single move up on a report from secretary mnuchin suggesting the u.s. back off from chinese tariffs. speaker pelosi tries to take away the president's state of the union address. 800,000 federal workers continue to go without pay. netflix adds 9 million new subscribers, but falls short of as we turnectations, from financial earnings to the faang. westin, here with carol massar. carol: another busy friday. david: another busy day for the president. carol: i was thinking about all the timelines you just talked about. market sentiment still positive. david: perhaps on the one report that secretary mnuchin might be recommending something. have the tit for tat

going on in washington, which we will dive into. let's get a check on your markets. despite all of this going on, some enthusiasm yesterday. we saw the markets spike right up on the possibility that there could be resolution in the .5%. -- s&p futures up the euro slightly holler versus -- higher versus the dollar. look at the movement in the treasury trade when we saw the headline yesterday. quick check on crude as well. 1.5%, headedel, up forts longest weekly rally in three months. david: the u.s. releases industrial production numbers at

9:15 eastern time this morning. theome point this morning, senior a to kim jong-un will meet with president trump and secretary of state pompeo. on sunday, we will get key growth numbers from china, perhaps expected to be the weakest since 1992. we are joined by michael mckee and sarah ponczek. we will start with those markets. this report came out of "the sayingreet journal" sector mnuchin might say something. the markets are still up. sarah: they are basically up. this gives you an idea of what markets would look like if we do the u.s. is saying looking to roll back tariffs.

because the treasury department puts ushis back, that exactly where we were before this. the treasury department said what's going on with china is an ongoing process that is nowhere near complete. that is pretty harsh language to what could have been a positive. meetresident is going to with him today. carol: what's interesting about those headlines, this whole idea that they were keeping an eye on financial markets. not a great way to set policy. michael: what we are following then is speculation in press about who is motivated to do what. the president and theory motivated to put more effort into financial markets, the treasury department denied this.

more headlines and trade in the last 24 hours. chuck grassley, the new head of the finance committee in the senate, said the president is inclined to put car tariffs on. that will worried the markets. after that, the president can do that. the eu said we are ready to retaliate if the united states does that. we are ready to negotiate but also ready to retaliate. you could have much more then china to worry about. carol: it was wild yesterday afternoon to see the president come out and a pelosi spokesman come out. president trump sent a letter to nancy pelosi. in light of the end of the great american workers not receiving , i'm sure you would agree that postponing this public

relations event is totally appropriate. the 800,000 great american workers not receiving pay. sarah: a bunch of kids in a sandbox. michael: remember the 1996 lowdown? the new york daily news cover of newt gingrich in a diaper. they accused him of throwing a tantrum. we are back to that here. the president did cancel the rest of the u.s. delegation's trip to davod. davos. to carol: let's talk about what nancy pelosi's spokesperson said. the purpose of the trip was to express appreciation and thanks to the men and women in uniform. what'skets are watching

going on in washington, but not. sarah: it's been clear looking at the market, we are up more than 12% since the lows in december. the market has not been paying attention to the drama that's been going on in washington. we have seen different estimates come out as it relates to gdp forecast. morgan stanley saying it could shave up 0.5 percentage points .5% points shave off per week. it gets bigger in terms of the implications. sarah: exactly. every day this goes on longer, people get more uncomfortable. we are in uncharted territory. i've heard that phrase repeated so many times. although markets have written it in the past, we've never seen one like this. it is unprecedented. david: let's get to earnings. remember earnings?

netflix came up with their earnings at the bell yesterday. the first of the faangs yesterday. it came down because they were looking at this quarter not having the revenues they thought they would have. there subscriptions were up. they went way up when they said they would charge $13 a month. sarah: when you think about netflix, think about it in the context of what it has done over the past month or so, netflix is up 50%. talk about a stock being priced for perfection going into an getings report, it doesn't more priced for perfection the netflix. we are down a little more than 2% in early trading. that is a drop in the bucket when you compare it to the 50% we've seen gained over the past month or so. revenue,to think about which did come in a bit light,

but the stock down 2% isn't that big of a deal. carol: it's an interesting environment. looking for positives in a somewhat negative earnings report. know, whatdon't struck me as interesting about this report, netflix taking more debt onto its balance sheet, looking forward to more streaming services, including disney, which will be a monster when it starts later this year. they will have a lot of competition. they are planning for the future and spending money for the future. wall street never likes that. it has to be this quarter, this quarter, this quarter, what did you do? the last company that seemed to get away with that for a long time was amazon. they are finally reporting profits. building infrastructure for the future, that appears to be what

reed hastings is trying to do. david: thanks to michael mckee and sarah ponczek. carol: fourth quarter adjusted eps in line, $.30 per share. better than what analysts were forecasting. schlumberger. david: initial positive reaction. coming up, more on the market rally on u.s. china trade talks. usl richards will be joining next. this is bloomberg. ♪

