jay powell. realsaid "will bthe jay powell please stand up?" alix: i don't get credit for that. equities, bonds, currencies, commodities he said -- david: he said it does not alter -- "developments have not fundamentally altered the look,k," but then he said

a lot of us were thinking we could back off, and then he came back in january and he said "we will be prepared to adjust policy quickly and flexibly," so where is jay powell at this point, luke? luke: right now, jay powell is the guy who has been really beaten up over what you have detail over the last two months, and he is looking to do damage control. the difficulty he has had in communicating about the balance sheet, the fed has something written in stone that they have been saving for years, and the material revision look downward in order to have any flexibility with that tool. really they need to revamp that. they need to revamp their principles of normalization. that would give jay powell a lot more room. i think he would have been speaking about this a little more better and a little more clearly had that been the case. this speechaid,

today might be the case for powell to sound a little steadier that he has and not be dumping all over the place from speech to speech. alix: yeah. was it a rookie mistake, with the learning how to do press conferences? thanks very much. don't miss our coverage of fed chair jay powell with david rubenstein. check it out on bloomberg tv and radio. it is going to be the have and have-nots, the retail holiday season, as we head into. great, missed at least one estimate, despite the fact that the company saw full-year earnings on the low end actually revised higher. that was the good part. november, december comp sales rose over what percent, and they boosted sales estimates and earnings estimates for the november and december timeframe, but they are missing one

estimate, apparently triggering the stock. david: you wonder if estimates are too high. people thought it would be a record gang buster holiday season from retailers. store salesll, comp- were up, but it may not have been good enough. alix: right. trade talks with the u.s. welcome signs of optimism. this is bloomberg. ♪

is "bloomberg daybreak." i am viviana hurtado with your bloomberg business flash. target, sales rising in november and december. that be some estimates.

target also maintain full-year sales and earnings forecasts. thousands of jobs will be cut, and the automaker will not rule out shutting down factories. ford has struggled with a trading market in the ok, its biggest overseas market. teddy lampert, offering $5 billion for workers. sears is on the verge of litigation after the rejection of an earlier offer. that is your bloomberg business flash, alix. alix: thank you so much. the u.s. and china talk to, putting out statements, feeling like we are moving in the right direction. negotiators from both the u.s. and china expect optimism at the mid-level talks ramping up in beijing. the u.s. said they were waiting

for china to buy more u.s. soybeans. joining us now, sean darby, jefferies global head of equity strategy, he comes to new york just for us, apparently. great to see you. you work in asia, you live in asia. what is your take over the last 24 hours when it comes to trade? sean: i think they are getting close to trying to strike a deal. that is the real issue. they want to make sure that china can finish promises and the u.s. economy can go back to its electric with victory. but i think it is more of a sticking caret, but it may labor further and looking at all of the assets of the chinese economy. make it a trade deal done on the first of march, but it is more than likely we are going to see an ongoing discussion with intellectual property, transfers, in the

third quarter of the whole longer-term discussions and china. david: what does this do to the yuan as a practical matter? you know what has been weakening, but in recent days, it has actually, quite a bit, levels we have not seen since february. n many ways, the consensus on the street last year was the yuan would go and break through seven. in a way, china has got a bit lucky. like other emerging markets, prices have fallen, and interest rate expectations in the u.s. have also dropped away. in a sense, all of the pressure resolved. has also i think it is capital flows more than it is traits, overwhelming on the dollar. alix: obviously rolling over, waiting for stimulus, waiting for real-time to come out, and it actually gives the usa leg up in the narrative. you believe that? sean: i actually do.

i think the trade has lost a real shocking slowdown in china, and that was a result of the credit crunch from may of last year. it may reflect surface issues about trade but underlying the economy actually experienced a massive shock as they tried to sort of tighten credit, but then they over tightened. the very thing you worry about power u.s. is the tightening the economy and then putting the economy in recession is exactly what has happened in china. they made a policy mistake, and it occurred at the same time of the trade dispute that is being discussed. david: to what extent does that head back to the united states and the stock market? if it turns around, what could that mean for equities? alix: right. sean: globally, it will mean some weaker global growth, because china as a whole is a circular issue for these companies, first of all. secondly, the type of stimulus china is now discussing is actually much more driven by the

consumer than the asset investment we have been used to in the past. so it might be beneficial for a lot of the u.s. consumer companies rather than the commodity companies or the harder industrials that normally responded well to china's stimulus. alix: in relation to trade, two narratives. one, we wanted to rally because we were so oversold, and that was the reasoning. it is not anything fundamental, not a lot stocks hitting highs, etc. realther is there is optimism coming in, if we get a real deal, we will see maximum not priced in. where do you stand? sean: i think the equity market might get lucky because it might occur at some of the worst of the data from v.m. stocks to receive. most, not including china, have been raising rates sharply. they have slowed down. that is one year to run out. actually, the stock market might get a double upside. good trade negotiation outcome

and the end data starting to finally get better. david: wow. sean darby of jefferies is definitely going to stay with us with that news. coming up, job cuts at forward. shedding thousands of jobs in europe that is coming up next, and this is bloomberg. ♪ ♪

david: ford has confirmed what many have expected. eliminating thousands of jobs craig trudell, who leads our auto coverage. craig, welcome. sooner or later, they have to focus on europe. . ig: yes, i think this is overdue. they were asking what exactly was the plan on europe in the fall of last year. there was a bit of a revolt on analystst where some

were actually openly talking about how long jim hackett, the ceo, was going to be around, and how long he would be there, the one who would deliver the message of how they would restructure. david: we will show a graph that showed profitability and north america, which will illustrate that they have been losing money over there. and we were, talking about this is a company its market,ndoned making this announcement what they are going to do in europe, they are saying they will be able to get to a 6% margin. so they are actually going to be short of the target ohtani worldwide basis -- target on a worldwide basis. but they walked away from when they would get to that 8% market. -- margin. still a lot of open questions. if you will not be able to get to this target you have on a global basis, why say,

general motors, who sold their european business to psa, the industry right now is that fairly healthy levels of sales, and yet it is not a very lovable market for much of the industry. david: to that point, in the bloomberg, the headline is it ford will stay in europe if they can transform their business. that is saying "we will stay -- for now." craig: a very lukewarm commitment on the part of steve armstrong. they have to be careful of what they are saying because they made some announcements about and they a couple of weeks ago talked about walking away from a plant in france, and you saw how that went over in france. they were sort of accused of betrayal. they are talking about getting out of plants in the u.k. and germany as well. there will be a lot of pushback from labor and government here. david: we have the detroit auto show coming up. volkswagen.

