bogle dies at 89. warren buffett called him a hero. trade war part two. the government could indict wobbly technologies for espionage. this has the vice premier repairs to travel to washington. morgan stanley on deck. the bank said to report earnings at any moment. the last of the big 6 wall st banks. david: welcome to "bloomberg daybreak." we waiting for morgan stanley earnings right now. so far it is not been better the banks. alix: you have to wonder how much of that is the expectation game. they had such a horrible run of the last four or five weeks, but before that they were so hammered. you have to wonder how much it will take for them to rally at all. david: they have shown they can make money without fixed-income trainin -- trading. alix: a big part of that will be loan growth.

it will be interesting to see how morgan stanley will light of dealing with that. the other interesting point is overall for expectations, if you have expectations so beaten down, was sector does not have to do a lot to beat? some say it is financials. david: expectations are definitely coming down. joining us are allison williams, senior u.s. banks analyst, and christopher wolfe. as we wait for the morgan stanley results, give us a recap of where we are on banks. allison: four trend is there -- core trend is very good. interest margin expansion was stellar yesterday at bank of america. across the banks we have support from the core balance sheet growth to continue credit. very good coming in better than expected. still inspecting strong credit this year.

it is not a surprise we have seen solid trends. it's interesting to see the stocks outperforming. keep in mind, they are back to where we were at the beginning of december when people started getting worried about the geopolitical situation. as we emerge from earnings that will gain focus again. fol againks -- folks again. we have seen differentiation in terms of stock performances. there are other things going on but bank of america hit their target. citigroup, that was a concern because they missed a ratio target because of lower revenue but again people confidence they can keep a lid on expenses going forward. jpmorgan costs coming in a little higher but they are investing for growth. meetn stanley, they will cost targets today. analysts want to know there are

some levers to pull. alix: all are waiting for the earnings, christopher, do you want to be buyers of banks? christopher: we want to be a little more cautious. low expectations. getting ahanks message that back to basics works. the third piece is the fed. the fed recently signaled mabye we -- maybe we will pause. that is typically good for banks that we have to see how far that plays out. there is a bit of recovery trade after a difficult december and low expectations. david: what about the economy overall? we have seen pretty good long growth which is encouraging. you have an economy in a market that is sliding from great to get. a lot of people look at the political environment and confuse that with great to get to not good.

but we are back to china's gdp growth, consumer spending holding well, sentiment is pretty good. the good environment is about the continuation of some of the trends. it has to show up and earnings where we expect greater challenges. alix: what will be the catalyst for banks going forward? allison: it will be the geopolitical front. stocks, if they went back to september, are pricing perhaps very little risk of a bad situation. maybe overpriced the other way. going forward we have very good core trends, but on the capital side they can go either way. a lot of the management talking about fees that benefit from closing deals, but the announced has beend volatility -- is a risk to sentiment. ceos are seeing good client sentiment but they see a risk to

that in a lot of this continues. second filter into the real economy. -- that can filter into the real economy. there could be some real risks. seed: are we starting to any shift away from capital markets and into traditional banking? for many years it has gone the other way. allison: for this quarter a lot of the expectation is focused around the core banking because that is what investors are worried about. we have had a strong economy. at the margin if there is feedback on the global economy, that is the concern going forward. thetal markets is still more volatile part of the business and the big driver. the question as we go forward in the near-term. alix: we have not seen a lot of m&a and the less few weeks. that players and all of a sudden you have more m&a going on. we saw fees come down. does that signify a competitive

environment or lack of demand? allison: i think it is just a stalling. volatility is putting people on hold. eventually that can build up and people that have to do things strategically will do so. to the extent ceos don't feel confident, they will pause decisions. debt andmpacts broadly other associated fees that can be driven by the business. david: when it comes to fees to m&a, is at the size of the pie or how the pies being carved up? we have seen think -- boutique investment banks. are they fighting for market share? christopher: a couple of things are going on. keep in mind the backdrop is much lower earnings growth and mark assembled around five pe multiples. when earnings growth is low, the market moves by sentiment. that means things like ipo's, m&a and other things that greater scrutiny.

the second thing is in a lower growth environment we may see volume pick up. you think about the pie with room for growth and 2019. if you look at the banking sector, it is two parts. the universal banks that benefit from the trading and m&a, and the loan growth and businesses and remaining strong. there may be two paths and the banking sector. i think the thing we look at us with the most scarce thing right now. that is growth in this environment. it will get a bit more scarce. investors will price it a little a little --p prize it bit more. we want to focus on cash flows in return on equity. david: i have not heard much about the yield curve throughout this discussion. we were talking about if the yield curve steepen to make more money. allison: is important for two reasons. it is sort of an economic

indicator and there are a lot of discussions around that. two, it is the core of how banks make their money. they borrow short-term and that longer-term. you have to remember the big deposit base they have, which is basically close to low-cost funding. it tends to be the stickier side of things. pricing has remained very muted on that portion of the business. that's a positive in the quarter. we are seeing a pickup in wealth, of the yield curve is important. it is something we will continue to watch. i want to touch on the point about competition. we were talking about fees and capital markets. that might beg underappreciated is the share gains from some of the european competitors. it is difficult to see from the top line because of different business mixes. also the u.s. at a stronger home

environment versus the european, that we have this announcement bmt.the -- we have seen some difficulties at deutsche bank in pulling back some of the businesses. bige was cited as a weakness. that anded about jpmorgan talk about continued strength. there has been some shared gains going on. at the margin that may not continue. alix: and the u.s. does not have deutsche bank, so there is that at the end of the day. david: and we don't have morgan stanley results. alix: they are nine minutes flight. the report is at 6:55. we are 14 minutes late. let's do a quick check in the markets. s&p futures are up by about nine. netflix after the bell. the euro-dollar flat on the day.

inflation below the ecb target. not a lot of movement happening. there is a rush to the yen. citi cutting the forecast to 1 03. the curve a little steeper as expectations get priced out. how much more expectations to get priced out? crude down by 1.5%. i should point out some interesting opec headlines. they produced lowest in about two years. production false to the lowest in two years because of saudi cuts. not really enough to believe the oil price -- bleed the oil price at this time. chris, if you look at overall earnings season, what is the sector you are most excited about? christopher: the easy one is banks.