>> this is "bloomberg daybreak." elon musk warning the road ahead is difficult for tesla. several thousand workers will lose their jobs. tesla will cut 7% of the full-time workforce of 45,000. musk says preliminary results indicate fourth-quarter profit will be less than what the company hoped for the third quarter. they hope to make lower-cost versions of their model 3 to appeal to the mass market. workers havect been let go at foxconn's most important iphone factory in china. the seasonal worker cuts aren't deeper than previous years. they are just taking place significantly earlier. cbs and walmart reaching a multiyear agreement for walmart to keep taking part in the cvs

pharmacy network. cvs said walmart was leaving its caremark network over a price dispute. up ratherkets moved sharply yesterday on a report from "the wall street journal" that stephen mnuchin had recommended or would recommend to the president he back off on the china tariffs. the markets gave back if there amount -- a fair amount. welcome now j brighton and paul richards. what should we make of this? report, andrly safe yet, the markets reacted. are the markets looking for something good? jay: probably. there's still a lot of negotiation left ear. -- left here. to mnuchin and it comes

trade policy is more of a dove. there are some hardliners. we will see which one wins out with the president. i wouldn't be surprised to see some headlines saying we are not going to back up on the tariffs. carol: we know china's top negotiators will be back in washington for another round of talks. paul: i think they are close to a deal. trump wants a deal. i would take them a nguyen comments with a grain of salt. -- the mnuchin comments with a grain of salt. he's being rushed a little bit by the president. the president could use some good news right now. we have the vice premier coming on the 30th. that's incredibly positive. the u.s. went there a few weeks ago. let's also positive. pessimismgating the

the markets had prior. david: how much of that is because of china's own concerns with their economy? paul: they are going to be week. we've seen a lot of talk of stimulus in the last week or two. they're getting you ready for the bad numbers on sunday. part of this with china is the fact that they made a policy misstep on monetary policy 18 months ago. they are still trying to reverse that. the market knows that. china is readying to get things done. china cannot afford another year of this. carol: china has shown when there's a problem, they are quick to put money behind it or fix the problem. when do we eventually pay the piper here? jay: they are kicking the can down the road, but that road

still has some ways to go. look at the central government debt is only 15% of gdp. the point here is if they really do start to have massive loans,s in terms of bad they have the financial ability to recapitalize the banking system there. they can continue to kick the can down the road. david: what do you think about the future of china as a practical matter? can they keep this going and bring the rest of the markets along with them? paul: emerging markets are looking to them for direction for a start. you are seeing the positivity around brazil and to a lesser extent mexico. the problem with china is it is so easy to bet against. last year, if you bet against

them, you made money. they have a much longer time plan. they are having to get used to what's going on in the u.s.. i wouldn't bet against them. they have a plan. smarter people say don't bet against china. i'm in that camp. carol: how important is it that finally get something done with china? they need one another. how important is it that we get something done sooner rather than later? jay: i think it is pretty important that it is sooner rather than later. look at the direct effects with china, direct trade is less than 1%. here, it starts

to weigh on investment after a while. it would be better if we got it done sooner. davos,i'm thinking of all the meetings. paul: i think you get one deal -- he's done that with japan. q4.et a deal, but watch for carol: we will continue our conversation with jay bryson and paul richards. coming up next, a bit of a mixed picture for netflix, delivering a jump in new subscribers but a shortfall in sales. this is bloomberg. ♪

david: netflix earnings after

the bell gave a mixed picture, adding 8.9 million paid subscribers. , thelcome on the phone pivotal research group ceo. he raised his price target. thank you for being with us. you are the expert. what is the one thing we should be focused on in those earnings? jeff: good morning. i would say overall, it was more of the same. you are starting to see the u.s. slow a bit. international continues to beat pretty consistently. it is full speed ahead for netflix right now. -- theyaid subscribers are paying for every one of those subscribers, paying for programming. they had $3 billion in negative cash flow.

year, thet of last guidance was for them to lose $3-4 billion. they continue to beat especially on the international side. there investing programming to drive subscribers -- asol: they are doing this there's more and more choices for folks to look at things, different streaming services, fortnight taking away eyeballs from the likes of netflix. they are doing this in a world where there's more competition for our time. what makes you feel so confident knowing that? jeff: it's interesting, they also mentioned youtube as well. bar everetting the

hired to deliver what the netflix experience is. they will spend $20 million in obligations right now. that continues to rise. there's few people that have that kind of half -- you're talking about youtube, amazon prime, hbo still out there, disney, you are spending $11 in the u.s. for consumer and nine dollars for internationally, there is room for people to have a couple of these services. netflix is still the leader of the pack right now. barrier tong is a entry for those folks. david: handicap disney versus netflix for me. they have the capital markets throwing money at them. disney has an amazing library. >> it's true.

i've always had the media companies are somewhat hamstrung in a sense that investors are focused on margin. disney generates the majority of profitability from the traditional pay-tv model. are you hamstrung in the sense that you don't want to create -- you don't have to be as aggressive. people are focused on margin for disney. for netflix, people are focused on subscriber growth, thinking this aggressive investment will pay off. be five years before you see serious returns on that investment. carol: shares of netflix down 2.9% as we speak. still with us, jay bryson and paul richards. how do you look at something like a netflix in the report we

got and what does it tell you about the broader faang group? jay: in general, you will see people spend more and more on those products as you move forward. we are a service economy. we will be spending more and more on those services as we go forward. what the earnings mean, it is difficult to say. carol: your thoughts? paul: i'm not a stock analyst. somethingdoes tell us -- paul: the nasdaq is up 7% year-to-date. s that doesn't disappoint is fine for these q4 earnings. you have a report that doesn't quite hit it out of the park but it isn't bad, either.

it is still a well-liked stock. david: is there a bellwether in the faang? jay: not really. i'm not looking at one individual stock. i'm looking at the whole group and what it tells us about consumer spending. andd: thank you, jay bryson paul richards. it is now week 4 of the u.s. government shutdown. president trump and nancy pelosi engaging in a bitter tat for tat -- bitter tit for tat. this is bloomberg. ♪

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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. >> this is "bloomberg daybreak." let's get you caught up on your markets picture today. s&p 500 futures near their highs of the session, up .5%.