will they have a big announcement on a joint venture for autonomous vehicles over the weekend? craig: yes. volkswagen will meet tomorrow with their board. we do expect it is likely they will have something to say about electric vehicles and autonomous vehicles. that could include an investment ai, the company that ford has backed. david: many thanks to bloomberg's craig trudell. also with us is sean darby of jefferies. do you like auto? sean: it is not our favorite at the moment. generally, we think the banks and e.m. beneficiaries will do well over the next few months. germany for the auto industry is actually quite low, so i prefer something, it was more cyclical, where you can have quite the substantial operating leverage and some of the construction equipment companies, big

beneficiaries of e.m. banks are completely being decimated on recession fears, and i think that will play itself out over the next 12 months. alix: what about energy? sean: i like energy. it has got some of the best balance sheets now, and also very strong free cash flow yields. the energy share price has dropped also. peoplewe have a lot of come to visit. sean: i think it is because of transparent pricing. you know what corporate seven actually raised in terms of pricing, and it is a fairly easy industry to sort of forecast. it is quite multinational driven. it is a big theme for a mostly developed economy. again, i think it does reasonably well this year. is interesting,

because you can talk about ford and the industry, but then obviously gm is doing something right. stocks to the upside. sean: i think at the moment, clients prefer to be driven by either moves in the dollar or in oil. the specific stocks risks last year really became evident when you have the things really -- f angs really derating, and you have a small move in financial conditions, and they derate sharply. clients, if they do big macro trades, they want to see exactly how those shares are underlying performance. david: in the auto industry, somebody is going to win. is there an artificial suppression of prices right now? the fact that we do not know who it will be, and there will be one winner that will pop up. sean: that was very much the history of the internet.

there was an enormous fragmentation of players in the late 1990's. in fact, it actually took a recession to clean them out. a lot of those companies went under because they could not get refinancing at the time. there is not an argument that possibly the next slowdown will clean out a lot of these, because also places like china are very dependent on substance, so they generate their business models. again, that would largely be removed in a recession. it is probably more related to financing and possibly the best kind of vehicle. they areis like suv's, really great, and nobody wants them. you need somebody to do it, at the end of the day. you mentioned technology as well . do you like tech at all? ed here? bottom sean: i think it is. immediately liquidate inventory, they get a bit of a washout, terrible downside to these

numbers. it is generally one or two, and they are behind the worst. they can generate cash flow very quickly. alix: to wrap it up, all of this, if you went up betting on what will happen the last month of the year, volatility, huge upside. s&p, huge downside. now we see a little bit of a reverse. chart.this it is fixed versus realize volatility. you are seeing more realized volatility than you are the v ix. does that mean we want to buy higher vol here? sean: converted bonds that have an embedded volatility hedge do really well in conditions, even deed the fed goes back and starts raising rates and makes, essentially, a policy mistake, convertible bonds should actually see some decent returns. the best asset class last year. alix: exactly.

so getting competitive. how competitive do cats continue to be in your portfolio? sean: i think they are peaking at the moment are the 90-day -- much upside in short-term rates. for cash we had at the end of last year is probably quite late trade. alix: sean darby, you will stay with us. i love it, rapidfire, anything, "what you think about this? what do you think about my rent?" [laughter] alix: we have the biggest rally since 2009 in s&p. now off about .5%. european equities down modestly. i mean, you did have some kind of optimism rebound yesterday in china-u.s. trade. no surprise you will see this kind of pause in the risk appetite we have seen. i am looking at the currency market in many different levels. first one, the cable rate, our worst performing currency pair. david: why do you think that is?

alix: i cannot keep track of what the next headline will be. i want to highlight what will happen with the yuan, down by about .5%. aboutrve, let's talk that, now i-16 basis points as the market rerate's fed expectations once again. it was true, down about .6%. so we have the ecb account, they do not collect the minutes, from the meeting, and we want to take a look at what they said. they said the risks are still balanced. even when they cut their growth forecast, is still justifies driving risk balance. that was the question mark, how can it be balanced, when you cut your growth forecast and your inflation forecast as well? confidence in inflation, huh? david: that is what strikes me about europe right now, because but thethe gdp growth, employment situation, both the

unemployment rate is very low in a lot of those countries, and the wages are going up, so it is a little bit of a tale of two stories here. the employment situation, the labor seems to be really strong, so i am not sure what to make of it. alix: bloomberg intelligence had a fascinating report, it has not -- priceed into equity in equities, a slowdown in europe. china, that maybe the big surprise in the earnings season this year. sean darby of jefferies still with us, what do you think? sean: it is a good statement about the employment data. wages in europe are actually growing faster than in the united states. netherland, scandinavia, germany, they have much higher wage growth, four point 5%, so in a sense, the consumer is probably actually doing better in europe than in some respects the u.s.

i think there is a natural tendency for a slowdown, because parts of europe, like germany, are very linked to the emerging-market. but they're in mind in a europe trade virtually with itself at the moment, descent and climate conditions probably mean we do not get big down drops in growth. david: as you say, the labor situation typically drives consumer spending. our economy is very dependent on consumer spending. is it sensitive to consumers ? sean: it is. gasoline prices make a big difference as well. they are finally starting to pick up, and we see that particularly, as well as in the u.k. so actually the story for the consumer in europe is possibly one of the best in 10 years. finally, central banking, the ecb, has seen wage growth, a real sort of golden period for the central banks, so i

think it is a decent story. alix: you mentioned the u.s. consumer, different from the minutes.ank, the fed the question we will hear today, jay powell speaking at 12:45, will the real jay powell please stand up? we have gotten conflicting points of what he actually thinks. on the had come in december, he said the outlook is not fundamentally altered, but then from the minutes, the committee said they could afford to be patient, and then in january, they could go flexibly and quickly. joining us now, michael mckee, our economic correspondent, also staying with us sean darby. who will we hear from today? michael: you will hear from all three. his message is not really that different. the fed, even in the minutes, they agreed that the outlook is for a fairly strong 2019. the problem is they saw the ructions in the market coming, that had started at that time,