earning expectations were on the floor. interestingly, there has been a broad commentary from many conference calls that the domestic business is much stronger than some of the international business. expectations for the first quarter are pretty messy. they offer a lot of negative guidance. there is a big incentive for companies to guide down and set low expectations for the year. the bigger challenge will come from the internationals, the big multinational companies. they could be as low as zero. that will happen effect on overall earnings growth for the market, probably in the 5% range. that is where our story of the market moving more with sediment them with earnings growth. we are coming off a heady year last year. essentially in some of the names like health care and some of the consumer stories could be important. the consumer continues to be

very strong. sentiment is good, wage inflation at 3.5%. that's important for the spending story. there has been a lot of concern about that given the lyrical dynamics and that may be a source of dislocation for the year a is a consumer stories and you think. david: is this a stock pickers environment? are the sectors moving together or is there a paramedic dispersion? christopher: we see dispersion picking up. there are clear winners and losers. in the past, everyone was losing at the same time. there was a combination of things they can that happen. the rebound has been a bit more diffuse. in the consumer sector, retailers are repositioning to create a better dispersion for 2019. stock pickers market, it is always a stock pickers market. and it will likely to be a lot more dominated by sentiment, risk management will matter more.

active managers probably do a better job of that in a messy environment. david: evening balance sheets? christopher: balancing the risk in a portfolio. david: where are you focusing more on, the fallacy and their ability to service debt and things like that? christopher: 100%. alix: and you have fund managers who would rather see you paid out that. that was a total shift. -- pay down debt. that was a total shift. christopher: we have seen debt accumulation really remain at high levels. it is not a financing question now. let's reduce the gap between insolvency in bankruptcy by paying down debt. allison, what does it do to regional banks? allison: it's good. made,f the points consumer continues to be very

healthy, corporate is a little bit more worried in terms of the overall corporate levels. one area we have discussed in the past is the industry data shows a pickup in see an island in -- cni lending. reasons itnumber of depends on the type of loans. the history data includes different types -- the industry data includes different types of financing. if you look at jpmorgan's numbers, they were outpacing this year. hearing ist you are a very competitive environment for cni, and it is tough. we are seeing good loan growth this quarter but it has to do with expectations. a year ago we would have been disappointed with these numbers. expectations really came down. moving forward, on the corporate

side it is hard to make a case because of where the leverage is an you are hearing about the competitors. that is not where you want banks to be pressing for growth unless you get some kind of pickup in demand. alix: morgan stanley is out. earnings coming in at $.80 per share. the list of people expectations. that was a big mess at $8.5 billion. $.73 in adjusted earnings. $1.49 billion, more than estimated. going through, wealth management revenue coming in over $4 billion. that seems pretty strong as well. $1.01ofit coming in about billion. thank you for coming out 20 minutes late on morgan stanley.

it seems like a big miss in the stock moving lower in the premarket. allison: we have not seen the hard numbers yet. we saw the $2.5 billion headline number. consensus was expecting about $2.8 billion. they have been in these numbers for several quarters in a row. the sentiment might have been higher going into the quarter. it should not be shocking that they missed the headline number. has not beenincome historically as important as equity. allison: versus the estimate. alix: last quarter they came in at $1.18 billion. --your point was beforee a22 every other bank missed it. the expectation for morgan

stanley was a modest gain because they had such a tough year. alix: equities coming in $1.93 billion. expectation was over $2 billion. what happened here? allison: people will feel better about goldman sachs who actually be there equities numbers going back to us quarter. stepping back and looking at the longer-term context, is it such a mess that there is a franchise issue? perhaps not. we will want to look again at what is going on behind the scenes, derivatives. you would expect that because of what we have seen in volatility. the cash business not as strong. keep in mind with happening with equity underwriting. that really fed into cash equities. legal want to hear more about it but it is a mess. -- miss.

david: they are down. about $1 billion in pretax income compared to $1.2 billion last year. isn't it inevitable when the market is down to the fourth quarter? allison: asset prices were a huge -- all your long. we will look at what did their final both management pretax margin come in at and what is the guidance for next year. david: 24.4% was the pretax margin. allison: it has been the weakest quarter. perhaps they were still able to make her annual margin. i have not seen -- make their annual margin. i have not seen the numbers at. alix: with equities in particular weaker hear the story about the one bad trade or the one big issue they had. is that what is really going on here? allison: it is hard to tell

until we hear from them. miss. it is not a huge could it just be explained by perhaps strength in one area? relative strength in one area where they are not as strong. they are the biggest in the business so it is a little difficult to say. other companies have a one-off. does morgan stanley have a one-off? hopefully we will hear about that on the call. clearly they took on risk. that could have been rough. allison: it was a tough month and we saw some trading hiccups at some of the other banks. parameters. it does look like there investment banking fees were a little bit better. i guess that is driven by m&a. looking at tangible common

equity's, 3.5% is a key metric for them as well. alix: allison williams, think you so much. christopher wolfe will be sticking with us. not a happy day for morgan stanley. down almost 4% in the premarket. the results were a disappointment. earnings missing estimates. it was the equities weighing on the stock. equities coming at $1.93 billion, missing estimates which is surprising because they are all about equities. other big banks did well in the equities trading world. much more coming up after the break. this is bloomberg. ♪

david: this is "bloomberg daybreak." morgan stanley, we just got the

earnings about 15 minutes late. the stock is trading down 3.5% in the premarket. disappointment in the earnings per share. a little better than expected on revenues. the fixed income trading was disappointing. equities, which you don't expect at morgan stanley. christopher wolfe is still with us. ben, welcome. for are you in financials? ben: we are underweight. long-term they did deadly in the fourth quarter. they have become cheaper. with this flat yield curve and low bond yield which we expect , and long-term high capital requirements and gradually slowing global economy that is a tough environment for banks to do particularly well in. you make it a bit of relief. i'm not sure these results will give it and the banks it badly

in the fourth quarter. long-term i would be cautious. david: big banks made a lot of money in the fourth quarter. the profits are really up there. ben: returns have been ok. it is where we go from here. expectations have come down a little bit but there are easier parts of the market. there are clear parts of the market where there is an obvious mispricing. i'm not sure it is financials. if you think bond yields are as low. it is still very flat. it is a difficult environment for financials. alix: now we are just jamming. christopher, you were talking about morgan stanley in the break. it's a hard quarter. it is just one number, give us a break. christopher: the number is set up. the economy is picking up.