nasdaq futures also up .4%. netflix about 1.4% of that that stock isng down, the industry group is up. you keep prime minister may holding cross party talks aimed at a compromise on her brexit deal. may.k. prime minister holding cross party talks aimed at a compromise on her brexit deal. crude, some support, $52.57 a barrel as we speak. we have the first word news. >> in the u.k., prime minister theresa may's attempt to break the brexit deadlock has

faltered. she has given up her redline. she won't agree to jeremy corbyn's demands, she ruled out the possibility of a no deal brexit. aide for kim jong-un meeting with president trump. a second the stage for meeting between the two leaders. pyongyang wants some economic sanctions lifted in return for any concessions on nuclear weapons. the partial u.s. government shutdown is seen as prompting only minor damage to the economy. the closurealf say boosts the possibility of recession. if it lasts until march, economic growth will fall below 2% this quarter. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries.

this is bloomberg. david: the partial government shutdown is now entering its 28th day with many people saying we should prepare for it to continue into february at least. at what point does it start to affect the economy overall? >> the economic impact of a government shutdown isn't felt here. it is felt exponentially. concern.ould be a real it doesn't dent the economy that much but certainly increases volatility. >> this has a direct impact on consumer spending because a bunch of people aren't getting their paychecks. >> so far, impact is minimal. if the shutdown lasted three months, it could be a different result. >> it could cause a recession. we could call it a technical recession. david: still with us, jay bryson

and paul richards. we've given you a smorgasbord of possibilities. how do you see it as an economist? jay: we don't have a lot of data. the thing i worry about, it is nonlinear. at this point, you say you are a government contractor, you are not getting paid, have you lay people off at this point? probably not. if this goes until february or march, it hits those companies and they start laying people off and it starts to snowball. this thing could start to grind to a halt pretty quickly. carol: do you agree? think, the way i look at it from a markets perspective, the shutdown is two weeks old. perspective, it

really kicked off on the second of january. now, you have this deadline next friday of another paycheck that workers aren't going to get. next week, we will see a breakthrough. i don't think this thing is going into february at all. the fight is on. if you can marriott with some it with some progress on china -- david: it's always going to work out fine. let's talk about where the economy is overall. this is a chart we have showing what gdp numbers are showing. before the government shutdown, we were going to slow down the rate of growth but it would still be decent growth this year. as this trickles down for this quarter, it could have a real effect.

thing falls and is done next week, that will be over real quickly. those paychecks will start to flow again, people start to spend again and the economy will bounce back. carol: it's been fascinating to watch president trump come out with this letter to nancy pelosi, nancy pelosi's folks fight back. we want to see something get done. you talked about the mueller report. do we move from this to the mueller report? paul: i'm looking at the macro events. we have brexit, which will sort itself out. i think we get this government -- these two just need a timeout. one of the mizzen timeout in the white house and the other can't

timeoutne of them is in in the white house and the other can't fly. then you get china results. there's optimism there. the dayoptimistic about mueller releases the report. that will be bad for the markets. s&p needs to be careful around 2700. from a technical perspective, that's a retracing of the 50% of the q4 selloff. the uncertainty around mueller kicks in and the market goes we have to be careful here. jay: from an economic standpoint, mueller will be a big new thing for financial markets. from an economic standpoint, look back to 1999, president was impeached, it had zero effect. what ife have a story,

mueller proves trump collusion and no one cares? not going to pine on the markets. news, mostill be big will be following what's going on with the mueller report, but that's not going to stop folks from going out and spending. david: one thing the economy and markets care about, what the fed does. the fed is on hold. line being the u.s., the white line being the entire world, they have tightened substantially. now, they have bounced back some. does that indicate it might not be on hold as we think it is? jay: it depends on your definition of how long hold is.

the kansas city president gave a speech -- he was saying we should be on pause. our view is they are on pause through the summer. if the economy continues to perform reasonably well, you are looking for another tap on the brakes at that point. --l: my view has always been the problem with the fed, they have a communication issue. they have a new chair the markets are not getting used to. there's another conference coming up in january. they have a reason to pause because of the shutdown. i think march is off the table, may or june is on the table. they could go twice this year. two weeks ago, we were lauding incredible payroll numbers. thehe data stays strong,

market will wake up to the fact --t carol: may be a good time to bring in charlie evans. we caught up with the head of the chicago fed. >> with all of the uncertainty with other things going on, europe softening a bit, we are well-positioned to assess how the data are coming in, whether or not our business contacts see things proceeding differently than the national data. we can respond appropriately. we can be patient. carol: no surprise. paul: not really surprised. i still think the data is strong. the one issue you could have, the data the strong, then mueller comes out -- david: we have the same

inconsistency -- strong labor market but indications of weakening or slowing. happenthink slowing will in the manufacturing sector. people aren't getting paid, they aren't going out and spending. to really start to affect the u.s. economy in general, it needs to get into the service sector. you are seeing a big shock needed to slow things down. carol: jay bryson and paul richards, have a great weekend, guys. david: next weekend is davos. world leaders coming together with ceo's. we will be interviewing ceos and world leaders. tuesday, wednesday and thursday. we will be covering the open starting at 9:00 next

tuesday, wednesday and thursday. carol: we won't have president trump there. david: or theresa may. they have problems at home. carol: we will be watching that closely. coming up, a $17,000 golf experience. the most coveted golf clubs in the game. this is bloomberg. ♪

>> this is "bloomberg daybreak." hour, thein the next citigroup institutional finance group chairman. carol: this is "bloomberg daybreak."