and jay powell sort of backtrack. the way he said it at the press conference, he did not seem concerned enough, even though we know they were expressing some concern about what the market moves might do. to backtrack a little bit, he changed and put it on inflation and said if we see the economy deteriorate, we will us, and then everybody else came out and said the same thing. david: this was not just off the size of the desk. you pointed out that he was reading from a script, a joint interview with ben bernanke. it was clear he was there with a purpose. listen to my emphasis more clearly, or i will change the emphasis. michael: i will make it clear, he is not changing what he is saying, but he is changing the way he is saying it. markets have a problem understanding what he said at the meeting, the press covers, and he knew he was extending a message to the markets, this is what we really mean. alix: sean, what is the

application for equities on the dollar? on the one hand, you could say yesterday's minutes was a green light to buy assets, on the flipside, you can say how much could be baked in at this point? sean: i think a dollar move is probably more important, in some respect, they'll the interest rates. the dollar is -- than the interest rates. a weakening dollar is great for the global economy. in that respect, the moves we have seen over the last 6, 7 trading days, it is meaningful for global equity to enter risk spaces. it has been a big. green light for emerging markets. you see all those currencies rallying. aboutve been worried turkey imploding, indonesia, india -- all of this now has been pushed to one side. again, emerging markets are saying skeptic. david: a good indicator for emerging markets. what about for the u.s. economy? nowt the case -- we hear people talking about recession

in the next 18 months to two years. do those diminish if the dollar weakens? sean: i agree with you. financial conditions tighten so sharply in the u.s. you had a strong dollar last year, low rates going up, and the worst possible combination, at some point, is going to hit the stock market and potentially the real economy as well. alix: to that point, is this 2016? it.ael: no, does not compare to 2016 the markets have -- does not compare to 2016. the markets have calmed significantly. they have come way up, so now they can afford to take a pause and see what happens. alix: in 2016, the market had to rerate a lot from what they actually wound up doing. normally the markets will rerate more weather the fed actually signals a cut. it? a powell put, where is

is there any left? michael: it allowed markets to take a breath and look around and say no, maybe the economy is not going into a recession in january 2019, which was kind of the impression you were getting in late december. they do not really need to rerate a lot at this point. yesterday, i talked to someone, and we heard a lot of different set president -- fed presidents, and they all said markets tend to overreact. as sean said, we were worried about turkey and emerging markets, and now we are not. think about the longer-term and what is going to happen. alix: a lot of clarity yesterday, mike, here is what you said about financial conditions and economic data. thatrecasts are telling us more than likely we will not have a bad outcome. at the same time, the financial data has come in much, much weaker. maybe a slowdown in the economy. when we have these two

differences, i think we need to get a little more understanding of why they are so different, time, guess is that over and 2019, you will see the economy will be reasonably strong, but i also realize that my forecasts can be quite strong, and the financial markets can have a much different view. over the last couple of days, it has been quite negative and quite volatile, so i have to take those financial markets into account. alix: um, what? [laughter] david: waving two hands. alix: seriously. mike, what happened? then: he is talking to markets, "i hear you, which is essentially what jay powell is is implied inat this forecast, that the economy is going to comment in stronger, once we see the data, if we get more data like the jobs report, then the market will revisit its view.

david: talking about the financial markets, which financial markets? in particular, what about the yield curve? sean: i do not think that is really relevant. the yield curve told the fed "we don't like what you are doing, further,u carry on any you will invert, and it is a potential policy risk." the last thing that the fed ands is to jack up rates then cut them again. i think it is being relevant. the yield curve had taught them everything in advance. alix: you'll curves and stocks? back tothink we can get the relationship we had over the last 20 years. people had felt that a recession is a huge career risk for the cio's, and that is potentially the biggest problem at the moment. they do not want to mix that, because it would be one of the

most difficult answers for them to deal with over the next 12 months. i think we have passed that worst point of the recession risks. mckee,loomberg's michael sean darby, thank you for coming by. make sure to watch david rubenstein 12:45 p.m. eastern time on bloomberg tv and radio. david? david: now we turn to viviana hurtado with first word news. viviana: the trump administration is pushing china to deliver on its promises after three days of trade talks. the u.s. noted china agreed to buy more agricultural goods, energy, and manufactured products. beijing calling the talks "extensive, in-depth, and detail." will pay hundreds of millions of dollars to settle u.s. lawsuit on diesel emissions. the automaker will not have to it hasrongdoing, and agreed to the owners of 400,000 diesel-powered suv's and pickups

to update their emissions software. the justice department said some of the vehicles violated clean air rules. the oil and gas is a doucette it has not felt in a real impact from the washington shutdown -- the oil and gas industry says it has not felt a real impact from the government shutdown. at the same time, the department is not accepting any source of filings, such as public records request from journalists and activists. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am viviana hurtado. this is bloomberg. daalix and david? alix: we will talk a little bit about this on "commodities edge." it is hard to get transparency when you are a farmer, trying to plant -- david: because they are getting no data. alix: it is a mecca for these guys, and it is just not coming out. david: and if they were back to work today, they would not have

the data for january 11. alix: we will breaking that down later on "commodities edge." i will be joined by a global head of trade and commodities finance. really interesting conversation about using blockchain to trade oil. don't miss that, data. david: coming up here, state street cuts 16% of senior management. that is next on the wall street beat, and this is bloomberg. ♪ beat, and this is bloomberg. ♪

viviana: this is "bloomberg daybreak." i am a viviana hurtado in the hewlett-packard enterprise screen during. -- enterprise greenroom. ofing up, the u.s. head

economics. ." i is "bloomberg daybreak am viviana hurtado with the bloomberg business flash. the partial government shutdown could delay some of the most anticipated ipo's of the year. neither uber nor lyft have received answers from the security and exchange commission. steph curry is agreeing to a partnership deal with an e-commerce group. it is the title sponsor for his basketball camp, recruiting online shopping in japan. bloomberg has learned china's biggest bank, i sbc, plans to reduce when it's lease runs out in october. meanwhile, a conglomerate is still in the manhattan building four blocks from trump tower

because u.s. authorities waves national security concerns. that is your bloomberg business flash. alix. alix: wall street beat. 15%t up, state street cuts of senior management in a reports by the ceo. expenses.rims then hedge funds, the good, the bad, the ugly. some funds successfully navigate the markets. others had the rug pulled out from of them -- out from under them. the driving force behind the criminal laundering complaints that he had used. david: joining us now is becky collins, who leads bloomberg's u.s. investment banks. let's start with state street. it happens every year with banks, but this one is different, because it is focused on senior management. ght, state street has