you're talking about rate hikes in the 2019. we got some mixed data going into november and december. we got meaningful reversals back in the bonds. it is a testament to the skill of the hedging programs that the big financials run that they did not do worse. moves in the 10-year. if you're thinking about expectations for 2019, banks have a lot of other things going on. consumer demand, credit cards, more competitive loan growth and cost control that can come in. keep in mind if you look at something called the office of information researched and administration, you look at the regulatory changes in the united states, the environment is changing and becoming less restrictive. it will probably be decent this year and i think you will show -- you will see that show up

in the models. david: enough on banks. if you're so someone banks, who do you like? ben: we like markets. we think this is more than a double-digit return. overall for the u.s., for the world -- we have been adding cyclicality. a hold spoke. on obbled spoke. more on the fed and what it means for market outlook. this is bloomberg. ♪

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simple. easy. awesome. click or visit a retail store today. alix: this is "bloomberg daybreak." 12.futures up by about that will be morgan stanley dropping about 4% after disappointing earnings. also european bank stocks down

over 1%. gets propbe closing trading business. that is not really helping that area of banks in the market. in other asset classes it is a risk off day. the dollar-yen down. 103 on safe haven buying their. sterling pretty much flat. good luck, theresa may. good luck, parliament with coming up a planned for monday. isre is so much uncertainty hard to see a decisive trade right now. she survived the no-confidence vote. that is something. crude off by over 2%. despite the fact opec actually cut production the most in two years, we looking deeper into what is going on in oil. will definitely be talking

about that later on "commodities edge." 4%.stock off over at 1.9s coming in billion. if you look between the lines, you can probably fill out some positives. revenue was higher. they turned up more revenue think goldman sachs on equity trading. it is not like they're the worst bank ever they just had a tough quarter because of the market environment. david: the one consistent theme was fixed income trading down. other than that there was dispersal all over the place. goldman was up on costs. we thoughtn -- morgan stanley would come in high inequities. that is their strong suit in the cayman like. -- came in like. alix: one that client traded went wrong. we heard that from citi and

jpmorgan so there is that they consider also. david: we turn to the honor with the first word -- viviana with the first word news. viviana: the showdown on brexit is on monday. theresa may is presenting a plan b for leaving the european union. to blur some of her red lisicki support from opposition parties. jeremy corbyn is boycotting them. china's chief trade negotiator is heading back to the u.s. for the next round of talks. the chinese government confirmed the vice from your will be in the u.s. on january 30 one negotiations resume. with stevet with mnuchin. one of the most hawkish members of the policy group urging her peers to be patient on interest rates. esther george is referring to raising rates.

she said this will give time for the economy to respond as expected. over the last seven years she has consistently called for higher rates. global news 24 hours a day on-air and a tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. alix: thank you so much. , u.s. businesses say market volatility, trade, politics all weighing on optimism. it is now lower economic activity. joining us is christopher wolfe. ben, you guys have a bearish forecast. you see one hike coming in. why? how does that inform you cyclical trade decisions we were talking about? ben: we are going back towards trend growth in the west but markets are way ahead of that. they are pricing pmi below 50.

essentially negative earnings over the next couple of years. as confident gradually three builds are seeing forbearance from the fed. tr are getting some trade uces. we are getting a more realistic earnings expectation. ben says double-digit growth. christopher: we are a little more cautious. maserati growth recently, capacity earnings, past the peak in margins. there are a number of items that may come up later this year that will serve to keep volatility high and pe multiples moving around. not the least of which is negotiations about how to handle medicaid spending, entitlement spending and interest rate payments and the federal budget. that is likely to set off an interesting discussion in washington this year, maliki political volatility high.

-- but we keep political volatility high. david: china. they say there are close to indicting them on theft of intellectual property from u.s. companies. what you expect about china and how that affect your call on the s&p? ben: china is a big deal. if we take 50 basis points out that china gdp number, just to get it the order of magnitude. but i think a couple of things. there is room for a trade truce. both sides want it. equities more than price this in . if you look at the equities most exposed, they are 2.5 deviations below average valuations. that is huge. we have a symmetry here. on the china growth side, china is gradually stimulating. i think they are doing enough to stabilize growth. i think the market is maybe

misinterpreting that a little bit but i think the chinese will stabilize growth and people are very bearish on china. certainly em and china will come back. -- in china will come back. alix: what kind of cyclical sectors and regional allocations? ben: we have been adding to capital goods, to consumerables which is quite heavy. energy. this is the dollar to $70 brand brent ishe $60 to $70 a real sweet spot. quite cyclical. we are looking for this sort of fear trade to begin to calm down a little bit and more appropriate pricing.

it is still a decent earnings environment. we have not seen peak earnings. david: to the capital goods point, when you look at the caterpillar's and things like that, they need china to buy a lot of capital goods. there is a chart showing the deficit with china. it is in red. the yellow line is when president trump became president. does that raise concern about whether china will be any position to continue to buy capital goods at that rate or an increased rate for the united states? christopher: it is the capital goods slowdown and the was consumer continues to be strong. an independent place for things expand in that environment. is there a possibility for resolution? i think so. the number of individual companies in some sectors of really been hammered on the trade and tariff issues. there is bound to be a relief rally around that. it is not clear he will restart the same level of growth, nor

the same level of growth expectations taken before this happened. the first part of 2018 was all about china. it will be great. we have anchor mental growth. if caterpillar was supposed to grow earnings 10% and 8% was nowng from china, ok, maybe from this point on in 2019 maybe they get 3% or 4% from china. there has been resetting and i think patience. it will not be one for one. we need to be careful about expectations going forward. i think a story about the trade issues is important because expectations that it will be symmetric may be misplaced. we need to talk about company exposure in the results because it is taking longer than we thought. alix: you have the u.s. and china competing. they are flying across the ocean to talk to each other. they seem constructive. maybe they buy more soybeans,