>> ryanair has lowered its profit view for this year. the european discount airline won't rule out a further cut. they now expect winter airfares to vault 7 percent -- fall 7%. guidance could be lowered if there are unexpected brexit or security developments. salesforce.com will add 5000 jobs in ireland -- 1500 jobs in ireland. they will build a salesforce tower there. tiffany coming up short during the holiday season, saying holiday sales missed expectations. chinese tourist scaled-back their purchases. fiscal 2018 earnings will be near the lower end of the price range. that would missed estimates. david: we will turn out to

pursuits, where we cover all things luxury. paying a premium to play with the most coveted golf clubs. $70,500 toork out -- $17,500 a day to play for three days. carol: you have the brownstone listing desh berkowitz his new york city brownstone -- you have the restaurant wine list. because list is dead customers prefer micro lists. atl me about this weekend bob's. who is bob? >> the founder of go daddy. he's worth about $2 billion right now.

he's not the first golf addicted billionaire to drop a small fortune on a golf course. luckrchased a down on its country club in scottsdale, arizona. by the time it is finished at the end of this year, he will have dropped $3 million to renovate this golf course. right now, it is the setting for his golf club. he's making his own equipment now. couldgolf clubs, you spend $850 on one of these drivers. he's using the course as a place for addicted golfers like himself to come and test out the clubs and spend a weekend. a set of clubs, cost $6,000. it's not that they hit the ball better. as well as the ball

you do with the clunky clubs, but they look like the pros. >> a writer who went, he's been writing about call for decades, he said one of the biggest differences, if you get measured and custom fitted while you are there, that makes a huge difference. david: which they better do for $17,500. david berkowitz has a brownstone on sale on the website. he paid $5 million for it. he's asking for $23 million. it's quite a house. it is a big brownstone for new york standards. >> six floors, 10,000 square feet, five bedrooms, 20 closets. carol: i am in. he did do a renovation.

>> added a home theater, added a anm, a wine cellar and in elevator. david: i would like to know who his real estate agent was when he bought it. >>'s mother-in-law. -- his mother-in-law. this, hete story from found out who the buyer was, his competition -- carol: such an investor. >> made a philanthropic donation for an extra $1000. -- extra $100,000. carol: another story in pursuits talks about long wine lists -- now, they are narrowing it down to a micro list. >> whenever you go out with

in-laws or family, i'm the one it drops on. no more. diners, it isor less intimidating if you have a short wine list. the parameters are still being worked out. generally less than 200 wines. carol: if it's a smaller list, yay, but only if the names are good. >> it's much harder to do this. there is no room for error. it's like a greatest hits playlist. you don't have the labor, you don't have the storage costs. david: i personally would like it. i do drink some wine, i know a bit of wine, they give me that --k, i still have no idea

carol: give me some advice. are the restaurants doing this now? it really speaks to how we are eating today. less formal, more fancy casual. david: thank you for being here, james. coming up, elon musk's gets rid of 3000 jobs at tesla, saying the road ahead is very difficult. more on what i'm watching next, carol. carol: you can watch us online, click on our charts and graphics and interact with us directly. this is bloomberg. ♪

david: this is what i'm watching. tesla cutting 7% of its workforce.

the stock down 7% in the premarket. craig,ome from detroit, leading coverage of the u.s. auto institution. does this come as a surprise? i thought they were staffing up to make those model threes. >> that's why you are seeing a reaction this morning, the stock taking a big hit. we've heard elon musk trying to build this case that tesla is at a turning point where they are going to make money going forward, they are going to be able to make money and generate cash. he's been very confident on both of those points. the street was not along for the ride until the last quarterly results came out and surprised everybody. this is a dramatic shift away from that. he's talking about the road ahead being difficult.

we started the year with the company cutting prices to partially offset the tax credit in the u.s., dropping by half. this is a company that still is not in the clear after an insane 2018. carol: i've been following elon musk on twitter, he's been tweeting about thae tesla customer referral program, referring a friend to get a free supercharging system. what struck me is elon musk saying the road ahead is very difficult. they still need a mass-market car. the price isree, mass-market, but it's not done. all is said and >> the most affordable version $44,000, stillen

a far cry from what they've been promising since the beginning. about putting incentives aside and being a $35,000 car. this has been a concern from the analysts and investor community. the companyarter, was able to make money and have impressive margins. they've been telling much more expensive versions of this car, north of $50,000. once you move down that price curve, can you maintain profitability? that still hasny possibilities in terms of the amount of demand for these cheaper cars. can they sell those profitably? that is a question they still haven't answered. craig inr thanks to

our detroit bureau. i was just there with him. carol: what are people saying about tesla? it's: not so much tesla, what they are saying about electric vehicles. gm and ford saying it will cost a lot of money. carol: it is definitely lower in the market today. andasset management head cab investments cio and founder, coming up. take a look. it is winter. ♪ amazon prime video is now on xfinity x1.

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its all included with your amazon prime membership. that's how xfinity makes tv... simple. easy. awesome. david: clutching at trade

straws, markets move up on a single report that secretary mnuchin possibly recommending the u.s. back off on china tariffs. tit-for-tat, president trump away speaker pelosi's plane after speaker plus he tries to take away the president's state of the union speech. 800,000 federal workers go without pay. new flicks adding 9 million subscribers but falling short of revenue expectations -- netflix adding 9 million new subscribers but falling short on revenue expectations. that's the white house with some snow around it. the day is young. there's this back-and-forth between the speaker of the house and the president. carol: you do wonder what we will get ahead of the weekend. no one could have called what happened yesterday between the

president and nancy pelosi. david: the people stepping forward trying to fix it, a bipartisan group of rank-and-file members in the house. they are meeting with the president, they think they have a path forward. carol: there's thousands of government workers, contractors starting to feel the pain. the markets shrugging off a lot of news this morning. up about .4%.s at 1.14.ing pulling backve there. at $52.69 ade 1.2%, the about longest weekly rally in two months. david: time for the morning

brief. the u.s. releases industrial production numbers this morning. sometime this weekend, a senior meetto kim jong-un will with president trump and secretary of state pompeo, leading to a possible second summit between the two countries. we will get gdp growth from china, expected to be the weakest since 1992. carol: right now, let's get an update on what's making headlines outside of the world of business. musk warning the road ahead is very difficult for tesla. more than 3000 workers will lose their jobs, about 7% of the workforce. musk says preliminary results indicate fourth-quarter profit will be less than what the company booked in the fourth quarter. tesla needs to make lower-cost versions of its model three to appeal to the mass-market.