hundreds of senior management, andor vp's, executive vp's, they are cutting about 15% of senior management. ,heir new ceo, ronald hanley had indicated they were looking to cut senior management, and he pointed specifically to automation as one of the areas of what you be able to do that for state street. state street is a custody bank, but it also formed the first etf. asset manager kind of cut at the upper ranks. the reason why she likes state street, bank of america, and jpmorgan is there is still money you can bring out , and this is an excellent point. david: absolutely. i can tell you from personal experience, with banks, people like to bring it out to the lower levels. peggy: that is right, and i think state street has been

it to cut costs, and basically automation is helping us to cut costs that the upper levels as well. alix: a different morgan stanley. david: a different morgan stanley. alix: we make a lot of headlines about how bad 2018 was for the hedge fund industry, but there were some really good ones, and strategies did really well. peggy: that is right. christian otey, also bridgewater did really well this week during we are seeing a big chasm between those that did really well, double digit returns, 3%, thosee shaw around 11%, really struggling, like we talked about, einhorn, who was down in 2018. there are strategies that are doing well and seeing.

tiger global up 14%. that is a fund that has invested a lot in technology. it looks like they navigated the wave of the end of the year of technology getting hit pretty well as well. one,: and energy is number commodity, number one. but there are several it peggy: did not did quite so well. peggy:that is right. -- but there are several that did not do quite so well. peggy: that is right. it was specific to some of the volatility that we saw in 2018, and as that plays out, longer trendlines, in 2018, they do better. not adapting to fast enough with their historical model. alix: equities would split. some of them were done really well. you almost want to not give them a bad, that they did well, because comps were bad across the board. peggy: right. [laughs] alix: like how the you answer

your investors -- i do not know what that guy did well. that is right. i was interesting as well, because that is what a lot of clients go to hedge funds for, help protect me against some of this volatility. we have not talked about don skip bank -- danske bank. of course they had this money laundering scandal, and now build broader, who is pretty well known, 70 has more information about the money laundering. peggy: it feels like they are not ready to be sold into what could be bad headlines. one of the strongest that's for shareholders, stockholders, and really the end of 2018 was a disaster for the bank in terms of losing about 50% of its share price or it the day doesn't like a potentially bad day in terms of news coming out and this scandal driving out for longer. much $6.1 billion is how

he wants to issue insecurities this year, and that will be about half of the total debt issue is for this year. that is some real money. david: and you have to worry about what you have to pay for, the interest rates. interest rates are rising. it is something they will have to pull at this time. david: ok, thank you so much to bloomberg's peggy collins. andng up, tesla's bodies electric-powered engines. alix: i am shocked. watch us online, look at our charts and graphics, interact with us directly on tv on your terminal. check it out. this is bloomberg. ♪ this is bloomberg. ♪

alix: i want to update you on a story we were just talking about, as we were talking, danske bank did out and said the responsible thing to do for any kind of bond sale is wait until the browder hearing, which is happening today. david: he said he has more information on money laundering. we will see what that is. alix: coming out officially and saying "we are going to hold." david: discretion being the better part of valor, as we say. i was surprised about the story when i came across it. it turns out people are taking classic old cars, fixing them up, and making these electric vehicles. you can see the vw, an old bmw, a 1951 chevy pickup. they cost a lot of money.

you have a car that looks really cool, because it is an old-fashioned car, and it goes unbelievably fast, because these electric vehicles, you put your foot on the gas, and it just goes. that is actually a bmw 3.0 cs, one of the cars i would love to own one day. and that is this chevy pickup. alix: it is really smart, i have got to say. it is a brilliant idea. the big hurdle for easy adoption is because the batteries are so expensive. but they are coming down, edit has come down for sure, but people who have these cars do not care. david: they are buying tesla batteries. elon musk is b selling batteries for those who want to take over old chevys. alix: it is a was the chicken and the egg, you need more demand for the batteries to make the batteries cheaper. you have underlying demand where people do not care how much they cost, that actually helps the overall market. david: it sounds crazy, if you are a car person at all, i love

this idea. alix: if you have a car, you actually drive -- i know you drive your fancy car. david: listen, if you have a $5 million car, i am sure you don't, for me, it is an old corvette, the reason to have it -- more important, you can drive it. a lot of these fancy cars, you have to get them tuned all the time. alix: so it is ok to drive that little red, cute, beetle thing. even i like this story. bank of america merrill lynch, head of u.s. economics will be joining us, more on the u.s.-china potential deal and the u.s. government shutdown. this is bloomberg. ♪ n. this is bloomberg. ♪ i am a family man.

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alix: planes, beans, and automobiles. china promises to buy more goods from the u.s. seesies pause as the s&p its biggest rally since 2009. president trump walks out of a meeting with congressional leaders during the latest round of negotiations as the government shutdown heads for the longest on record. and will the real jay powell please stand up? will markets get the patient fed chair or the fed chair on autopilot? david: welcome to "bloomberg daybreak" on this thursday. as we look at the white house, is this a comedy or a tragedy? it seems like 11 day, another another day. alix: the answer is yes. it is both. there's lots of layers. david: a lot of people are not getting their paychecks and have to pay rent and things like that. alix: saturday it will be the

longest shutdown on record. there is some breaking news. jaguar land rover is going to cut 4500 jobs from the global workforce. this is on top of ford coming out earlier this morning and talking about how they were also going to be paring back operations in europe as well. what do you make of this? david: first of all, there's softness overall in global car markets. brexit forwn about some time, and were planning for a relatively hard brexit. alix: i was also talking to somebody in local government in the u.k. over the weekend, and the kind of form to me that she kind of want to me about this -- and he kind of warned me about this. david: ford has announced they are going to lay off a lot of people in europe, and they say that is before a hard brexit. that doesn't even take into account a hard brexit. so there's some real problems.

alix: macy's getting creamed, as well as kohl's, in premarket. they cut their view for the year. there sales were up resized -- and revised their earnings expectations down. yet. kes.i retailers were doing good stuff. the last earnings quarter was really good. david: what we saw was kohl's earlier, and now macy's, is disappointing. down almost 12.5% in premarket. it is positive, but not positive enough. they said they saw underperformance in winter sports where, seasonal

sleepwear, jewelry and cosmetics. what was working well was shoes, dresses, outerwear, active, and home. so people are still spending. you are still buying clothes and shoes. david: what seems clear is the shakeout in brick-and-mortar retailers is not over yet. they haven't reached the ultimate position yet. alix: anyways, colton macy's getting cream -- kohl's and macy's getting creamed now in premarket. a big rally over the last few days, so definitely a pause. you have some retailers coming in. headlines are not good. for cutting jobs, land rover cutting jobs. that is weighing on the overall equity market. by and on the back end, the treasury market yields down by one basis point.