some discussion on intellectual property. is there unaccounted for upside? ben: i think so. it's definitely a step in the right direction. it is not enough. he still need a dovish fed and hopefully a decent earnings story. unique growth expectations to stabilize and china is important and so is the u.s. you had a great consumer. we need to see how that against the balance out. the other one we talk about a lot is europe where we are slightly less positive. it is not just brexit. politicianr european is basically turning over in the next 12 months or so. they will be reasons that don't like the fundamentals. being prepared for that is more of an important message for 2019. i think that is really the key. christopher, thank

you both for being here. we will have much more on trade tensions and the economy in the next hour with sam zell. he will be right here in new york with us. we will have him for the entire hour starting at 8:00 a.m. eastern time. coming up a look at the life and legacy of fund pioneer and gle.uard founder jack bob this is bloomberg. ♪

alix: this is "bloomberg daybreak." coming up in the next hour, rob

mcewan. ♪ david: jack bogle, the man who founded vanguard and virtually created the world of passive investing tacitly yesterday. a host of financial luminaries poured out their praise. among them, david solomon, how it marks -- howard marks and charles schwab. everyone today stands on the shoulders of jack bogle. here in new york, dan wiener, editor of the independent advisor for vanguard investors. it focuses specifically on vanguard. followed vanguard for so many years. put in perspective what jack bogle did.

following him for the years, he changed this world as much as anybody. the financial world as much as anybody i can think of. >> what he did was turn the fund industry on its head. he put the investor first. he made the investors the owners of the fund management company through the unique structure he set up at vanguard. what he has done is unprecedented. it will be remembered and continue to have a positive effect for investors for generations to come. david: he did not start out that way. he started up believing in investment advisors should get paid a fair amount of money. what changed his mind? don: you are right. no one made a more passionate defense of loans than jack bogle . i think he came around when he set of vanguard and realized there was a unique structure and low-cost could be his advantage. indexing is really a cost game. if are the lowest cost reduce

her, you will win in indexing. it may have been somewhat -- that he ended up in the position, but then he exploited it to the maximum advantage for shareholders. david: dan, he did transform this world of investment without a doubt. we can show how massively passive investment has grown. downsides?ny dan: the thing about jack bogle is he was both a visionary and also very complicated. he knew which way the wind was blowing in the industry. he knew he could be the scold of the industry and with low costs try to drive everyone down in terms of what they were taking in from the small investor. by the same token he never stopped people from

misconstruing the structure of vanguard thinking it was a nonprofit. on the side he was very angry when people realized he was making an eight figure salary. did not comport with this idea low-cost and he was taking home eight figures a year. he was a complicated guy. he did not believe in disclosure of things like his salary while he was running vanguard. the minute he left, all of a sudden he was a nondisclosure. alix: dan, do you think in this world we are heading into, passive versus active, weather is so much money in passive, would he like it? dan: he was critical of a big piece of this passive world. he was critical of etf's. here is a guy who really created the popular consumer index fund.

and then his creation kind of got away from him. it became a little bit of a monster. now we see much more interest in etf's. his claim was there is too much active trading going on. indexing is really supposed to be a passive game. buy it, hold it, don't go anywhere. i think he had a mixed feeling about the industry the same way jack bogle was mixed in his own personality. david: we tend to think of passive investive inconsistent with trading back and forth. jack bogle thought we should hold it for a long time. warren buffett called it a religion that worked out very well. how do those things fit together? don: jack said don't just do something, set there. don't be reacting to all the noise in the market. he started talking in his later years about total index funds or traditional index funds, meaning

where you buy and hold the entire market. thatd this on index funds would just take a little slice of the market and then offer it through something like an etf where it is easy to trade that throughout the day. that was very much frowned on. he was keen on that distinction. what jack wanted people to do with buy-and-hold the entire market forever. david: if you look at vanguard, their philosophy is buy a total stock market index fund. buy a total international stock fund, a total bond market fund. vanguard has 100 different index funds. they sliced that salami so thin. it is complicated. it is not simple to just buy an index fund, the ajax bogle act -- be a jack bogle acolyte and be done with it. david: how would this square with the role of the shareholder having to direct the affairs of the corporation?

jack did not see that as entirely passive. don: he felt as an index fund provider you had to be a long-term holder of the stock. the only way you could vote if you disagreed with what management was doing was by exercising actual votes or reaching out the management. you could not sell the stock. he said indexers are the ultimate -- have the ultimate long-term responsibility. he became a big advocate of that in his later years. david: dan wiener, cofounder and don and dan phillips -- phillips, thank you for being with us. jack bogle, vanguard founder dies at the age of 89. ♪

david: the u.s. government

shutdown and the effect is having on various u.s. businesses. we will talk about beer today. joining us is damian brown, bronx brewery cofounder and president. one of the things we would not have expected with the government shutdown is affecting brewers of beer. damian: is having a massive 'ssruption to the brewery ability to innovate. the federal government has to approve the label. typically it is a two to three week process, but with the shutdown in his fifth week, no one is behind the desk approving labels. david: how many beers you create in the course of the year? damian: innovation and timing are becoming more and more important to the industry. consumers are seeking the latest and greatest. we have 12 to 15 beers available at any time. david: what is the turnover? damian: every two months.

david: and you need federal government approval to go over state lines? damian: exactly, so the label has to be approved. that is not happening with the shutdown. we can't release new brands. david: you can release them within the state of new york. i assume, -- new york i assume. what is your percentage across state borders? damian: if we launch a new brand, we do it with the entire market. david: if you can't ship across state lines, you can't create it? what kind of effect is that having under business in terms of numbers? damian: the timing of this is actually raising the stakes because we are approaching the summer beer selling season for us. the seasons have shifted earlier and earlier. summer brands are you in tanks already or will be a next two to three weeks. that is our busiest selling period. we are expecting this to have a

real impact on us. david: within two to three weeks, give the government was running -- if the government was running today, how long would it take approval? damian: a five-week backlog at this point, plus the typical two to three week turnaround time. david: this could affect your bottom line this year? damian: absolutely. david: how many craft brewers are like this are on the country? damian: 7000 that are all fighting for the same shelf space. being able to innovate allows us to say relevant and engaged with consumers. if we can't release new brands, they will have a difficult time doing that. david: and now the state of the union address is getting put off. damian: let us get back to work and make the beer. , bronxdamian brown brewery founder and president. alix: morgan stanley falling like a knife, falling by 5%.