top aide to kim jong-un meets with president trump. this possibly setting the stage for a possible second summit between the two leaders. pyongyang wants some economic sanctions lifted in return for any concessions on nuclear weapons. president trump reportedly told his lawyer to lie to congress tower with at trump moscow. the president told him to say talks at the tower ended months before they actually did. no one involved is commenting. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. david: we keep hearing that the economy is still growing nicely, but markets seem to be on a hair trigger with the slightest news

moving it up or down. why is that? which signals should we be listening to? thomas dingenen and christopher zook. i will borrow from you, from your notes. you say the markets are paying attention to three things. tariffs, global growth and fed policy. which of those is leading the market right now? christopher: i think trade is the one that people are most focused on because that is the one that came out of left field that no one expected. the trade war does dissipate, if they are able to get to an agreement that is a win-win for both sides, that is something the market would enjoy and would put a risk on back in the market if that were to occur. carol: trade, global growth, the fed -- you are optimistic about

the outlook because there's so much uncertainty in the market. thomas: i've seen such short-termism in the market. we've had extreme multiple .ontraction carol: we have broken the 50 day average. in terms of technicals, what are you watching? is there something significant out there? we did break through the 50 day. thomas: i hope this isn't the worst answer you've ever had -- i don't pay attention to technicals at all.

we are a cash buyer in the business, compare that to what the markets are pricing to that. the technicals are more short-term, trying to estimate where prices are going to go. you stay grounded in fundamentals, you will be better served. david: talk about small caps for a second. for quite a while, the dollar went up, small caps went up. has departed now. if trade is that big an issue, shouldn't the small caps be doing better than they are? christopher: i think the small caps are linked to the dollar like you articulated. they are more focused on the economy. it is there that fed policy has more of an impact. small caps are beginning to trail he bit because they are harder to get in and out of,

they are more sensitive to the economy, they have less of that global presence. what happens in the u.s. will drive those small-cap valuations. think markets are very expensive right now. i agree with him that valuations have come down. it's based on forward earnings. if forward earnings hit expectation, valuations are pretty good. if valuations are indeed anticipating a slowdown in the economy and earnings come down, valuations are pretty expensive. we have to be really careful here. the markets will be challenged to go significantly north of resolution we get a on the trade side that everybody ow or if the federal reserve decides to take a true pause and starts to add liquidity to the system by

creating a softer landing for the quantitative tightening that is now going on. these are tough waters. i want to make sure people are careful with how much risk they have in their portfolio. carol: we are not seeing the growth we had seen over the last couple of years. the valuations corrected to point that it more clearly reflects the earnings here? thomas: you've seen a 30% contraction in multiples, trading at 14 times or what earnings. -- 14 times forward earnings. the market pulled back because of the impending recession that never occurred in 2016. there's a chance for that right now. you look at economic indicators, it's more likely than not we do not enter a recession. the market is pricing in that it's more likely than not that

we do. there's more fear embedded in the market than greed. david: put a chart that shows the atlanta fed gdp now chart. people are expecting this will come down some. still at a nice, healthy pace. is that what you are projecting? could the government shutdown affect that? thomas: it can, i think it already has affected that. to the extent this gets prolonged, you have pressures on the underlying gdp. even modest gdp growth supports current valuations. carol: we will continue this conversation and dig more deeply into earnings. thomas digenan of ubs and christopher zook of caz investments will stick around. big tech on deck.

what to expect from the earnings season when we come back. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." tiffany is coming up during the holiday shopping season. chinese tourists scaling back their purchases and softening demand in local america's and europe -- the local americas and europe. cvs and walmart reached a multiyear agreement for walmart to take part in the cvs pharmacy network. earlier this week, cvs said

walmart was leaving its caremark network over a price dispute. firm estimating 1500 jobs will be eliminated, that's about 50% of the workforce. ceo ronald o hanley pushing to reduce expenses. carol: thank you so much. the big banks have spoken, wrapping up earnings week with positive results. still with us, thomas digenan and christopher zook. investors results -- reacted positively to what they got. how do you see the bank financial picture? christopher: i think you articulated it well. it was a fairly positive quarter.

what you saw was what you will see in many sectors, there were serious winners and losers. morgan stanley missed. you have goldman pretty strong. it will be a mixed bag. this will become a stock pickers market as opposed to all ships rising. david: banks took a hammering last year overall. they have come back since. what is accounting for that? thomas: i think the hammering was pretty extreme. they still have a long ways to go. the fed calming down helps the banks. you see some, idiosyncratic behavior in the marketplace. some banks are being rewarded and some penalized. we expect to see in a dire economic environment, and that's not where we are.

there is opportunity across the market to differentiate. david: what about that? you expect this in a dire situation. i will put up a chart that shows the profitability of these banks. it is pretty extraordinary. they are making record profits across the board. how do we square those two things? the markets don't think the future is to write? -- is too bright? christopher: banks are minting money. they have everything going their way, they are healthier than they've ever been, but at the same time, valuations are not at the highest they've ever been. the markets are trying to figure out if the economy is going to weaken enough to where it's going to negatively impact those banks. the possibility of an inverted yield curve is scaring people. there is a lot of uncertainty.