the 10 yesterday was actually pretty solid, despite optimism in the market. , coming off stable a little bit after it entered a bull market yet again. over 20% since that december low. david: a nice run for crude, giving back at the moment. time now for your morning brief. at nine: 30, president trump be departing joint base andrews for his trip to the southern border to see for himself what he has called a national security humanitarian crisis of immigration. at 12:45 this afternoon eastern time, fed chair jay powell will speak with david rubenstein in washington, which we will bring you live. , the00 this afternoon treasury will auction $16 billion in 30 year bonds. now it is time to find out what's going on outside the business world. we turn to viviana hurtado with first word news. aviana: forward launching

broad restructuring of european operations in an attempt to make the business profitable again. thousands of jobs will be cut in the automaker will rule out shutting down factories. with as struggled shrinking market in the u k, its biggest european market. the trump administration pushing china to deliver on its promises after three days of trade talks. the u.s. noted china agreed to buy more i do and manufactured products. beijing calling the talks extensive and detailed, and say they lay a foundation for the resolution of conflict. president trump going to the border today. he will meet with border patrol agents and take part in a roundtable discussion. yesterday the president storming out of a meeting on the government shutdown with congressional leaders. house speaker nancy pelosi and senate leader -- senate minority leader chuck schumer say they will not discuss funding for border security until the government reopens. global news 24 hours a day, on air and on tictoc, powered by

more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. david: thanks so much. we want to revisit macy's. we just told you about their disappointing sales. they are over 15% down. they were up a bit in the holiday shopping season, but not nearly enough. it was very modest. so macy's continuing to fall. alix: i want to get michelle take, from bank of america. , or as a consumer worry company retail worry? guest: we've seen this for some time, where people have shifted away from brick-and-mortar. i don't think it is anything particularly new, but there was hope that the department store model would be able to change and compete in little more. i think there's also a lot of concerns around holiday sales in terms of the timing. black friday started off strong.

that was different than last year, where it ended the holiday season robust. it is also hard to determine what is the signal around the timing. david: every year i can't figure -- if blackfriday friday is good or bad. it seems like the rules change. guest: i think part of it is when the promotions are, how retailers are trying to target their audience. david: turning now to the government shutdown, we are in the 20th day of that shutdown. thehe end of the day, president had stormed out of a meeting at the white house, calling it a waste of his time. the participants there couldn't even agree on what happened. table,ort of slammed the and leader pelosi said she didn't agree with the wall. he just walked out of that we have nothing to discuss. >> the president walked into the room and passed out candy.

i don't recall him ever raising his voice were slamming his hands. david: michelle meyer is still with us, and we are joined by -- polson, the local group investmentroup chief group's chiefd investment strategist. eventually they will either get in agreement and move on or decide to give up. the net result for the economy is going to pill in comparison to other issues in the room what the fed or the china negotiations or earnings reports. i think the market will be much more attentive to that. alix: michelle, what about you?

at some point, if you don't have a paycheck, you can't buy stuff. you can't pay bills. >> i do think it matters for a few reasons. people are not getting paid. it starts to impact their behavior, and impacts confidence as well. in this environment where confidence is so shattered because of these other ,utstanding risks jim mentioned i think it is just one more thing that could be impairing confidence. we all know uncertainty is bad for economic growth. david: jim, what about that? does it exacerbate anything else we might be concerned about, whether it is trade negotiations or the president wrangling with the fed? it seems to be a little uncertain in washington. and by the way, we have a debt ceiling meeting coming up. >> it certainly adds to

uncertainty, but the one thing this president has given us is constant uncertainty and constant unconventional moves, to the point where i think we are becoming more and more insensitive to it, to some degree. this could have been much more impactful earlier in his presidency, but now it is just another 3:00 a.m. tweet. we have it almost every day and i think the market is moving on from that and trying to pay more attention to things that are really going to matter. certainly this matters if your paycheck is tied to it. there's no doubt of that. it is creating misery for a number of government ploy ease. but i think that's government employees. but i -- government employees. impact on thee market will be determined by other, more important factors. alix: many don't believe it because they say it is short covering and company buybacks. no member of the s&p has had a

52-week high despite the strongest, biggest rally we've seen in the s&p since 2009. what does that tell you about the durability of any rally we see? >> one thing it says is how far we felt. a lot of stocks were a long ways from 52-week highs. of course, other markets like the russell 2000 and nasdaq went down more. even a big rally has to take in big rallytocks -- hasn't taken a lot of stocks back to highs. we might have to revisit and in, but wew we put are coming off the bottom fairly strong and being led by the most economically sensitive docs. the other markets are showing the same signs. we are having a rally of commodity prices, a tightening of credit spreads going on at the same time. we are having an underperformance in defensive type stocks.

i think that a lot of signs point to that this could be a sustainable rally again, and that is my that. lows, say we won't retest but i think we are going to come to grips with the fact that the fed is on pause and the recovery is not going to recess. thehat is the case, valuation level of this market, even now, is still pretty compelling. alix: all right, michelle meyer, jim paulsen, you will both be sticking with us. david: the pentagon has told the air force it can accept those new tankers coming from boeing even though they have deficiencies. there's going to be some financial penalties. this is a bit of a drama because jim mattis, outgoing secretary of defense, said no way, no how. mr. shanahan came from boeing and has recused himself moment said you can go ahead and accept. this is a $45 billion project, really important to the air

force. you can see boeing is up a little over 1% in premarket. full-yearot two earnings downgrades. american airlines down over 6%. it adjusted earnings forecasts on the high end. again, we knew that earnings season was going to be slower but weand drink 2019, are seeing revisions already start and pick up. david: we had a fair amount from the automakers today. jaguar laying off several thousand people, 4500, from their operations. they had difficulties. in part it is brexit. overall industry globally is in a soft period. ford also saying they will lay off thousands in europe as they cut back on what has been a not very profitable operation. alix: and talk about earnings guidance, macy's stock getting

completely hammered in premarket, down by about 16%. it cut full-year earnings adjusted view, full-year comp sales view. it now sees net sales is pretty much flat on the year. they look to make just on the four dollars in earnings. , there is a concrete lack of details in the u.s./china trade talks cutting a pause on global equity rallies that kicked off the new year. more on that and what it means for company guidance. this is bloomberg.