it has been an ugly trading day for morgan stanley after their mess. they missed on -- after their miss. they missed on earnings and investors are feeling a little skittish. earnings came in at $1.93 billion. taking a little -- taking a little deeper, revenue coming in solid. they turned out more revenue than goldman sachs on equity trading. that is the silver lining within that. wealth management, no surprise also hit hard by a very difficult environment. comp fell as well. all of that will be weighing on the market this morning. coming up, sam zell. his take on the government shutdown, its affect on real estate and what the environment is now for valuations. it is a weaker open. s&p futures up by about 10

points. european bank stocks getting hit not only with the week morgan stanley results, click trading down about 20% for the fourth quarter. and in other asset classes, an old fund -- unfolding story. boj pretty much does nothing as you have a safe haven bid coming into play. expectations get repriced and crude off by 2. this is bloomberg. ♪

♪ alix: there goes the bank rally. morgan stanley, posting its

lowest revenue in three years. the government could indict him way technologies, adding other to tech talks.rs the government shutdown starts to hurt 1.2 million government contractors ensnared in the longest shut down history. we are going to sit down with sam zell on business spending. david: welcome to bloomberg daybreak. i am david westin with alix steel. the banks are in. alix: morgan stanley, not so great. stocks down. back to theto turn economy overall. you reminded me we have that shutdown. alix: there is that. david: i forgot about that for a minute. alix: this could be bad. the white house saying it is 1/10 of gdp we are going to shave off. david: worse than we expected. alix: in the market, a negative

sentiment. euro-dollar flat. inflation steady but below the ecb target. monetary tightening going nowhere fast. in the u.s., buying back. fedeeper curve as you have rate hike expectations happening in the bond market and cruise off by 2%. we got that from the eia yesterday but opec's pumping in less than two years. is hereiviana our title with first world news. toiana: recement returns parliament with some kind of plan b for leaving the european union. the house of commons will vote january 29. she started talks.

they leader jerry corbyn is boycotting. china's trade negotiator headed he will be ins., the u.s. january 30 when negotiations resume. robert meet with lighthizer and treasury secretary steven mnuchin. the up and -- he upended the investment industry. the founder of vanguard has died. fund basedular the on indexes. that turned vanguard into the largest u.s. manager of stock and bond funds. he was 89. global news 24 hours a day, on-air at tictoc on twitter, powered by more than 2700 journalists and analysts, in over 120 countries. i am viviana ricardo -- viviana o.r cargo --furtad sam, welcome back. you had experience with

vanguard. we think of them as passive but they were not always passive in terms of voting shares. influentialnow how they used to be in the commonwealth situation. . met with them in february in january that year, every ceo of stock that vanguard owned received a letter that established vanguard's interest in good governance. i took out the letter and put it on the table. i said meet these requirements. it took a little discussion but they agreed. the advent ofched passive investing in what came about with the indexing. how did it affect your business?

sam: not much but everybody is concerned about the percentage of ownership of new york stock exchange companies, particularly the reefs by passive players. -- always felt it was healthy for a percentage of assets to be in index funds. if the percentage gets too high, you institutionalize mediocrity. people whower to claim they are in the business of doing index funds, so therefore agnostic and yet they issues.ng and other that is contradictory and

hypocritical. alix: then you have money that needs to find return in your business and there is no competition for you. the amount of private capital, i do not think is significantly altered by the existence or nonexistence of index funds. speaking, the index investor is probably the opposite of somebody like me. the index investor says i what to do it the same as everybody else. my whole philosophy is -- that is not working and you need to make it return because of a passive investment, you go to private equity and they are going to go outside the ,arket and compete with you pushing out money in the market. sam: maybe. i am less convinced that has

much of an impact. ishink a much bigger impact what is happening to the hedge funds and stock pickers who have seen their percentage of the overall pie keep getting smaller. eventually, it is going to have a significant impact on research. concept in what he advocated was terrific as long as it did not get to be too big of a percentage. we are at that point where there is significant risk. story is other big banks. morgan stanley taking on the premarket after missing the fourth quarter on earnings. bloomberg intelligence senior analyst joins us now. your take away so far? >> it was immense.

to that point, wealth management was disappointing but they made their margin targets. they reiterated their target for next year. trading was a mess but it is about the expectations. morgan stanley beat expectations so they are bound to miss a quarter. these numbers are hard to project. what is important is to take a step back and what is happening with equities for morgan stanley over the long-term? if you look at that, they had the worst sickness and decline, but if you look back over the last couple years, they have done better. they did better than everyone else in 2018 except for goldman sachs, who had an easier comparison. and over the last two years, better than everyone. by contracts, equities where they are the leader in that business, they did not do as well not just for

the quarter, but he did not do as well -- but perhaps trailing over the last couple years, they are the biggest. perhaps there will be questions. david: how are they in wealth management? >> we should not be surprised it was not as strong of a quarter. they did miss on revenue. they talked about it differed comps issue in the fourth quarter. what is important is they made their margin targets. they reiterated their -- 42019, which included the 28% target. custer --, you are a customer of banks. are you finding it more difficult to get the credit or more expensive than it was a year ago? sam: overall liquidity has decrease significantly.

maybe the best way to point that out would be to go back to your commonwealth question. in that case, we liquidated over the last cointreau years -- last four years 135 properties. four years ago, if you put a property for sale, there were 20 buyers and 15 were real. lester they were three buyers and we hoped one was real. lotsee less liquidity, a less appetite for risk. maybe people are responding to high in which is private equity and real estate. david: what is the cause? how much of it is geopolitical because the chinese are putting restraints. we have middle easterners. is it that or something else causing the significant

reduction a liquidity? -- reductional liquidity? whether the chinese are through thest came greatest increase in the quiddity anybody has seen. going back down the other side of the curve is healthy and expected. price of all, we have had increases in the last set classes, including the stock market and real estate. it is not unusual it is followed periods of adjustment. that is what we are in now. the fed is taking liquidity out of the system in 50 billion a month that has an impact.