that creates an opportunity for traders and stock pickers to shine. the overall health of these banks is better than it's ever been. carol: the six biggest u.s. banks have never had a $100 billion year until now. christopher, would you be buying the big banks at this point? christopher: we like the big banks on weakness. they have all rallied significantly with this bounce in the market. in the regional banks, there are better values where you have the opportunity to get the same kind of earnings growth, the same kind of balance sheet strength while paying a lower evaluation. focus more on the regionals. david: where are the biggest opportunities? thomas: i think the regionals have sold off more than the larger banks. the diversified financials are still attractive.

to the extent you get exposure here, you don't want to try to time it or focus on the short-term. that, extent you overplay you miss the real opportunity. the diversified financials are more attractive. there are some regionals where you can be selective. carol: we are looking forward to see how the faangs overall report. netflix down. we have a graph looking at the prophet slow down in coming quarters. things are being reined in. what does it mean for investment opportunities? thomas: you can see from the netflix reaction, the most important thing is the guidance. people are cautious about what we have going forward.

you will see more conservative guidance. we will see how that gets priced into the market through earnings season. david: apart from financials and tech, what sectors do you like? energy has a lot of opportunity from here. we saw 7000 barrels a day come out of the production line from opec. the valuation of most of those energy companies is basically assuming a $35 crude oil price as opposed to the $52 we have right now. there's good valuations there. we like the valuation discrepancy between international stocks and the u.s.. we see lots of opportunities to be avoiding the mainstream large-cap u.s. and brought an out a bit -- broaden out a bit. carol: energy is your best

performing group in the s&p 500, up 9% overall. you see opportunity there as well? thomas: there's tremendous opportunities. the market is pricing in lower oil prices. opec is behaving rationally. you don't see the pullback in demand to the extent that people anticipated. the biggest opportunities are in the oil services. the market is treating these companies as though we are going to $30 oil. thomas digenan of ubs asset management and christopher investments sticking with us. underwhelmsetflix . we will tell you why, next in today's bottom line. this is blumberg. -- this is bloomberg. ♪

david: time for the bottom line. tesla came out early in the morning and said they would be cutting their staff by 7%. the stock down 6.3%. they are saving money. they have concerns over whether they can go back into the capital markets. carol: that was one of the big worries in 2018, whether they could do that. what's interesting, we talked about this earlier, do these guys have to become a mass-market teller to be longer-term successful? no doubt about it. they have pushed the needle, pushing everyone else to hurry up in terms of electric vehicles.

there's a lot more competition in this market, a lot more collaboration among automated factors. -- auto manufacturers. cvs higher this resolving a dispute with walmart which will allow walmart stores to continue participating in the cvs health pharmacy networks to provide drugs to patients through managed medicaid programs. earlier this week, cvs said walmart would leave that program. this is about these collaborations. if walmart doesn't go to cvs, they will go somewhere else, that means less business for cvs. david: the third company we are watching today, netflix. we have the suntrust director and senior analyst who has a buy rating on netflix.

great to have you here. $402 is a relatively new target. >> that is correct. we increased our price target this morning based on the higher numbers coming out on the quarter. david: they got more subscribers, they didn't do quite as well on the revenue side. >> there's a couple of things that play here. on the subscriber side, they that's well ahead revenue and profit are in line. it's being held back by currency, reported revenue was 27% growth for the quarter. ex currency, closer to 33%. currency is holding revenue and profit in check here. they announced a fairly significant price increase in the u.s. when you flow through that price increase on the demented business and the higher subscriber additions in the

international business, this takes our numbers up by 2% in 2019, 5% in 2020. carol: how do you make sense of that? we canek, netflix says raise prices, we have pricing elasticity, and then they come out with his earnings report that is somewhat disappointing. does their ability to raise prices show that there is elasticity in terms of subscribers? four was that to make up because they knew they are spending a lot and they have to make it up somewhere? >> the question will be due the price hikes stick -- do the price hikes stick and are therefore revenue creative? they were able to raise prices but still grow their subscriber

counts. increases are going into effect as we speak in the first quarter. we will start to see that flow-through to domestic and the next couple of quarters -- in the next couple of quarters. their view is to continue to rise -- raise prices every couple of years. we will continue to see that play out this year. david: that's matthew thorton of suntrust. shutdown day 28. who will move first? this is bloomberg. ♪

♪ is bloomberg daybreak. i'm carol massar. let's look at the markets wrapping up the week with a bullish tone.

s&p 500. 1%. is up for tens of -- this is a .4%. we are on track for the fourth weekly gain. nasdaq futures of 1% in european stocks, up 1.4%, watching any news in terms of brexit negotiations, kind of ongoing. ftse 100 up 1.6%. look at the british pound, on the move a little bit, 1.29. the spread, kind of lessening a little bit. and crude has been on an upward trend, 1.25%. david: ok, let's see what is making headlines. trump reportedly

told his lawyer michael cohan the light of congress about talks to build a trump tower in moscow. mueller thatbert the president told him that talks over the tower ended before they actually did. treasury secretary steven mnuchin reportedly wants to roll back tariffs on chinese products to calm financial markets. u.s. trade representative light hauser has reservations about this. the partial u.s. government shutdown says it is only causing minor damage to the economy. say if the closure lasts through march, economic growth will fall below 2% this quarter. global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries.