♪ this is "bloomberg

daybreak." i'm viviana hurtado. target maintains full-year sales and earnings forecasts. irman raising the bid to keep in business. sears is on the verge of liquidation after the rejection of an earlier offer from lambert. for saudi arabia, it was the first test of how much damage the killing of journalists jamal khashoggi has done to investor appetite. selling $7.5 billion of international bonds today. the murder appeared as though it could hurt foreign investment in the country, but once the sale began, investors say it was a matter of price, not politics. that is your bloomberg business

flash. david: thanks so much. we are going to talk about macy's and kohl's. alix: all downgrading. macy's and american airlines cutting their forecasts for 2019. this is a new trend not to wait until earnings. let's just preannounce. david: they are jumping the gun, as apple did a really. alix: what does that mean for actual earnings season? still with michelle meyer, of bank of america merrill lynch, and jim paulsen, leuthold. how is the market compared for it? >> i think it certainly is suggesting we are slowing a lot this year in terms of overall economic growth. i think we might slow to 2% or less in terms of real gdp this year. it is not shocking given what stocks have done already in all the financial markets. they've all been a collective

message suggesting you will have significant slowing, and that is going to affect earnings results. i wouldn't even be surprised if overall s&p 500 earnings from this year actually declined slightly in 2019. it is interesting to me you are seeing so much weakness in the retail space after we got some really strong job reports. you wonder what that says come with the retail community is picking up already. maybe the job market is going to weaken quite a bit too in the first quarter of this year, given some of these results. but i think we are going to see a lot of downward revisions from a lot of different ceos, more cautious outlooks for 2019, as they are already starting to pick up a slowdown happening not only globally, but now coming to the united states. david: michelle, is that bank of america merrill lynch's point of view? david: we are a -- >> we are a

little bit above trend. giving toobe careful much of a correlation between earnings and gdp growth. we know historically there are a lot of other factors involved. the s&p 500 is much more globally oriented, much more functioning on what is happening with oil prices and the manufacturing side of the economy. you can see a scenario where earnings come in flat, but you still have economic growth, or even an earnings contraction and economic growth. point in case, 2015 come over , butad the oil downturn economic growth continued to expand. alix: all right. was of you are sticking with us. cars purgethe global hits europe. this is bloomberg.

♪ david: time now for the bottom line, where he look at companies worth watching this morning. for the motor announced it will cut thousands of jobs in europe. the automotive industry analyst joins us now on the phone. thanks so much for joining us. ,e've heard that jim hackett the ceo, has a plan that may cost $11 billion. how much of the plan did we just hear? >> thanks for having me. that question is still unclear. they are restructuring their about a operations, quarter of their total workforce. what they're doing strategically is similar to what they've been doing in the u.s., focusing primarily on suv and crossover sales and less on sedan. our reaction to this is it is

about time. ceo jim hackett has been at the company for over a year-and-a-half. investors have been waiting patiently for any kind of update on restructuring. we are now getting some details, and appreciate these decisions are being made very carefully given the human impact and the impact on the workers and their families, but come on. it has been a year-and-a-half now, it is -- and it is about time. they been losing money in europe for several years now. predominately all the profits for the makes are in the north american region. you look at the other international operations am all kind of cancel each other out. they make a little here, lose a little there. come: i understand as you with a lot of other people, are impatient. it is a question of comparing with gm, saying we are getting out of that business altogether.

european operations for ford is quoted as saying they will stay in europe if they can transform its business. should they have sold it instead? guest: it remains to be seen. it doesn't seem like they are married to staying in europe. i think it is a wait-and-see. it is not exactly a lofty goal, far less than operating profit in their earnings in north america. what do you do with the operations? you try to restructure and turn it around, see where things go and maybe reevaluate a couple years down the road. upside?hat about on the they want to make a transformation to mobility, as they call it. autonomous vehicles, electric vehicles. will they make a deal with volkswagen? guest: is a lot of chatter regarding that. still haven't seen any details

on that. they are trying to reach some sort of partnership that would be mutually beneficial to both companies. perhaps leveraging volkswagen's european operation and forward's -- and ford's north american operations. david: how much of this is brexit? whether it is gm, or ford cutting down in europe, or now jaguar. guest: actually, brexit is the wildcard. this all assumes that britain maintains a tariff free relationship with the rest of the eu. the timing is kind of curious in that we don't have a definitive answer on that yet. they are making this announcement before we have finality on that issue. it is kind of wait and see. cfra: garrett nelson of

research, thanks for joining us. alix: the other story we have is on apple, just cutting price targets by 25%, now looks at $160 a share. irwin, thanks for joining us. why did you make your price targets cut? >> i think when we initially downgraded our rating back in december, we highlighted some risks, notably in terms of iphone growth related to emerging market exposure. i think what you saw with the warning recently was that what is happening in china is a lot more dire than our own projections. so we had to basically take that into account. i think the issue at apple right now is you have very limited growth on iphone, which is more than 60% of their business.

,ou got market saturation lifecycle extension happening. basically because consumers don't perceive incremental value in the new add-ons, so they are in a wait-and-see attitude. i think as far as emerging markets, there is a clear issue of affordability, value for money concerns, and as far as china can self -- china itself is concerned, competition. alix: how much of that is a global smart phone, even u.s. consumer story? guest: if you look at the u.s., we are still quite optimistic for apple. u.s. markets out is quite different. in the u.s., you basically have apple, samsung, and the rest of is competitive landscape quite irrelevant. what we highlighted in china is you have a lot of china specifics. the ecosystem of apple is very sticky in the u.s., and the

install base is very large. that is not the case in china. we've highlighted the attributes of the chinese quartet. basically the four leading brands in china. they are putting a lot of pressure. they are cheaper. they have equivalent functionality. it all depends on how much are you ready to pay for a logo and social status associated with apple in china. we clearly see that consumers in china are relatively pragmatic. there are substitutes, and they are going for these substitutes because they don't see the value equation for apple. right, irwin ramberg hsbc,an rambourg of thank you. we are seeing a mixed dollar story.