moment i dot the not think we have any liquidity crisis. there is no question liquidity is beginning to be less prevalent. you have to gauge everything in that context of -- how much liquidity there was? cooking, nobody had seen that much. sloshinglot of money around in the world. sloshy are still on the side. david: thanks for being here. sam zell will stay with us. next we will talk about real estate. day 27 of the shutdown, we will take a look coming up next. this is bloomberg. ♪

david: the government is in its 27th day of a partial shutdown with thousands of federal workers going without pay, putting pressure on them and their families. sam zell is with us. we will put on a map showing you a law -- your all over washington d c you have got a lot of tenets not getting paid. far, impact is minimal. tenets not a bunch of who are not going to get paid. it has been made clear on all fronts everybody is going to get paid. the question becomes -- can

people survive not getting rent for a month? we can. can people survive not getting paid for a month? most cases.both -- i do not know what the case might be if we were sitting here a month from now. david: if tenants were to come to you and say, i need an extension, you would be inclined to do that? possibly make a company policy on bloomberg. david: no? sam: i am sorry as important as bloomberg is. alix: how patient will you be? are our people who live with us. we have a responsibility to them and just like every other time anything like this has happened, we have been flexible. i cannot imagine we will not be

now. alix: at what point and as a business investor, what day of the shutdown starts to break you out -- freak you out? sam: i do not know but it is not today. the fact we are talking about when everybody gets paid, not if everybody gets paid is the critical element. shutdown followed by congress saying, do not worry. everybody is going to get paid does not have the same impact as a shutdown in which people are then left to wonder -- what will the result be when the shutdown ends? david: it is a matter of timing. at some point do you lose things you do not get back in terms of the growth of the economy overall? this is the longest

shutdown in history so nobody knows the answer to your question. the past,y based on the recovery from previous shutdowns has been extraordinarily quickly. i would expect the same to be true here. if this shutdown lasted three months or something like that, it could be a different result. david: let me ask you a different question. as you put properties up for sale, what about sentiment? even if this shutdown gets resolved and does not have lasting effects, and what point do people say there are unpredictable things? every time i turn around there is something new, whether it is china, iran? sam: welcome to the modern world. there is more uncertainty and

more places in the world that could blow up. sure. but i would say the shutdown is more of a journalistic event than an activity event so far. you guys got to sell this stuff. asx: are there uncertainties david pointed out? what is this doing to evaluations? sam: almost nothing. as we are talking about real estate, nobody is buying real estate for 26 days. people are buying real estate as a long-term investment and they are making long-term assumptions and bets. alix: outside the shutdown? china? what impact is all that having on evaluations? sam: that is a different

question. i would say sentiment is a big factor. moves in either direction, depending on the ease and liquidity of the system. for a while, every deal was being done by some chinese related entity. all of a sudden the market was full of excitement and activity. the chinese have put in place capital control. that money has disappeared and now that investment is being repatriated. that is adding more supply into the market. generally, sentiment is more focused on -- what is the occupancy across the street? and what china is or is not doing?

david: what about the sentiment in london? it does not look like brexit is going to end soon. what is that doing to the london real estate market? it is dire. when the entire sample survey is when building or two buildings, i do not think dire is an appropriate description. i am a real estate guy. i cannot tell you what brexit is going to do. choice, i given a would rather sit on the sidelines and see it work out. -- has gone down a lot in london as uncertainty has gripped the market? the uncertainty has not --nslated into the --eming up, pg in

wildfire troubles. this is bloomberg. ♪

david: it is time for a special edition of the bottom-line. we are going to focus on one company and that is pg&e. we are joined by brooke sullivan and sam zell is with us. brooke, it is in the news every day. brooke: there is always something new. one thing is interesting is blue mountain calling on pg&e to put a hold on its plan to file for a groep c. it does not inc. that is necessary. it says pg&e is solvent. the basis for this is we do not know how much pg&e is going to pay in terms of liabilities for those wildfires. the numbers we see now, that $30

billion is an estimate. perhaps things you can do before you get to the point of bankruptcy filing, whether that is selling off assets we have been talking about, potentially some of the real estate. pg&e started taking steps for bankruptcy. that is an interesting point. alix: the distinction is walking down the road. peers are getting hit. what does that mean for the power industry? like a wind farm, solar farm? there is more uncertainty in the markets. where we am not sure go after they file for bankruptcy. this does get pushed down onto rate payers. it is in regulators and the governments that interests try to figure out some solution. what that looks like, i am not sure. there are knock on effects and risks to a bankruptcy. david: who is going to sort this out?

if sears goes away, it is a tragedy. pg&e cannot go away. as sentiments are dollar, it is a circle. the reason pg&e has got problems skimped onthey maintenance. they skimped on maintenance because the public service commission will not give them money to maintain. they do not maintain. it precipitates fires and pete -- they hold pg&e responsible. one way or another, there is going to be no electricity and that will be fine or somebody has got to come to grips with the fact you cannot both administer capital and hold people responsible. assets, doey sell you want them to sell natural gas? assetsam sure there are

that would be attractive to me. i am sure there are assets that would be attractive to other people. say you sell the assets and you are able to pay whatever the state charges them. then what? are we going to have enough money to maintain the lines, or forest fire going to create the next problem? then you do not have assets to sell anymore. much, samk you very zell will be sticking with us. coming up, we are going to look at how companies are shifting strategies. this is bloomberg. ♪