this is bloomberg. david: they 28 of the partial government -- day 28 of the partial government shutdown and the main discussion was nancy pelosi and her trip to afghanistan. the president sent her a letter saying in part, in light of the 800,000 workers not receiving pay, you would agree that postponing this event is totally appropriate? if you would like to make your journey by flying commercial, that would be your prerogative. nancy pelosi's spokesperson replied that the mission was to thank our men and women and get information from those on the front line. greg is the chief global strategist. good to have you. ist i want to to tell me

there is some serious negotiation other than if we are going to have a state of the union address or nancy pelosi will be taking a military aircraft to afghanistan? i hope they are talking about something else. [laughter] greg: this is increasingly childish and petty. there is no chance of a breakthrough for the martin luther king holiday, so this could stretch into late january, and everything just continues, it weakens first-quarter gdp. david: is the president positioning himself so that he does not feel so much pressure? himself so heing can keep going? greg: he may be, but at the same be thinkinggot to about using executive authority on a wider scope, going to the army corps of engineers, and saying sorry, we're going to

take several billion of your budget and use that money for a border, border wall, whatever you want to call it. i think you have to use executive authority because this will not end sin. carol: can he do that, greg? and when does congress pushed back? greg: there will be litigation. that is the sport in washington, everybody sues on everything, and there will be a suit if he tries to do that, but it could take months for a suit to be resolved, and in the meantime, this could be the exit ramp for him to get out of a shutdown. david: at what point do the republicans say, we will sort this out? if they came up with a compromise proposal, it would be hard for nancy pelosi to really reject it and they could overcome a veto from the president. greg: well, you are talking logic, and logic doesn't apply here. i think mitch mcconnell will be pain in seclusion -- mcconnell

will remain in seclusion. for thet forget republicans, the most important number is 85. 85% of all republicans around the country support trump. carol: i have been thinking about this in terms of -- until there is a political liability for the republicans or democrats, unless they start to see where americans are saying enough is enough, this will continue until we get to that point, or god for bid, there is some disaster. greg: i think you are right, carol. it will take an event or the realization that the economy slipping toward 0% growth. we are about to have a really cold wave in the east and that will weaken the first quarter already. the prospect of growth is low and it may become a catalyst. again, we are not there yet. david: have we already done a fair amount of damage in terms of gdp growth for this quarter?

greg: yes, you could probably make some of it back in the second quarter. the only good news is a continued low interest rate, and the fed will stay on the sidelines for several months to come. david: as the watch this thing unfolds, what should we be watching for long-term? greg: i think you will have to other members of congress, people like a rob portman, not lindsey graham, i think he needs to calm down. i think portman, a moderate republican and maybe a susan up with aed to come new idea, but those no ideas have been exhausted, looks like you cannot get a do with the dreamers, or a deal by coming down from the $5.7 billion trump wants. i think we are looking at several more weeks of this. david: i don't think you gave me the assurance i was asking for,

but always great to have you. [laughter] greg: my pleasure. [laughter] david: thank you so much for being here. carol: i love his insight. the question is, at what point does it start to affect the economy? listen up, everybody. >> the economic impact of the government shutdown is not linear. it goes exponentially. >> we will be flying airplanes with no instruments. that could be a real concern. volatility.ease >> this has a direct impact on consumer spending because a whole bunch of people are not getting their paychecks. >> so far, impact is minimal. if the shutdown lasted three months or something like that, it could be a very different result. >> if it continues, it could cost a recession. -- it could cause a recession. , when doristopher zook

we get worried here? when do you start to say, this will impact economic growth, and that means it impacts companies and investors? christopher: it is a slow-moving snowball. proceeding 120 days, what will affect things more is the psychology as opposed to lack of spending for those who had been furloughed. i think you the psychology of a dysfunctional government not being able to sit in a room and conversation adult -- and have an adult conversation. that is when it could become a problem. -- there not there yes yet. david: tom, go to the psychology issue.

like thether things debt ceiling coming up. there are things we need to get done in the government. the parties are getting further and further apart and not coming together on almost anything at this point. they cannot even agree if they are going to have a state of the union address on the 29th. tom: neither side wants to talk to the other. far is howoncerns as long this goes, the economic impact is fairly modest, but that is in the aggregate. but for the people not getting checks, this is really dramatic. you still have people showing up for work who will eventually, there was going to be more sick days, more vacation days. these people may need the time -- these people may need to drive for uber. carol: some of the lower-level positions, that is the folks are doing because they need to have

money coming in for their families. this is something we talked with her earlier guest, if the shutdown stops, do we move onto a focus of the mueller investigation? and then, does that create a whole new set of worries? tom, your comments on that. tom: i have no comment on the mueller investigation. [laughter] tom: this political environment is so unpredictable. the reality is, this is a great thing about capitalism. there are many mechanisms within the system. eventually, we will have some resolution here. there are things the president can do unilaterally that he has not done yet i. -- that he has not done yes. -- that he has not done yet. up, asjust to wrap this long as the fed goes on hold,

certainly it is not continuing on autopilot with respect to the balance sheet and rates, does it matter whether we get the government open or not? i think the government shutdown matters, but it is more important about the fed and trade. those two things will drive markets significantly more than what is happening in d.c. right now. carol: general income have a great weekend. -- gentlemen, have a great weekend. next, a chairman's thoughts on the ipo landscape and institutional sentiment. you are watching bloomberg. ♪