what is really interesting is you have the aussie dollar and the yen higher, but the pound and the swiss franc are lower. it feels like there's a basing out of where the dollar should be based on a fed that may be more dovish than the markets had potentially thought. the u.n. able to have a nice yuan able to have a nice rally, though. jobless claims for last week coming in at 216,000, in line with estimates. how much of this gets affected by shutdown? du file for jobless claims if you are part of the shutdown without getting a paycheck? david: that is a really great question. michelle meyer is here. she has the answer. michelle: it is in a separate system for federal workforce, so it shouldn't be impacting the jobless numbers directly. it will impact if there's

contractors or related jobs to the federal government that people are forced out. alix: for weddings that happen because you can't get a license. david: i worry about people trying to get married. alix: talk about ancillary businesses. david: they can get married in a church. they just can't go down to the courthouse. alix: but what if you don't -- whatever. i'm just saying. david: let's talk some about the fed. the fed minutes came out yesterday and pointed to patience. a fresh jay powell gets chance today to reinforce that message at the economic club of washington. the question is which paulo going to show up. that -- which powell is going to show up. he said the fed will be repaired to adjust policy quickly and

flexibly. michelle meyer is with us, and jim paulsen as well. if the fed is giving forward guidance, what is the forward guidance we should be taking from what we've seen from a couple of different versions of jay powell? he's still kind of in a tough place, i think, in the sense that economic data is going weaker. there's no doubt about that. the market message is certainly that it is going to get even weaker still. at the same time, you still got wage pressures that have gone up to about 3.2%, looking like it is still heading north, which puts the fed in a tough place when you've got 3.2% wage inflation rate, and there's not a lot of tightening in the system. i can understand why he's talking out of both sides of his mouth a little bit, but i think clearly not only chairman powell, but the entire array of

said officials have come out now with a mission to inform -- of fed officials have come out now with a mission to inform that they had hit the cause but -- hit because bussan -- has hit the pause button. i think the fed is on hold for the for seeable future. alix: we had a slew from all of them, basically taking a backseat. havingo are more bullish more patients, etc. gets questions today, will they wind up saying things like, what do you think mr. said about --d about what messner said about patience? what does he say to stuff like that? michelle: i think he will make

it very clear they are monitoring the data, not only economic data, but market signals. conference, he was more willing to dismiss market signals and really just say we are waiting for hard data, waiting for evidence. at this point, things still look good. , and fedes since then officials have come out and said we are taking a broader set of information. we will react to what we see in real time, and that might mean we don't hike for a period of time. david: we have a tendency to focus on equity markets. there are other financial markets. to what extent is the fed pay attention to the you will curve as a more powerful signal of a possible recession if it inverts? jim: i think they pay a lot of attention to it. i think the fact the 10 year yield got close to 250, which is , was certainlyge

alarming to everyone, including fed officials. the fed never inverts the curve in the sense that it almost never raises the rate above the long-term treasury yield. what happens is the long-term treasury yield comes back down through the funds rate, and then you have an inversion. that was a scary moment. i'm sure one of the reasons they backed off as aggressively as they have towards future tightening is what the message of the bond vigilante was, and that was you've got to stop for a while. i think that if the 10 year yield stays in the range of that new set funds rate, i think it is also going to be pressure for the fed to stand down for a while. alix: what does that wind up meeting for the correlation to stocks and bonds? therehat we are seeing is the correlation, when that is positive, it really says that people are most concerned about

weak economic growth. and wind is negative, they are concerned more about overheating inflation. we did go negative for only the fourth time in the last 20 years late last year, in october. typically that registers if the markets become really concerned about overheating inflation. but that has really gone back strongly positive now, about .3 just since late last year. that suggests there's been a really big mindset change from investors worried about overheat to worried now about under heat overall. i think that is a good sign for the fed. when that correlation is negative, they probably have to tighten. but when it is positive, it gives them leeway, and that is where they are now. david: investors don't always agree with economists. investors may be more worried about the undershoot than the overshoot. we hear the economy is doing quite well. but yesterday we heard

there are some indications there may be a recession from data, both monetary and fiscal. investors tend to swing around a bit more, so the extremes are a bit more. overheating to under heating is a very rapid move. you are looking at the hard data, aggregating all the data. you don't can to see quite as much volatility for us. it has been a view of growth moderation this whole time. we've been looking for growth to slow in 2019. we have taken down our forecasts in the tight months -- in the past month because of the tightness in financial conditions. but in terms of fundamental conditions and drivers, that is pretty consistent. it is a slow growth environment. we had a boost from fiscal stimulus, and returning to a just above trend environment.

alix: if you were to ask jay powell a question today, what would it be? michel: i would want to understand more about the triggers. there's a lot of handwaving around what they are looking at. is it ok if the unemployment rate starts to move sideways? is that enough for them to deliver another hike is inflation is hovering at the 2% target? i think we have to understand a bit more about their reaction function. frankly, i don't think they've made all those decisions yet, either. what they look at on the bloomberg terminal when they come into work in the morning. [laughter] michelle meyer, jim paulsen, good to see you. david: now let's find out what's going on outside the business world. we turn to viviana hurtado here with first word news. president trump called talks with democratic leaders on the government shutdown "a waste of time."

those democrats call him "petulant." he stormed out of a meeting with congressional leaders yesterday, blaming house speaker nancy pelosi and senate minority leader chuck schumer being unwilling to negotiate over a border wall. the president flies to texas today to visit the border. british prime minister theresa may openly considering a brexit plan b. there are growing signs parliament will reject the deal she's reached with the european union and will try to take control of what happens next. office says she will provide certainty on the way forward if her plan is rejected. opposition leader jeremy corbyn says he would call for an election. chrysler will pay millions to

settle and omissions suit. -- settle and emissions suit. global news 24 hours a day, on air and on tictoc, powered by more than 2700 journalists and analysts in more than 120 countries. alix: just to update you on what is happening in the markets, macy's continues to decline in premarket. we are off the lows of the session, but the other -- but they lowered other earnings and forecasts. the whole sector feels like a bit of boom to gloom from the holiday season. this was a really ugly preannouncement, down 18%. unbelievable. david: kohl's down as well. it appears to be a consistent theme that was disappointed at the holiday season, but up 1.2%, thought to be up about 3%. last year they were up 6.9% for the holiday season year-over-year. they are down almost 4%. alix: but target was good. target was the one it was actually good, and they set the bar pretty high. obviously getting dragged down

by sentiment. can they be the outlier? actually did really well in e-commerce. david: it must be that people are just losing faith, if they had it, in the retail brick-and-mortar space. alix: is it is a broad, general sort of consumer story, that is one thing. is it is a specific company story, that is another thing. also, you had a huge rally, and expectations are pretty high going into the holiday season. it does set up a have to have-nots. digital sales were up 29%. their margins might be a different story because they offered free shipping with no minimum for two day delivery. david: it is a great point. great point. coming up, california regulators

break up their calculators and develop a financial stress test for pg&e, the largest utility out there. more on that next. this is bloomberg.