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

"activecore, how's my network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. i am a techie dad.n. i believe the best technology should feel effortless. like magic. at comcast, it's my job to develop, apps and tools that simplify your experience. my name is mike, i'm in product development at comcast. we're working to make things simple, easy and awesome. alix: this is bloomberg daybreak. equities weaker here. morgan stanley also below the session. european stocks lower. we will see the reigniting of

u.s. china trade war fears, all centered around technology. you have banks participating well. you have stocks, 20% decline. plus, they might close their multi-billion-dollar trading desks. it is a mixed dollar story. the curve flattening. oil lower by 2%. up, soccer. 213,000 people filed. optimism came in 17th. that is a most double what the markets had been expecting. that is solid, particularly when you have a government shutdown. that is pretty solid. david: no kidding. i do not understand because i guess federal jobs does not apply to federal workers. at some point the employment numbers would reflect that. alix: at some point there is a

shift if you either -- there is some switch that happens that i have heard. david: encouraging numbers nonetheless. that is what sam just told us. --sident trump has made a made trade a priority but only if it is free. we have seen disruptions in north america in trading with europe and in trade with china. mckenzie has done a thorough study and the report is out today. among the conclusions are, for example we have declining trade around the world and goods but it is going up and services that labor costs are not as important as before. we are moving away from global trade towards regional trade. we welcome from washington, lund susan long -- susan and the author of the future of trade and value chains and still

with us, sam zell. what is the most surprising thing you found in this study? susan: what is clear is when you look structurally at what is happening in different industries is localization is entering a new chapter, and a lot of assumptions we have about what is driving global trade no longer holds. as we look forward, a different set of countries and companies and workers are poised to benefit. david: one of the things that struck me -- basically we have trading goods but services continue to grow. servicesit down within , which we are showing audiences in the brown and yellow line -- telecom has the the way by good margin. is that likely to continue? isan: what you are seeing i.t. services, cloud computing as well as business services

like consulting and engineering, lawn accounting. really lead the way. those are areas that advanced economies like the u.s. have a large surplus and that looks like it could grow. -- some ofdoes this the trade initiatives with respect to china? susan: i cannot comment on bilateral trade negotiations and companies are going to respond to any change in trade policy, but long-term there are a variety of factors that favor moving production closer or back to where the major consumer markets are in the u.s. and europe. the five trends you showed, labor costs are not as important. instead what it -- matters is in addition and what we call knowledge intensive activities. that favors countries like the u.s. that have a highly skilled workforce. alix: sam, take that into account of what you doing your job.

fink in an investor letter says it is a tough environment. what do you do? for you look nonconventional investment opportunities. alix: like what? sam: we have a new york stock exchange company called our petroleum and we buy refineries. therefineries at $.20 on dollar where they cannot possibly be re-created. do i think the refinery business is growing? probably, but not much. the number of refineries that are going away continues to increase. uniquelytent you have located refineries at a pittance

of what we would costs -- it would cost to replace them, those are long-term assets. alix: what are other assets like that that have longer-term return that you take on less risk? of: we are in the middle investing in logistics companies because as you said in your opening remarks, everybody is looking at everything differently. it started out with globalization was all about taking advantage of lower costs of labor and other parts of the world. as labor costs in other parts of the world have come closer to the developed world, the benefit islabor being the reason less relevant today than it was then. is one supply chain country, mexico to the u.s.,

that is easier than japan to china, to mexico to the u.s. you have multiple applications. and --s a simpler city simplicity and the whole just-in-time thing is making proximity even more important. alix: susan, how does the way we think about trade need to change? in your study, you say it is less about business -- goods. it is more about services. does the nature of borders change, because you get into a new world of artificial intelligence, are there effective borders no matter what government say? that is what we see in companies. trading and are focused on agricultural goods and manufactured goods, and yet these are growing in absolute terms but shrinking relative to

the side of the word -- world economy. while services are taking off, new types of services -- like suddenly cloud computing is a major u.s. export. you see digital flows. 145 flows have gone up times over the last 10 years. they are continuing to explode. the frontier of trade should be thinking about it -- services agreements, services harmonization, cross-border data flows, the new replacement of nafta has a digital chapter which is a needed update. it is a good first step. this is the first major trade agreement that has a digital component and talks about data flows and keeping that open. -- cross-border data flows and keeping that open. you havingpreciate to pronounce that.

i have not heard that before. thank you for being with us. sam zell with us here in new york. let's get an update on what is making headlines. we turn to first word news. viviana: bloomberg has learned one of kim jong-un's top aides will be in the u.s. on friday. he is in for talks on the country's nuclear programs. rudy giuliani has a new take on the collusion. telling the cnn the president never colluded with russia, but he never said there was no collusion involving the trump campaign. special counsel robert mueller is investigating russian and her parents in the election. defensive on the after a report the ceo but multiple properties and least them to the company. the wall street journal adding newman made millions of dollars in the arrangement.

says they were approved by the board. global news 24 hours a day, on-air at tictoc on twitter, powered by more than 2700 journalists and analysts, in over 120 countries. this is bloomberg. david: thank you so much. still with us, sam zell who is known of it for real estate investments. what do you make of this report? i read where the ceo is leasing the buildings to the company. sam: we work as a private company. a negativeexample of -- the negative side of creating unicorns because this is a private company that has become so big that it has public responsibilities, including governance. transactions approved by the border not approved by the board would never have occurred if we were a public company. and scrutinized accordingly.

wework is very big. does it work in the long run? last business like this was called the savings and loans business. am i being subtle? history of this business goes back to the 50's with a guy who did the first went the floor and subdivided. everyone of those businesses has gone broke. --wework reaches headquarters and nobody has been able to solve the problem that you have in he and the economy so itmargin has no credit

will be interesting to see how we work handles. alix: a total change of the spectrum is amazon. are you buying tons of property in long island city to prep for amazon's headquarters? sam: no. we have significant family units in new york as you pointed out. what amazon is doing is great. it is great for america. it is going to help long island city. but not tomorrow. there is a long way between the cup and the lip between those kinds of projects have an impact. will they have an impact, will it be positive? sure. themuch slower than all of hikes suggest. zell am a you are sticking with us. coming up, creating the world's

largest gold miner. that is coming up next. this is bloomberg. ♪

viviana: this is bloomberg daybreak. coming up on the bloomberg markets, the open. ♪ viviana: -- hits a roadblock in the fourth quarter. it expects a 20% decline in trading revenue after market volatility.