♪

>> coming up, the balance of power. of new york department financial services superintendent. "bloomberg is daybreak. ryanair has lowered their cost and will not rule out a further cut. they expect winter airfares to fall 7%, three times more than previously forecast. the ceo says guidance could be lowered if there are unexpected brexit or security developments. salesforce.com will add as many as 1500 jobs in ireland. the software maker laying out its planned and dublin where it will build a salesforce tower. the company already employs 1000 people in ireland. premium chocolate maker godiva has come up with a short list of

bidders invited to make final offers for asia the civic assets. that two has learned companies are making the cut and godiva chocolate could bring $1.5 billion. how sweet it is. david? carol: we have heard a lot -- david: we have heard what private investors an insane waiting for valuations to come down. although they have bounced back in the new year. for a better sense of private equity, welcome leon kalvaria. welcome to both of you. leon, where his private equity? abigail: -- leon: private equity is the most significant force in terms of m&a and what i would call asset transition. they are in the business of moving assets. you can look at a few different

factors. number one, the latter part of last year had extreme market volatility's as the oh no. year havee issues -- extreme market volatilities, as we all know. the other was the leveraged financial markets that has become stable. it is only been two weeks into the year right now, the leverage financing market has come roaring back, which is interesting, and the equity markets have come back somewhat. i think private equity will remain a force. financing is in reasonable shape, and i think you will see more deployment. carol: we are seeing a lot of hung deals out there. how much of these private equity firms are going to non-banks to finance these deals? leon: i think there are less hung deals than people think. i think they will get themselves resolved here relatively soon.

obviously, you have seen the non-bank entrance in the market. they will take some relative market share on transactions that make sense with them, perhaps in the middle market, but it is fair to say when you look at large transactions and large being above $5 billion, the traditional big banks will make transactions where they make sense. there has been a long holding and went through tough times. does it indicate where we are in the private equity market? leon: i think kkr has been a great asset and it exemplifies good aspects of private equity, which is being able to hang in there, make all the changes, and realizealue -- and

value. but i think that is not necessarily indicative. it will be interesting to see how many things go out on ipo's. that way, when we see more m&a coming out of it. but the chain -- with the change in the tax code, you will see more passive sales for cash. >> we are seeing a lot of non-traditional buyers in the market. in a market where valuations are really high, how much are firms competing with this alternative capital, and will be able to earn a return? firstly, we got to see what the definition of a skyhigh value is. interest rates have come down, so one could argue they are not necessarily skyhigh values. will the fed the more accommodative? i think the reality is with

private equity firms, they are still leaders of transactions. private offices are important. they tend to not lead transactions, but the bigger the equity checks, the less leverage one wants to put on a company in order to grow it. ratene last note, and this environment, you have so-called core funds that are similar to private family offices. they may be willing to skip lower terms -- they may be willing to accept lower terms of a long period of time. david: we had someone from mackenzie yesterday saying they were seeing more and more that al trade and is pattern for private equity? do you see fewer m&a deals across borders, and more internal? leon: good point. firstly, cross-border transactions have gone down somewhat.

they have gone down for different reasons. what will be regulators in various countries where the ftc issues that people look at? private equity firms have globalized themselves, so they will have a big presence in australia, hong kong, europe, india, and they look at in-country transactions. where are we finding the most opportunity? a lot of folks are talking whether there is value in europe or more opportunities. when you look -- where do you look for opportunities to invest? leon: the u.s. is still 60% plus of the m&a market. valuing from that standpoint. if you look at private equity and strategic transactions, leaving aside comments on

brexit, where i don't want to go to. david: i thought you would give us the answer. [laughter] leon: i still don't understand. [laughter] carol: there is a lot of m&a going on in europe right now. leon: i think that will continue. >> how are people handling the china story? there is a lot of tension and dampening of that outlook. what can we expect looking forward? leon: first things first, some hopes there will be some resolution to the trade dispute over the next few months. in the issue will become, what is the chinese consumer doing -- then the issue will become, what is the chinese consumer doing? we have chinese new year coming up. several the an interesting short-term barometer of demand right now, but it is fair to say if you go back three or four years ago or there was a lot of

outbound m&a coming out of china, that is obviously completely new to this point until people decide whether there is a from a cross-border environment. carol: but the china thing is interesting. alibaba is cutting travel plans. when they start to cut back, you get nervous. leon: alibaba is a significant factor at the consumer in china right now. carol: thank you so much. then todd berry a -- leon kalvaria, thank you. coming up, we are seeing headcount changes at a number of companies making headlines around the globe. others are laying off and others are hiring. that is what i am watching on this friday. this is bloomberg. ♪ loomberg. ♪

♪ carol: here is what i am watching, a mixed bag in the job market, a flurry of stories

talking about reductions with an interesting -- reductions, which is interesting talking about the strong labor force in the u.s. foxconn, which plays into the apple story and reductions in the iphone, and talking about nervous about the outlook. about 1500t talking and labor force reduction, spacex as well, but i like to find optimism. salesforce is planning to add 1500 jobs in ireland. each company is specific and if they are doing well, they will be hiring, and if not, they will cut back. david: when there is volatility in the marketplace, there is volatility in the job market as well. people make adjustments as the market changes on them. carol: and we will see if this

ultimately shows up in the job'' numbers. we had a really strong jobs report last month. we will see if we served as he a different picture. david: last month was going gangbusters. next week, bloomberg television and radio will be and all post, switzerland with all of the leaders, except for the president of the united states, will be. we will have a special edition of "daybreak." the open will be an davos next week -- in davos next week. this is bloomberg. ♪

jonathan: from new york city, i'm jonathan ferro. the countdown to "the open" starts right now. ♪

jonathan: the treasury department giving a report that officials are ready to roll back tariffs on china and tesla is cutting their work through by 7%, and netflix sales disappointing, trailing the one-month rally despite subscriber growth. good morning. futures positive a half of 1%. treasury yields higher at 2.76, and a dollar a touch weaker. investors worldwide in the last 24 hours confused by the trade story. >> the conversation of the trade war. >> this issue will not go away. >> living under the shadow of tariffs. >> the market will be sensitive to trade. >> a lot of different an opinion to what could happen.

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