viviana: this is "bloomberg daybreak." coming up later, representative and house majority leader. hurtado with your bloomberg business flash. shares of macy's plunging in premarket trading, cutting their annual profits forecast. the company cited underperformance in women's sportswear, fashion jewelry, and

cosmetics. the government shutdown could delay to of the most anticipated ipos of the year. neither cooper nor -- neither have received confirmations of their proposed offerings. proposingjudge is some extraordinary measures aimed at preventing devastating wildfires in california. the judge wants pg&e to trim trees that could fall of hundreds of miles of power lines and start fires. the utility under intense scrutiny over whether its equipment sparked the fire that dominated -- that devastated the count of paradise and killed 86 people. alix: thanks so much, viviana. the california public utilities commission meets today to develop a stress test for utility companies. pg&e is potentially on the hook for $30 billion. shares of the company are at the alertness level since 2003 -- at the lowest level since 2003.

california governor gavin newsom, just two days into the job, says he is working on the solvency issue. governor newsom: my role and responsibility is protect -- is to perfect your interests, not pg&e's. but sometimes those align. we want a utility that is investing in the future in an ideal world. that is not the case today. alix: joining us is bloomberg intelligence's senior utilities analyst. walk me through what we are going to expect today. what is the state of play going forward? >> i think today we are going to see the regulators get started on defining this so-called cap pg&ew much pg and the -- can stand to cough up as a penalty or find before the company starts to really spiraled downward. given the $30 billion you mentioned as liability, i'm

thinking it is not very much, but it will be interesting to see how much the puc comes up with. all ofwhat happens to a the liability above that number. -- above that number? reporter: you have to look to the ratepayer, and you will have a tax in california. california already has among the highest rates in the country. alix: which brings up questions for money for other projects going forward. it brings up other utilities and models as well. guest: bonds are obviously down so.or so that down $.80 or apply that to the 6 billion and you get to $51 billion.

from a bondholder point of view, you can cover the liabilities and still have room for some fire damages here. it is just a negative outcome for the equity side. smart money is chasing the secondary traits here. the smart money is looking for the secondary plays, the other california utilities. we like some of these yields. clear way energy is a nice one. you are not going to make as much money on these, but it is a much higher conviction trade. ,avid: putting aside utilities if you have a company that has a negative net worth and take out the equity altogether, and the bondholders and up owning the company, has that ever happened with a big public utility? guest: the only time i think was public service in new hampshire had aears ago, where they nuclear construction issue bigger than the whole company, and it were bought out for

pennies on the dollar, basically. another utility pop them out. david: is there another utility big enough to buy pg&e? guest: now. -- no. i don't see the state by a month. basically, that state buying them -- state buying them. ,asically, as the governor said -- alix: this is not the first time pg&e has had a similar issue. obviously the difference is this is not a subsidiary. what is the difference between now and 2001? guest: one important difference is in 2001, you could change the that was the flawed energy market, where pg&e was buying too expensive electricity and enron was benefiting.

now the big problem is the so-called inverse condemnation issue. basically the victims of the fires and finance lawyers get all the money, and it is still open-ended. even if they saw this $30 million, next year could be another $10 billion $15 billion. solving the whole issue is going to be a different one. david: if this were a private company, you would say let's take the good parts and spin it off, take the bad assets somewhere else. could that happen? guest: there's talk of separating the gas from the electric. ,he problem for bond holders last time the bonds were secured. this time they are unsecured, so there's a lot more uncertainty. there are all the fire claims, 30 billion of them. there's talk of doing securitization bonds.

we calculate want to get up to 10 billion, that translate to a 15% increase in rates. we don't think that is tenable in california. the last governor to be recalled in this country was in california because of raising power bills too much. the new governor knows that. david: finally, is this a one-off? they have wildfires in california. they have hurricanes in the southeast. are we going to see this more and more with climate change? reporter: i think certainly the damages are greater, and people are building more expensive homes despite whatever they hear about climate change, apparently, in dangerous areas. so until you stop them from building, which i don't see happening soon, you're going to have more damages. in the southeast and hurricane belt, we haven't seen the states really back away from supporting the utilities the way we've seen in california now. guest: buy generator stocks.

them at schools and hospitals, and you start shutting them off whenever the wind starts blowing. lynch -- david: konolige and andy devries, good to see you. coming up, macy's cutting guidance, kohl's disappoints on holiday sales. this is bloomberg.

alix: what i'm watching is the retail crunch in premarket. macy's plunging more than 18% after cutting its forecasts. kohl's going down after holiday sales disappointed. what have we learned this morning from macy's?

inwe learned there is a lull between banks giving and christmas, and that is what really hurt macy's shares. if you look at the holiday season, it is important for it to be cold overwinter. cold thanksgiving, but temperatures started to warm in the middle, which could have impaired macy's results come and take up with last-minute demand heading into christmas. what is really key is the inventory position. it will have to go through some extensive promotions in january to bring inventory to be flat at year-end, where they had expected it to be down initially. david: so what you just said to apply to everybody is a retailer. does it? does the lull apply to everybody? i think it should apply to everyone because we did have an extended lull, but i think it is more pronounced at macy's. part of that may be where their locations are situated. they are more of a mall

retailer, where kohl's is more off mall. malls may have just had lighter track i -- lighter traffic. alix: did target set the bar really high? reporter: target had phenomenal results. the numbers were great. they showed broader strength we have been seeing. alix: thank you very much. definitely a surprise for the markets today. there were so much potentially baked in about a good retail holiday season. david: exactly. what i heard is it was a great holiday retail season. i guess not for everybody. alix: coming up, the market open with jon ferro. this is bloomberg.

jonathan: from new york city, and jonathan ferro. the countdown to the open starts now. ♪

jonathan: coming up, chairman powell returning to the spotlight. more officials expressing willingness to be patient. government shutdown entering day 20. the president storming out of the latest meeting with democrats. and global auto markets cutting jobs. 30 minutes away from the opening bell this thursday morning. good morning. after a 10% gain over 10 days, down on the s&p 500. treasuries unchanged at 271 on a 10 year -- at 2.71 on the 10 year. >> patients. patience.s -- >> patience. >> powell did sound more dovish. >>