plus, stuck jet will look a $270 million charge related sale to it stakes in two businesses. one of the masterminds in the big takeover of the industry is keeping a close eye on the federal reserve. mining agreed to pay $10 billion. we spoke with barry goldberg. and whatdollar-based happens there, but even that you have seen over the last couple months where the fed has a backed up on as many interest one rises so i keep an eye what is going on with the fed, what is going on with china's demands and what is going on with etf sent how much gold is going in or out of etf's. viviana: that is your business flash. alix: time for follow the leads, a dive into markets with key insights. we are following m&a and the

goat industry. -- gold industry. joining me now, someone who knows the industry well, rob mcewen. -- he serveserves as the ceo. what kind of premium are we going to see in this space? will not see a lot of premiums but we will see more and them and -- we will see more m&a. the market confidence is starting to come back. alix: what is the tipping point? what is the problem everybody is trying to solve? m&a lately, the last couple, there has been a problem situation. they get rid of it by putting it together with another company. goldcorp was under attack. tahoe was under attack.

the manager took the easier route and said let's get together with a bigger company and get rid of these problems or very them for a while. alix: are you in the market to buy are are you going to wait it out -- or are you going to wait it out? rob: this is an excellent time to buy. thea lot of viewers, in last two years while gold has not outperformed the doubt and s&p 500, the gold equities have by a considerable margin. twice whatup almost the standard is. times standard and for. 70%,rms of performance and that is in the dow when the last two years. goldblum markets started in january 2016. it is delivering and people have not seen it yet. we are a third of the way there. alix: what is the price target?

susan: i have -- rob: i have liked 2000 and beyond that 5000. alix: we did not get to 2000 and 2010. how do we get to it now? rob: we'll most got to it. if you look outside in the dollar, at 72 currencies, gold has been climbing. it is getting closer to its all-time high. we saw something like this back 2005, 2000y 2000's, six. gold was going up in dollar terms but not other major currencies. after 2006, they were all going up and that was the start of a major bull market for gold equities. we are going -- approaching that point. alix: what conditions do we have to see the get your $5,000 goal? susan: -- rob: probably a loss of

confidence in the dollar. now it is strong. close to the top of the equity market. the broad market. alix: do you think we need to see a big recession of 20%? do you think we need something that drastic to get to a $5,000 gold? people have to realize it ision is on us and destroying the purchasing power of our currency. they will turn to hard assets again. alix: go ahead. buyingce people get over group doesn't biotech and cannabis stocks, they are going to look at gold again. trip to lend. good to catch up with you. mcewen and ceo.

say we have a to stronger market in gold. haven,is it still a safe when people get nervous in the markets? did they run to gold? alix: some days. depends on the mooch. don't forget to turn into commodities edge coming up at 1:00 p.m. we will talk about full prices. david: sticking with us, we want to bring back in sam zell. we talked earlier you buying refineries. what other energy assets are you pursuing in the united states? sam: we have been buying stranded oil and gas. precipitation's -- plays.ions and various we are comfortable the price of

oil is not going down. i mentioned one thing the gold guy did not mention -- the fact that the amount of capital being put into new gold mines is a most nonexistent. all of the money is being used rivals.p go back to supply and demand. supply is shrinking and that is going to have a positive impact on price. david: does that make gold money a good investment? sam: but the first time in my life, i bought gold because it is a good hedge. speaking, we are not investing enough in oil either. the likelihood of the price of oil becoming a problem in the next few years is high. david: one of the things we have

heard is there is not enough supply, basically pipelines to get the shale out. is that a good investment? if you control the government, yeah. we just bought a refinery in tacoma. to refinery we bought gets crew at aan significant discount because the people in british columbia turned down a pipeline to carry that crew to the ocean. to the extent that these are political problems, i am not good on the policy side. i would rather make predictions on supply and demand. it out, how tog you feel about the investment environments now? happy, nervous, excited? sam: the investment environment challenging.ult,

are. not clear where we maybe it comes down to a simple question. everybody keeps asking me, what inning are we in? my answer is coming when the first inning was and i will tell you what inning we are in. if the first inning was march of 2009, we have a long cycle. the reality is the stock market bottomed in. the economy did not start to 2012 and 2013. what was the first day of the recovery and then i will tell you where we are. investment you are speaking about, that you are waiting to pull the trigger on? sam: i am a professional opportunist. i do not by markets. i buy opportunities. somethingwhen i see

that is out of line and creates a higher probability of success. i respond to the opportunity, not to a broad market. david: you said you tend to be cautious because we are not sure. what about what they call the -- approach? does it create opportunities, a longshot? maybe they are underestimated because of that risk. everybody else is looking at that risk and underpricing it. sam: that is always a possibility. and happens quite often. making thatd at judgment, i would be rich. in the meantime i am working on it. or richer. what is the one investment we should be looking at? to put my hard for me

finger on anything in specifics. i have always been a fan of buying things at materially placement, thereby eliminating future competition. nothing i see has changed that philosophy. therefore we are going to keep trying to find opportunities to take advantage of that. alix: one country that might have the most opportunities? sam: tell me how long her timeframe is. if your timeframe is 10 years, brazil is an extraordinary place to invest today. so is argentina. if your timeframe is the next 12 months, i do not have an answer. david: fair enough. it has been great to have you. alix: well, the story of the day, morgan stanley done by 3%.

up, supermarkets with jonathan ferro. no doubt, banks front and center. they missed on equities. was not a satisfactory results. 30%-40% results can be attributed to housekeeping. he does the room to grow. still weighing on the overall tape with s&p futures down by 7%. -- seven points. this is bloomberg. ♪

>> from new york city for our viewers, the conduct the open star threat now.

-- starts right now. up, suite on wall street, optimistic about the year ahead, seeing few signs of a recession. wrapping up earnings season for the big banks, morgan stanley ending with a big mess. the u.s. techto resolve, netflix kicking things off after the closing bell appeared in the markets, good morning. good morning. futures negative seven on the s&p 500. euro really stable. south of 114 of 113.97. treasury going absolutely nowhere. investors sending more constructive on 2019 after a worrisome and to 2018. joining me is christian. michael. and in grass cutter.